Robo advisor is known as an automated platform that helps customer manage portfolio and trading activities without little or no human advisor support. However, there are many different robo advisors that come with all the bells and whistle in the market; thus, it is important to find out the one that best suits your trading preferences and goals.
A robo advisor test is based on various factors: the service provided, management fee, platform, websites, regulations, etc. This article will help you clarify 10 factors that differentiate a good robo advisor with each other.
When you evaluate the suitable Robo advisor for you, you need to clarify the type of financial advice and services you necessitate. The different robo advisors offer different solutions to manage your account.
When you look into the services of a robo advisor, you need to initially look at portfolio management and asset allocations as they are all the crucial services delivered by a robo advisor. They work under the sphere of some sort of algorithm operation. Besides, the popular assets you can discern in almost all robo advisors are exchange-traded funds (ETFs), so if you don’t see the ETFs conveyance in your Robo advisor, then you will need to take stock of your choice.
Other typical services that multiple robo advisors provide is tax-loss harvesting services, which is designed for portfolios that are not under any tax-advantaged regulations.
When evaluating the services offered by a Robo advisor, you also need to check their association with large financial service firms. These companies have an adequate asset to invest in the services and incite the enhancement of those services.
Different robo advisors offer different fee structures, and that’s why you need to look at some typical fee structures.
The management fee is one type of those typical fees. It’s set as a percentage of your invested assets. For instance, the 0.25% management fee of your $10,000 balance equals to $25 management fee.
The management fees frequently range from 0 to 1%. However, most popular management fees stagger between 0.25% and 0.5%.
Aside from management fee, the advisory fee is also noteworthy. Robo advisors usually set an advisory fee as a percentage of the investor’s asset account. The advisory fee comes under the sphere of required expense fee for operating a fund, which you have to pay regardless of where you invest. Some robo advisors may use this advisory fee to pay for any transaction fees or maintenance fee on your account. The popular advisory fees range from 0.15% to 0.89%.
However, some robo advisors, in addition to advisor fee, charge fees for transactions operation, maintenance service or additional services.
When researching about the account types a robo advisor offers, you need to evaluate 2 factors:
Most robo advisors offer the following types of accounts: 401(k)s, IRAs and taxable accounts. If you are offered 401(k)s that provides matching dollar, you should go with that account as it assures you to get the return on your investment.
With IRAs, most robo advisors offer 2 types of accounts: Traditional and Roth IRAs. A traditional IRA enables you to direct pretax income toward investments which can grow tax-deferred. Meanwhile, a Roth IRA allows you to invest money after taxes.
Taxable account should be used when you look for longer-term saving purpose.
Robo advisors apply account minimums staggering between $0 and $100,000. If you are a fresh investor, you may seek a robo advisor with no account minimum. In fact, a robo advisor that provides great quality of personalized service requires the high minimum initial investment.
Robo advisors offer apps and websites that help the customer manage their trading activities conveniently. Customers just need to provide their personal details, trading targets, risk tolerance, and tax information, then the robo advisor will manage the portfolio based on those data. The platform of a Robo advisor normally needs to satisfy some of the following standards:
The robo advisor platform can allow you to take action with your orders anytime, containing: trading, editing trade orders, cancelling the order, checking deposits and withdrawals, or changing your profile settings such as the income, specific targets, risk tolerance, tax status information, etc.
Secondly, the platform gives you informative data about your investment in one place, which includes: account balances, investment returns, investment recommendations, graphs of your investment performance, risk tolerance, up-to-date asset allocation information, reviewing investing targets, deposit alerting….
Thirdly, the ideal platform should operate on both the IOS and Android version.
Scheme of things, the ideal platform is one that provides you with the most complete and profound picture of your trading portfolio.
A well-arranged and informative website speaks of the high quality of a robo advisor.
The website with the colourful and attractive design is a plus when you evaluate the website. Especially, if you are an aesthetic person, then the website design will get you at first sight.
When you check the website, you should check how important information such as the investment plan, services offered, mission and strategies of the websites is showcased in the layout. If the information was arranged logically and located in catchy spots, then this website is quite informative.
Another thing you should view is the location and the content of the menu bar. The menu bar often lies in the top of the website and shows all the important sections of a robo advisor. If you can easily find the menu bar and see all the important topics inside it, the website is good enough to use.
