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Review of Citi Personal Wealth Management

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Citi Personal Wealth Management is part of the larger Citigroup brand, which is well-known for its consumer banking operations. This particular wealth management division offers clients investment products and advisory services, including financial planning, through the Citigroup Global Markets Inc. (CGMI) unit.

That team employs more than 3,300 investment advisory and research workers spread across 640 offices around the country. Together, they oversee more than $32 billion billion in asset under management (AUM).

All information included in this profile is accurate as of May 19, 2020. For more information, please consult Citi Personal Wealth Management’s website.

Assets under management: $32,924,374,901
Minimum investment: Starts at $25,000 to invest with a financial advisor
Fee structure: Typically a percentage of AUM, with a maximum of 2% paid to Citi; fixed fees
Headquarters location: 388 Greenwich Street
New York, NY 10013
https://online.citi.com/JRS/pands/detail.do?ID=InvestWithPersonalAdvisor&JFP_TOKEN=AA45LHB5#
(212) 816-6000

Overview of Citi Personal Wealth Management

Citi Personal Wealth Management, as you may have presumed based on the name, is the wealth management arm of the Citi brand, which is known as one of the nation’s “big four” largest banks. Citigroup was created in 1998 when Citicorp and Travelers Group merged to form Citigroup. Yet the company’s roots date back to 1812, when the City Bank of New York was established.

Owned by the financial services colossus Citigroup Inc., (ticker C), a publicly traded company, the wealth management division is responsible for providing financial advisory and investment services to Citi’s many banking clients. The Citi global consumer brand serves over 110 million consumers in more than 19 countries.

Today, the wealth management unit provides its investment products and services through Citi Global Markets Inc. (CGMI). The division has its headquarters in New York City, with additional offices around the country in almost every state in the U.S.

What types of clients does Citi Personal Wealth Management serve?

The division primarily serves individuals and high net worth investors, who the SEC defines as those with at least $750,000 under management or a net worth of $1.5 million. The larger CGMI unit also serves corporations, endowments, foundations, charitable organizations, pension and profit-sharing plans and other businesses and government entities.

The minimum amount required to invest in the divisions’ low-cost robo-advisor program is $1,500. Relationships with a financial advisor typically require clients to invest at least $25,000 and as much as $100,000 or more depending on the account.

Services offered by Citi Personal Wealth Management

Citi Personal Wealth Management provides clients with ongoing portfolio management as well as a la carte financial planning services.

Portfolio management: For portfolio management, clients have numerous programs to choose from. They can tap Citi financial advisors to directly manage their portfolios, or opt for the advisors to recommend specific professional managers, including unrelated parties, to oversee their account. Clients who want guidance but prefer to be in charge of the account themselves can look to the Citi Advisor option, which is a non-discretionary program, meaning clients are in charge of all trades but still receive recommendations from advisors.

Clients interested in low-cost portfolio management can consider the digital Citi Wealth Builder program. It includes an online technology platform provided by the outside company Jemstep, and allows clients to invest in six different asset allocation models investing in cash or ETFs sponsored by Invesco. Clients do not have access to an in-person financial advisor. While the annual fee for new clients without an existing relationship with Citi is 0.55%, many current Citi clients can access the service for free.

Financial planning: Individuals and families can also tap the team for a written financial plan to help achieve specific financial goals. Topics addressed can include insurance, estate, education, retirement, tax and expenditures. This service is typically reserved for current or potential Citi clients, or individuals with a net worth of $200,000 or more. There is no fee. The plan is intended to be a one-time list of recommendations; it will not be continuously updated.

Additional services and products: Outside of the registered investment advisory services, the wealth management group also serves as a broker-dealer. Thus, advisors can place individual trades in client brokerage accounts and earn commissions per trade, although some commissions are waived for certain Citi bank customers. Advisors can also sell insurance products, such as annuities.

Here is a list of services offered through Citi Personal Wealth Management:

  • Investment advisory services/portfolio management (separately managed/wrap fee accounts; discretionary/non-discretionary)
  • Financial planning
    • Retirement planning
    • Trust and estate planning
    • Education planning
    • Tax planning and management
    • Spending analysis and budgeting
  • Insurance/risk management
  • Publication of periodicals or newsletters
  • Brokerage services

How Citi Personal Wealth Management invests your money

To guide their decision-making process, Citi financial advisors and portfolio managers have access to the bank’s internal research, including insight from their economists and industry specialists.

