This post is was originally published on Investor Junkie

Thanks to the rise of robo advisors, investing for the future is now more accessible than ever. You don’t have to spend a lot of time or money hiring a financial advisor to create a complicated asset allocation to receive the best returns possible. Robo advisors now have the technology and computer software to do this for you — all at a lower annual fee.

Which robo advisor service offers the best bang for your buck?

Cost Comparison

Here’s a side-by-side comparison case study that showcases the real annual costs of the most popular robo advisor services. For this article, I chose these six robo advisors:

Click on the respective link to read our review.

I chose these firms because of their popularity, the amount of assets under management (AUM), and their automated, hands-off approach to asset allocation and investing.

We don’t know the future returns of the asset allocation models each robo advisor provides, but we do know how much each service will cost per year.

The goal of this article is to report on one thing: the measurable annual costs of each investment provider.

Criteria for Annual Costs

For this comparison study, I’m using a 60/40 stock/bonds mix, since for the most part, it’s considered the “gold standard” in asset allocation.

At least it’s a good starting point for doing an apples-to-apples comparison among the various robo advisors.

While things like tax efficiency are important, this adds too many variables for the purpose of this comparison. In addition, many individuals are opening tax-deferred accounts with these firms, so services like tax-loss harvesting will not matter with these types of accounts.

For the analysis I created sample investment amounts at $5,000, $35,000, $125,000 and $500,000. I did this to represent various pricing points of the robo advisors, but also to show fees and annual costs at different deposit amounts.

Why these benchmark amounts? These are the most common real-life price points that have popped up during my research and marked the point at which robo advisors changed their annual fees.

This article does not look at which service has the better asset allocation (there are too many variables for this comparison to answer that question) but to reveal the real costs of using each service. Not only does my research reveal the robo advisor fees, but fee efficiency in the selection of the ETFs used to generate the asset allocation.

In the tables below, the Total Annual Fee figure includes the robo advisor fees and ETF fees combined.

$5,000 Deposit

Betterment Charles Schwab Fidelity Vanguard Wealthfront WiseBanyan
Robo Advisor Expense Ratio 0.25% 0.00% 0.38% N/A 0.00% 0.00%
Average ETF Expense Ratio 0.15% 0.23% Included N/A 0.14% 0.14%
Robo Advisor Annual Fee $12.50 $0.00 $19.20 N/A $0.00 $0.00
Total Annual Fee $19.97 $11.25 $19.20 N/A $7.19 $5.20

WINNER – WiseBanyan

$35,000 Deposit

Betterment Charles Schwab Fidelity Vanguard Wealthfront WiseBanyan
Robo Advisor Expense Ratio 0.25% 0.00% 0.38% N/A 0.25% 0.00%
Average ETF Expense Ratio 0.15% 0.23% Included N/A 0.14% 0.14%
Robo Advisor Annual Fee $87.59 $0.00 $133.32 N/A $50.00 $0.00
Total Annual Fee $140.51 $78.72 $133.32 N/A $100.30 $36.39

WINNER – WiseBanyan

$125,000 Deposit

Betterment Charles Schwab Fidelity Vanguard Wealthfront WiseBanyan
Robo Advisor Expense Ratio 0.25% 0.00% 0.38% 0.30% 0.25% 0.00%
Average ETF Expense Ratio 0.15% 0.23% Included 0.09% 0.14% 0.14%
Robo Advisor Annual Fee $312.81 $0.00 $475.80 $375.00 $275.00 $0.00
Total Annual Fee $501.81 $281.13 $457.80 $492.50 $454.63 $129.95

WINNER – WiseBanyan

$500,000 Deposit

Betterment Charles Schwab Fidelity Vanguard Wealthfront WiseBanyan
Robo Advisor Expense Ratio 0.25% 0.00% 0.38% 0.30% 0.25% 0.00%
Average ETF Expense Ratio 0.15% 0.23% Included 0.09% 0.13% 0.14%
Robo Advisor Annual Fee $1,251.35 $0.00 $1,903.32 $1,500.00 $1,212.50 $0.00
Total Annual Fee $2,007.25 $1,124.50 $1,903.32 $1,970.00 $1,886.00 $519.80

WINNER – WiseBanyan

Charles Schwab’s Cash Allocation

As stated in our review of Charles Schwab, anywhere from 6% to 30% of your portfolio is in cash. You cannot adjust this allocation. It’s hard-coded into your portfolio model and a requirement for using Schwab’s service. The cash allocation is also part of Schwab’s revenue model.

It should be said it can be a significant drag on long-term returns.

As an example, for the $500,000 with the minimum of 6% allocated to cash, that’s $30,000 of your portfolio. If you took the current risk-free return of, say, 2% per year, that’s $600 lost in possible returns for just one year. If you add that amount to Charles Schwab’s annual expenses, they are no longer the cheapest at $1,724.50 — they are in the middle of the pack.

That’s the best-case situation. If you take other situations into account it’s possible your expenses are much higher.

If you took that cash and invested in a traditional 60/40 stock-to-bond ratio, Charles Schwab’s cash drag is even worse. If you figure a 7% annual return, that’s $2,100 lost in returns. Granted, this isn’t a guaranteed return, but it still shows the possible cash drag.

Keep in mind this is at their minimum 6% cash portfolio. Many of Charles Schwab’s portfolios are at much higher cash allocations. So the drag on returns, the loss of gains in the market, is even greater. Over a 10-year investing period, this drag can be dramatic.

Summary

Based upon not charging any fees for their service, it’s clear WiseBanyan is the cheapest robo advisor. We’ve reviewed WiseBanyan previously. Our main concern is the business viability since they do not charge any annual fees. The free service is very basic in functionality with asset allocation, but perhaps for some that is all they need.

Charles Schwab might appear to be a cheap robo advisor. However, this does not tell the whole story. You should also consider opportunity costs with their cash allocation as lost money.

Surprisingly, despite their low ETF fees, Vanguard didn’t come out the winner at any deposit amount. In fact, they turned out to be one of the most expensive of the six. While Vanguard does allow you to speak to an advisor, I’m not sure what value they add since they won’t give advice on funds outside of their service. Is Vanguard’s service worth five basis points more than the competition? That remains to be seen. Vanguard is also somewhat limited for the beginning investor since they require a minimum of $50,000 to invest.

With any of the robo advisors, understand the real annual fee you pay. Which provider has the better allocation for higher future returns? Who knows — that’s a crapshoot.

While you cannot control what the market will do, you can control taxes and fees. Make sure you are getting the best service available, at the lowest possible fee. That’s not to say you should automatically go with the lowest cost robo advisor, but the one that best meets your investing objectives.

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