The regulations information, legal term, company description and contact information are often set in the bottom of the website. The good website will show all the information fully and precisely.
The customer-oriented robo advisor will set the customer service as it’s priority, which means that you can receive down-the-line support whenever you approach this service. Apparently, best customer service will available 24/7 and satisfy all your requests in the fastest fashion. Several popular channels that the good customer service often provides are mobile phone line, social network, email address, postal address, the location of the company.
There are 3 main subjects that you need to evaluate when researching the methods of payment: available methods for deposits/withdrawals, time of deposits/withdrawals, and minimum deposit/withdrawal.
Robo advisors provide various offerings or bonus programs to attract the customer. Those forms can be listed as signup bonuses, deposit bonuses, free management, or educational programs.
Hence, you need to look up the information on the website or ask the customer service to find all the bonuses and promotion programs provided by a robo advisor. By grasping all the information about those benefits, you can exploit 100% the resources of a robo advisor.
Security is an inevitable issue that the investor pays attention to when choosing a robo advisor. Most robo advisors are the member of SIPC and FINRA. These names are those notorious names that you can entirely put your trust on. SIPC/FINRA operates to give an assurance for your asset investment. It can help you to protect up to $500,000 of missing assets. Thus, you should check whether the robo advisor you select operates under the scheme of SIPC/FINRA or not. If the answer is yes, you can confidently invest your money via these robo advisors without worrying about the money losses.
Besides, you should also inspect the data privacy and protection that a robo advisor manages. For those inspections, you can look up to the website of a robo advisor. If it has the statement or commitment in applying multiple solutions and electronic shield to keep the confidentiality of your data, you can feel safe.
You may also find out whether a robo advisor serves the children under certain ages or not. This can prove the validity and strict responsibility of that robo advisor.
Winning awards and certificates are the clearest proof of high-quality robo advisors. However, you need to know how to look at awards correctly. Below are several things that you need to consider:
It is important to know when those winning awards are handed to a robo advisor. If a robo advisor wins awards in recent year, it means that this robo advisor attains successfully today-age standards and criteria.
Besides, the robo advisor reviews must come from prestigious websites such as StockBrokers.com or Nerdwallet.com. You should also look up to the customer comments about the website. Nothing is more reliable than the real experience and reviews from the traders who used those websites.
According to U.S. News, the robo advisor market is speculated to attain between $2.2 trillion to $3.7 trillion in assets under management in 2020 and $16 trillion by 2025. The robo advisor market is in its full swing as the benefits it provides for the customer is undeniably significant.
Robo advisor scheme produces an automated procedure for your investment based on your goals, so they can apparently help you avoid all distracting and emotional headlines, market signals, friend’s comments, or personal feeling.
Otherwise, a robo advisor not only provides a computer algorithm to do automatic trading or financial advising but also has a team of experts and specialists at the financial institution to support to manage your account.
The one typical function of a robo advisor is balancing your account. Sometimes, the holdings inside your accounts can get off-track and be not integrated with your goals or risk tolerance. In the case, a robo advisor can do a good job to automatically re-balance your investments, re-aligned your target allocation and maximize investment return.
Another benefit of a robo advisor is its cost. The cost of a robo advisor is cheaper than the human financial advisor. In reality, some robo advisors even give investment management for free and only charge users investment fees. Meanwhile, some other robo advisors apply the cost from 0.15% to 0.89% of assets under management of their platforms.
Robo advisor is one of the best leaders for you in trading activities as long as you know how to use it effectively. To do so, you have to choose the right one for you.
Firstly, according to robo advisor review, a robo advisor needs to provide adequate features of portfolio management and asset allocations. The following criteria are the fee of a robo advisor. Some robo advisors provide low management fee, but they contain many other fees, while some provide high management fee, but this fee will cover all other costs such as maintenance cost or transaction cost. Hence, you need to evaluate carefully the overall cost when choosing an affordable robo advisor.
The accounts type provided by robo advisor should be also in your checklist. You need to check whether a robo advisor offers various account types or not. Other factors such as customer services and website usability are also good parameters to evaluate a robo advisor. In short, a robo advisor can affect all your trading strategies and targets so choosing the right one for you can assure you 50% of your success.
If you have no experience in comparing robo advisors, you can use Asktraders’ robo advisor comparison and reviews. Our services are free, so take advantage of it and choose for yourself a good robo advisor now!