In general, to decide which investment managers and products to offer clients, the team relies on a combination of qualitative and quantitative analysis, evaluating factors like a company’s management team, investment process, staffing and operational issues. Performance metrics including absolute return, volatility and risk-adjusted return may be analyzed and charted.

How client money is invested ultimately will depend on the type of account the client chooses as well as the financial advisor. An advisor can create a custom portfolio for each client, based on the client’s goals, risk tolerance and time horizon. Alternatively, clients can choose from a list of recommended portfolio managers and asset allocation models, including investments like equity and fixed income portfolios, single and multi strategy and mutual funds and ETFs. Separately managed accounts are available, as well as investments in alternative funds, such as hedge funds.

Fees Citi Personal Wealth Management charges for its services

For portfolio management, clients typically pay an annual fee calculated as a percentage of their assets under management. The fee typically covers the advisory services as well as custody and transactions charged, provided that affiliated parties are used. The fee to Citi generally ranges from 0.60% to 2.00% of assets under management, depending on the type and size of the account, and the rate is often negotiable. Fees are typically paid quarterly in advance.

Clients who hire an additional layer of portfolio managers will pay an extra fee for those services, ranging from 0.10% to 1.00%. Keep in mind that clients will also pay internal mutual fund and ETF fees, as well as trading costs when another firm is used.

Financial planning is offered at no additional cost to certain current or potential clients, as well as individuals with net worths of at least $200,000. The online advisory program is also included at no cost for certain clients, or at a rate of 0.55% to new clients.

Citi Personal Wealth Management’s highlights

  • Discounts for existing Citi customers: Customers with bank accounts at Citi may be able to tap some of the firm’s wealth management services for no additional cost, such as the online advisory program or the creation of a written financial plan.
  • Large national network: The team provides wealth and investment advisory services from more than 600 offices around the country. Advisors have access to internal research by the company’s analysts, economists and other industry specialists.
  • Awards and accolades: The team has earned high rankings on reputable lists of the best advisors. For example, Citi earned 35 of the top 100 spots on the annual Bank Investments Consultant’s ranking of the Top 100 Bank Advisors List, which looked at factors including assets under management and percentage of business that is fee-based.

Citi Personal Wealth Management’s downsides

  • Potential conflicts of interest: Advisors benefit financially when clients choose a specific program or buy certain investments or products. Also, clients should keep in mind that Citibank representatives have a financial incentive to recommend clients to the wealth management division for investment services. These incentives create potential conflicts of interest as advisors may be financially motivated to make certain recommendations over others.
  • Difficult to know your fees upfront: The amount a client will be charged for portfolio management varies by advisor and type of account, and is negotiable. Thus, clients cannot determine how much they’ll pay in advance without shopping each individual advisor. If fees approach the maximum of around 2.00% to Citi, that falls at the high end of the spectrum. Average advisory fees run around 0.96% and total fees typically average 1.17%, according to a 2019 RIA in a Box study.
  • Not all advisors can offer every service: If you are interested in your financial advisor directly managing your portfolio, as opposed to recommending a professional portfolio manager, not all Citi advisors can provide this service. Only certain advisors who meet certain qualifications for investment analysis and portfolio management are eligible.
  • Disciplinary disclosures: CGMI has a long list of disclosures. See more below.

Citi Personal Wealth Management disciplinary disclosures

The Securities and Exchange Commission (SEC) requires all registered investment advisors to disclose on their Form ADV whenever the firm, an employee or an affiliate faces any disciplinary or legal actions that are material to a client’s evaluation of the advisory business or the integrity of the management team. CGMI, of which the Citi Personal Wealth Management is a part, discloses hundreds of pages of allegations against it and its predecessor firms from regulators including the SEC, FINRA, certain states and others. In many instances, the firm settled cases without admitting or denying guilt.

The company’s long list of disclosures includes issues such as:

  • In 2005, the SEC censured CGMI for failing to disclose that it provided certain mutual funds access or increased visibility on its retail distribution network in exchange for revenue sharing payments. It also failed to disclose that certain recommended mutual fund share classes charged higher fees that would negatively impact client investment returns.
  • In the late ‘90s and early 2000s, predecessor firm Salomon Smith Barney allegedly published certain fraudulent research reports and allowed investment bankers to have inappropriate influence over research analysts. The firm settled without admitting or denying the allegations.
  • From 2000 to 2003, CGMI allegedly failed to supervise certain branch offices and advisors who engaged in deceptive mutual fund market timing for certain customers. Without admitting or denying guilt, the firm consented.
  • In 2008, the firm settled allegations that it had misled tens of thousands of customers regarding the fundamental nature of and risks associated with auction rate securities that CGMI underwrote, marketed and sold. The firm allegedly led investors to believe the securities were safe, highly liquid investments.
  • In 2007, without admitting or denying the allegations, CGMI consented that it failed to deliver product descriptions and trade confirmations to certain customers who purchased ETFs.
  • In 2007, without admitting or denying the findings, the firm consented to allegations that a team of brokers used misleading materials in retirement seminars and meetings for certain employees in North and South Carolina.
  • In 2010, without admitting or denying the findings, CGMI consented to allegations that it had failed to adequately disclose certain facts to customers, among other issues, in its Direct Borrow Program.
  • In 2011, CGMI consented to allegations that the marketing materials for certain investment products with collateral consisting mostly of mortgage-backed securities were misleading.
  • In 2011, without admitting or denying the allegations, CGMI consented to allegations that it had failed to adopt, maintain and enforce written supervisory procedures reasonably designed to achieve compliance with the disclosure requirements for municipal securities transactions.
  • In 2012, without admitting or denying the findings, the group settled in response to allegations that from 2008 to 2009 certain registered representatives made unsuitable recommendations of non-traditional ETFs to customers looking for conservative investments.
  • In 2017, CGMI agreed to a settlement stemming from allegations that it had overcharged 60,000 advisory clients by the amount of $18 million, relating primarily to the TRAK fund solutions program.

Citi Personal Wealth Management onboarding process

To reach out to one of the firm’s financial advisors, potential clients can call 1-877-357-3399 or search for local Citi locations with financial advisors using the search tool on the firm’s website. Before any relationship formally begins, clients must sign a program agreement that spells out the services and fees.

Once established as a client, expect to hear from Citi through periodic performance reviews or annual check-ins during which your advisor will make sure your situation has not changed.

Is Citi Personal Wealth Management right for you?

Citi Personal Wealth Management aims to offer Citi clients investment products and wealth management services alongside the brand’s traditional banking and product offerings. Current Citi clients can look at their advisory program offerings since they may qualify for some services, such as financial planning, at no-cost, or get discounts on other services. In addition, clients looking to establish a relationship with a large bank offering a laundry list of investment options can consider Citi.

Clients will need to speak to each specific advisor to determine his or her services and fees, since they vary by advisor. And remember, fees are negotiable. You’ll also want to keep in mind the fact that Citi Personal Wealth Management does earn commissions for certain products and services, and that not all advisors can offer every service, making it all the more important to ask questions of an advisor before moving forward in your relationship.

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Investing

What Is a SEP IRA?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Reviewed By

A Simplified Employee Pension (SEP) IRA is an individual retirement account (IRA) that is set up and funded by employers, including self-employed workers. It is a great retirement savings opportunity for employees, as the money doesn’t come out of your paycheck.

SEP IRAs are also doubly tax beneficial for sole proprietors, since contributions are tax-deductible and the money grows tax-deferred. Despite these tax benefits, SEP IRA plans may not yield the best monetary returns compared to other retirement savings accounts, potentially hampering your full retirement savings potential.

How do SEP IRAs work?

SEP IRA plans can be established by businesses of all sizes for their employees, as well as by self-employed workers. Like traditional IRAs, they are investment accounts intended to help workers save for retirement. SEP IRAs are established by the employer (or self-employed worker), but each employee gets to choose and manage their own investments within the account.

For employees, SEP IRAs are a nice add-on to your retirement savings, especially since contributions don’t come out of your paycheck. Employees are always 100% vested in the money in their account. This means you don’t have to wait to have worked at your job for a certain amount of time to fully own the money in your SEP IRA.

For employers and self-employed individuals, there’s a double tax benefit on top of the retirement savings. While you’re making contributions, you get to reduce your taxable income since the deductions are tax-deductible. The investments inside the account also grow tax-deferred, so you don’t have to pay taxes on those earnings until you make withdrawals in retirement.

Employers may also appreciate the relative low operating cost and ease with which you can open a SEP IRA compared to other retirement accounts.

Who can get a SEP IRA?

Per the IRS, SEP IRA-eligible employees must the following requirements:

  • Be at least 21 years old.
  • Have worked for their employer in at least three of the last five years.
  • Have received at least $600 in compensation from their employer during the year.

Employers can choose to loosen these requirements, but they cannot make them more restrictive. However, employers do have the authority to withhold SEP IRA eligibility from employees who are covered by a union agreement and whose retirement benefits were bargained by the union and employer, as well as from non-resident alien employees who do not have U.S. wages, salaries or compensation from the employer.

These eligibility requirements also extend to self-employed workers who can choose to open a SEP IRA for themselves. If you’re self-employed and have another job in which your employer also offers a SEP IRA, you can set up a SEP IRA at both jobs.

SEP IRA contribution limits

Unless you’re a self-employed individual, only your employer can contribute to your SEP IRA plan, and the money they contribute does not come out of your paycheck. In 2020, SEP IRA contributions cannot exceed the lesser of either 25% of your compensation or $57,000. An employee’s compensation may reach up to $285,000 in 2020 and still be considered to calculate the 25% limit. There are no catch-up contributions for SEP IRAs.

Employers must contribute equally to all eligible employees’ SEP IRA plans, but the percentages of those contributions can change from year to year, providing employers with some level of flexibility. Contributions must be made in cash and by the employer’s federal tax filing deadline. For the employer, SEP IRA contributions are tax-deductible.

As an employee, the contributions your employer makes to your SEP IRA plan don’t affect how much you can contribute to another IRA on your own. SEP IRA contributions also are not included in your gross income as an employee (unless they are excess contributions) and therefore are not taxable.

Self-employed SEP IRA contribution limits

Self-employed workers are held to the same contribution limits, where compensation is based on net profits. There are also differences when determining the maximum deductible contribution. For example, for the 2019 tax year, self-employed individuals’ maximum deductible contribution for SEP IRAs was 25% of all participants’ compensation. Self-employed workers can calculate their SEP IRA contribution limits here.

Sole proprietors who contribute to an SEP IRA can also take advantage of the double tax benefits. Earnings in a SEP IRA grow tax-deferred inside the account and contributions are tax-deductible.

SEP IRA withdrawal rules

You must start taking required minimum distributions (RMDs) from your SEP IRA starting at age 72 for those whose 70th birthday fell on or after July 1, 2019 (for 70th birthdays before that date, the RMD age is 70 ½).

However, you cannot withdraw funds before the age of 59 ½ without paying a 10% penalty on top of taxes for the withdrawal. Withdrawals may be made penalty-free for qualifying first-time home purchase and select college expenses.

When you do withdraw money during retirement, you will be taxed on those distributions based on your tax bracket at the time of withdrawal.

How do I invest in a SEP IRA?

For employees, your employer can only do so much to help you save for retirement. After your employer has set up your account and made their contributions, it’s up to you to invest the money.

Your exact investment options will depend on the institution your employer has picked for your SEP IRA. But since it’s a retirement account, make sure to diversify your investments among stocks and bonds across various industries to create a more balanced portfolio. Investing in exchange-traded funds (ETFs), or groups of investments, can help you do that more easily. This diversification will help mitigate risk and losses along the way.

If you’re younger and further away from your retirement, you have some room to be a riskier with your investments by investing in stocks, which tend to be more volatile. That way, if there is a downturn, those investments will have time to recover before you need to cash them in when you retire. If you’re closer to retirement, you’ll want to play it safer with more stable investments that will carry you through.

SEP IRA vs. other retirement accounts

Despite the potential tax benefits, a SEP IRA plan may not result in the best returns for a freelancer or sole proprietor.

Here’s how the contribution limits for a SEP IRA for a 40-year-old sole proprietor in tax year 2020 compare to those of other popular retirement plan options:

Self-employed net profit

SEP IRA maximum contribution

Solo 401(k) maximum contribution

SIMPLE IRA maximum contribution

Traditional IRA maximum contribution

$50,000$9,294$28,794$14,853$6,000
$100,000$18,587$38,087$16,207$6,000
$200,000$37,757$57,000$18,999$6,000
$300,000$57,000$57,000$21,872$6,000
Source: National Life Group

SEP IRA vs. solo 401(k)

A solo 401(k) is just like a regular 401(k), just meant for sole proprietors and their spouse, if applicable. For sole proprietors, SEP IRAs and solo 401(k) plans operate pretty similarly. You contribute to both plans with your earned pretax money, and you can adjust your contribution percentage however you like. Earnings in both accounts grow tax-deferred, but you pay taxes on your withdrawals in retirement (unless you open a Roth solo 401(k) plan).

However, freelancers with a solo 401(k) can contribute as both employer and employee, which increases how much they can contribute each year significantly.

“If someone is self-employed, they could be limited in their SEP contribution,” said Ted Toal, a certified financial planner (CFP) and president at RCS Financial Planning in Annapolis, Md. “If they want to save more but the SEP formula doesn’t allow them to, they should instead look to open a solo 401(k).”

The exact outcome depends on your income and how much you wish to save. In nearly all cases in the table above, you’ll be able to save more with a solo 401(k), but you should confirm that’s the case for you. Only when you reach $300,000 in net profit, in this example, does the SEP IRA catch up to the solo 401(k) where they both max out.

SEP IRA vs. SIMPLE IRA

Small businesses with 100 employees or fewer may also consider a SIMPLE IRA as an option. Unlike SEP IRAs, employees may also contribute to SIMPLE IRAs. Employers may also make contributions of up to 3% of their employee’s compensation as an employer match or a flat 2% of the employee’s compensation.

You’ll see in the table above that SIMPLE IRA contribution limits for the 40-year-old sole proprietor in 2020 dip below SEP IRA limits once you get into $100,000 net income territory. If you’re self-employed and you really want to maximize your savings in one of these IRAs, the SIMPLE IRA option will work if you net less income.

Business owners should also note that SIMPLE IRAs have higher income requirements for employees to be eligible. An employee must have earned at least $5,000 in compensation during any two years before the current year and expect to receive at least $5,000 during the current year to be eligible for a SIMPLE IRA.

SEP IRA vs. traditional IRA

For self-employed folks, you will still be funding a traditional IRA with your own earnings, but the plan isn’t connected to your business. Instead, you’ll have to contribute to the account on your own with after-tax dollars. Still, the funds inside the account will grow tax-free, and you’ll pay taxes on the withdrawals you make in retirement.

For 2020, you can contribute up to $6,000 (or $7,000 if you’re age 50 or older) or your taxable compensation for the year, if it was less than $6,000 (or $7,000). Contributions to a traditional IRA aren’t tied to your income levels, unlike an SEP IRA, so you don’t get to contribute more to your traditional IRA the more money you make. You can open a traditional IRA as a supplementary retirement account alongside a SEP IRA if you’re maxing out your SEP IRA.

Is a SEP IRA right for you?

For regular employees, a SEP IRA plan is great, because the account’s contributions aren’t coming out of your own earned money as they do with a traditional 401(k) plan. They also still allow you to contribute to other IRAs that you set up for yourself.

For freelancers, a SEP IRA is one of the simplest retirement accounts to open. If it aligns with your income levels and you play it right, it may allow you to save enough to live comfortably during retirement.

That being said, if you’re a sole proprietor with modest income, you may find a SEP IRA is limiting in terms of its allowable contributions. In the short term, you can separately fund a Roth or traditional IRA for an additional $6,000 a year if you’re under the age of 50, or $7,000 if you’re 50 or older (as of 2020).

If you have grander savings aspirations, a solo 401(k) may be a better solution as it can allow for higher contributions. It’s also worth noting that solo 401(k) plans allow for catch-up contributions and loans, neither of which are possible with a SEP IRA. Remember, however, that you only can open a solo 401(k) if you’re a sole proprietor or your only employee is your spouse.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Investing

The 7 Best Robo-advisors of 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

If you’re new to the world of investing in stocks and bonds, knowing where to begin can be an intimidating prospect. Robo-advisors could be the best choice to start your investing journey. They make putting money in the market simple and intuitive utilizing smartphone apps and sophisticated computer algorithms.

Robo-advisors invest your money in diversified portfolios of stocks and bonds that are customized to your needs. Since computers do the work, they are able to charge much lower fees than traditional wealth advisors.

They begin the process with a questionnaire to assess your financial goals and your risk tolerance. Based on your answers, robo-advisors purchase low-cost exchange-traded funds (ETFs) for you and adjust the portfolio — or rebalance, as they say on Wall Street — on a regular basis, with no further intervention required from you.

To match your risk tolerance, robo-advisors offer more aggressive portfolios containing a greater percentage of stock ETFs, or more conservative ones containing a greater percentage of bond ETFs. The robo-advisor will also consider your age in developing your portfolio.

How we chose the best robo-advisors

We regularly review the latest robo-advisor offerings — we’ve evaluated 19 different ones in this round — and have selected our top choices. All of the robo-advisors on this list may well be worth considering, with those at the top scoring the best in our methodology.

To determine our list of the best robo-advisors, we focused on management fees and account minimums, and also considered ease of use and customer support.

The top 7 robo-advisors of 2020

Robo-advisorAnnual Management FeeAverage Expense Ratio (moderate risk portfolio)Account Minimum to Start
Wealthfront0.25%0.09%$500
Charles Schwab Intelligent Portfolios0.00%0.14%$5,000
Betterment0.25% (up to $100,000), 0.40% (over $100,000)0.11%$0
SoFi Automated Investing0.00%0.08%$1
SigFig0.00% (up to $10,000), 0.25% (over $10,000)0.15%$2,000
WiseBanyan0.00%0.12%$1
Acorns$12/yr0.03%-0.15%$5

 

Management Fees

0%

Account Minimum

$100 one-time deposit or $20 monthly deposit

Promotion
N/A
Management Fees

0.25%

Account Minimum

$0

Promotion

Three months free for new customers who are referred by an existing Betterment account holder

Management Fees

0.30%

Account Minimum

$100

Promotion

N/A

Wealthfront — Low fees, high APR for cash account

Wealthfront
Wealthfront’s stand-out features are its low annual cost and free financial planning tools. The 0.25% management fee and 0.09% average ETF expense ratio adds up to one of the lowest annual costs on this list. In addition, Wealthfront includes a cash management account with an attractive 0.35% APY.

Wealthfront continues to steal share in wealth management as customers fed up with high fees leave traditional brokerages and wealth advisors. Human interaction is intentionally minimal at Wealthfront: This could be a benefit to those who want to be left alone, or a drawback for those who would prefer personal attention or who have complicated tax situations.

Wealthfront’s key attributes:

  • Fees: Management fee of 0.25%, plus 0.09% avg ETF expense ratio
  • Minimum starting deposit: $500
  • Investing strategy: Wealthfront invests your money in one of 20 different automated portfolios. Each portfolio is a different mix of 11 low-cost ETFs, which are rated with risk scores from 0.5 (least risk) to 10.0 (most risk).
  • Average annual return over the past five years: 5.40% per year, based on Wealthfront’s mid-level 5.0 risk score.
  • Other notable features: Tax-loss harvesting (see below for a full explanation of tax-loss harvesting) comes standard, also includes an FDIC-insured cash management account yielding 0.35% APY.

LEARN MORE

Charles Schwab Intelligent Portfolios — Brand-name brokerage

Charles Schwab
Intelligent Portfolios can be a smart choice, but do not be misled by the 0% management fees — investing with this robo-advisor still comes at a cost. Intelligent Portfolios requires users to hold 6% to 30% of deposited funds in cash at a 0.70% APY, which will eat into overall returns in years where the market returns above 0.7%. This is on top of an average 0.14% expense ratio for a moderate portfolio. The $5,000 minimum deposit to open an account may also be too high a bar for investors just starting out.

That said, Intelligent Portfolios has an exceptionally detailed description of their ETF selection methodology, and a major brokerage like Schwab can be a good launchpad for folks who anticipate getting deeper into investing. Intelligent Portfolios users get access to Charles Schwab’s 300 U.S. branch locations where you can talk to advisors and handle administrative tasks in person.

Key attributes of Intelligent Portfolios:

  • Fees: Zero management fee, but customers must hold 6% to 30% of their portfolio in cash at 0.7% APR, plus 0.14% avg ETF expense ratio.
  • Minimum starting deposit: $5,000
  • Investing strategy: Schwab invests your money in a custom portfolio with two main components: ETFs representing up to 20 different asset classes, including stocks and bonds; and cash, in the form of a FDIC-insured cash sweep program earning 0.7% APY. Cash must be between 6% and 30% of the portfolio.
  • Average annual return from 3/31/2015 to 12/31/2018: 3.1% per year for medium-risk portfolio
  • Other notable features: Tax loss harvesting available for accounts over $50K, includes access to in-person assistance at over 300 U.S. branch locations.

Learn More

Betterment — Low fees for balances under $100K

Betterment
Betterment offers a full suite of robo-advisor features at low cost with no minimum deposit. The annual management fee for accounts under $100,000 is 0.25%, plus an average 0.11% expense ratio. Unfortunately, accounts over $100,000 will see the annual management fee jump to 0.40%. One advantage Betterment gives to accounts above the $100,000 threshold is that they can actively manage some assets. If active management is your goal, though, you can avoid Betterment’s 0.40% fee by opening a free brokerage account — so if you are managing more than $100,000, you may want to consider a different robo-advisor.

Betterment’s key attributes:

  • Fees: If total balance is less than $100,000, the annual management fee is 0.25% of assets; for balances over $100,000, management fee rises to 0.40% of assets. The average ETF expense ratio is 0.11% (for a 70% stock and 30% bond portfolio).
  • Minimum starting deposit: $0
  • Investing strategy: Betterment invests your money in an automated portfolio comprised of stock and bond ETFs in 12 different asset classes.
  • Average annual return over five years: 6.2% per year on a 50% equity portfolio (July 2013 to July 2018).
  • Other notable features: Tax-loss harvesting comes standard; active management features for clients with $100,000+ balance; several premium portfolios available.

Learn More

SoFi Automated Investing — Low costs, great perks

SoFi
SoFi Automated Investing’s 0.00% management fee and ultra-low 0.08% average expense ratio makes it one of the most competitively-priced robo-advisors in the market. Valuable perks come with opening a SoFi account, including free access to SoFi financial advisors, free career counseling and discounts on loans.

Automated Investing’s main downside is that their portfolios are less customizable than its peers’, with only five different risk levels to choose from, as opposed to at least 10 available from others. SoFi does not offer tax loss harvesting yet, though this may change in the near future.

SoFi Automated Investing’s key attributes:

  • Fees: Zero management fee, plus 0.08% avg expense ratio.
  • Minimum starting deposit: $1
  • Investing strategy: All SoFi Automated Investing portfolios are actively managed. This means that real humans at SoFi decide the makeup of the five model portfolios, which they believe will add value beyond what passive investing offers. SoFi invests your money in one of five portfolios of low-cost ETFs, covering 16 different asset classes. Each of the five portfolios has two versions: one is for taxable accounts and the other for tax-deferred or tax-free accounts, like IRAs and Roth IRAs. SoFi only rebalances portfolios monthly, versus some peers which check for this opportunity daily.
  • Average annual return over five years: 6.78% per year on the moderate risk portfolio (60% stocks / 40% bonds).
  • Other notable features: Commission-free stock trades in separate Active Investing accounts. SoFi’s combined checking/savings product, SoFi Money, offers 0.20% APY on deposits. Customers must open this account separately.

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SigFig — Free access to advisors

SigFig
Free access to financial advisors by phone and 0.00% management fees on the first $10,000 deposited are SigFig’s biggest strong points. On deposits over $10,000, management fees rise to 0.25%. Expense ratios are on the high side compared to the competition, at an average of 0.15%.

One of SigFig’s peculiarities is that they do not hold your assets. If you open a new account, SigFig will open an account at TD Ameritrade for you and then manage it. Current TD Ameritrade, Fidelity and Charles Schwab customers can also use SigFig’s robo-advisor services.

The $2,000 minimum deposit may put SigFig out of reach for some, but SigFig is worth a look for investors looking to keep robo-advisor costs low.

SigFig’s key attributes:

  • Fees: Zero annual management fee for the first $10,000; management fee rises to 0.25% of assets on balances over $10,000. Average ETF expense ratio of 0.15%, depending on allocation.
  • Minimum starting deposit: $2,000
  • Investing strategy: SigFig invests your money in an automated portfolio based on how you indicate you want to invest. Each portfolio is made of ETFs from Vanguard, iShares and Schwab, comprising stocks and bonds in nine different asset classes. The specific ETFs SigFig invests in will vary based on whether your account is held at TD Ameritrade, Fidelity, or Schwab.
  • Average annual return over five years: 5.45% per year for moderate portfolio (as of 4/24/2019)
    Other notable features: SigFig has a free portfolio tracker that allows investors to track their entire portfolio’s performance across multiple brokers.

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WiseBanyan — No-frills choice for beginners

WiseBanyan
A 0.00% management fee for core robo-advisor functionality makes WiseBanyan a good choice for beginning investors who can get by with a no-frills offering. Make sure to notice that they still charge a 0.12% average ETF expense ratio, so it is not completely free.

WiseBanyan charges premiums for features that come standard with other robo-advisors, including tax loss harvesting (0.24% of assets up to $20/month max), expanded investment options ($3/month) and auto-deposit ($2/month). If you care about these other features, do the math based on your own portfolio size to compare WiseBanyan to its peers.

WiseBanyan’s key attributes:

  • Fees: Zero management fee, plus average ETF expense ratio of 0.12%. Premium features carry additional fees and higher expense ratios.
  • Minimum starting deposit: $1
  • How WiseBanyan invests your money: For basic Core Portfolio users, portfolios comprise ETFs across nine asset classes, with an average expense ratio of 0.03% to 0.69%. If you upgrade to the Portfolio Plus Package, you gain access to 31 total asset classes with exposure to ETFs tracking oil and gas, precious metals and other industries, with an average expense ratio of 0.03% to 0.75%.
  • Average annual return over five years: Not provided
  • Other notable features: Premium offerings, including tax loss harvesting (0.24% /month up to $20/month max), Fast Money auto-deposit ($2/month) and Portfolio Plus ($3/month).

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Acorns — Unique savings functionality

Acorns
By rounding up the spare change from your transactions and placing it into an investment account, Acorns provides a clever way to get started with investing. The main drawback is that, until you have more than $4,800 deposited in an Acorns Core account, the $1/month fee will actually be proportionally higher than the 0.25% management fees that most competitors charge.

Acorns does not offer tax loss harvesting, joint accounts, or access to financial advisors currently. Still, if you’re looking for an easy way to start investing, give Acorns a shot.

Key attributes of Acorns:

  • Fees: $1/month for Acorns Core, plus ETF expense ratios ranging from 0.03% to 0.15%
  • Minimum starting deposit: $5
  • How Acorns invests your money: Acorns invests your money in one of five automated portfolios— notably, this is a more limited number of portfolios than some other competitors. Each portfolio comprises ETFs across seven asset classes.
  • Average annual return over past five years: Not provided
  • Other notable features: Offers two add-on accounts for expanded functionality with Acorns Later retirement product ($2/month) and Acorns Spend checking account ($3/month).

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What is a robo-advisor?

A robo-advisor is a service that uses computer algorithms to invest customers’ money in portfolios customized to their needs. Since robo-advisors create these portfolios using automated algorithms, they can charge a fraction of what human advisors do and still offer advanced benefits like auto-rebalancing and tax-loss harvesting to boost overall returns. Most robo-advisors start with a questionnaire to assess your financial goals, risk tolerance and assets. Based on the answers, the robo-advisor allocates your investments accordingly.

How do I choose the right robo-advisor?

When considering which robo-advisor to choose, you should focus on management fees, minimum balances, ease of use and customer support. The lower the fees, the more money stays in your account. The top robo-advisors typically charge a flat management fee of 0.00% to 0.50% of your deposited balance. In addition, you pay an expense ratio to cover the fees charged by the companies offering the ETFs that comprise your investment portfolio. Note that some robo-advisors claim to offer zero management fees, but still charge an expense ratio.

Make sure you are comfortable leaving your deposits with a robo-advisor for the medium to long term — think five to eight years. There are a number of robo-advisors with $0 account minimums and most are under $5,000 today.

How do I open a robo-advisor account?

Most robo-advisors can have you up and running with an account in a few minutes. Typically you create a username, fill out a questionnaire to assess your financial goals and risk tolerance and connect your profile to a bank account. There may be some additional steps required for verification depending on the robo-advisor.

What other features should I consider?

Robo-advisors offer a host of additional features, including tax loss harvesting, cash management options, checking accounts and rewards programs. Cash management can provide a meaningful compliment for users who keep some of their portfolio in cash. Some robo-advisors offer an APY of more than 2.00% on cash management accounts. Tax loss harvesting can make a difference for users looking to lower tax exposure.

What is tax loss harvesting?

Tax loss harvesting is a tax strategy that some robo-advisors offer to help clients reduce their tax bill. Generally, this involves selling an asset that has lost value for a loss, using that loss to offset capital gains taxes or income taxes, then purchasing a similar but not “substantially identical” asset to maintain exposure to the asset class. The details behind each robo-advisor’s strategy can get complicated and should be looked at in detail to make sure you understand what you are getting into.

Capital losses from tax loss harvesting can be used to offset capital gains and can potentially offset up to $3,000 (or $1,500 if married and filing separately) of ordinary income.

What if my robo-advisor goes out of business?

While not a pleasant thought, it is possible that a robo-advisor could go out of business. Most robo-advisors insure clients’ assets through the Securities Investor Protection Corporation (SIPC). This is different from the bank account coverage provided by the FDIC; generally, SIPC coverage includes up to $500,000 in protection per separate account type, with up to $250,000 of cash assets protected.

Keep in mind that the SIPC will take necessary steps to return securities and account holdings to impacted clients, but will not protect against any rise or fall in value of those holdings. This means that if you make a bad investment in a stock, the SIPC ensures you still own that bad stock, but do not replace losses from a poor investment. Some brokers also insure assets beyond the $500,000 in SIPC coverage through “excess of SIPC” insurance.

See the full list of SIPC members at their site, along with a detailed explanation of how SIPC coverage works.

The bottom line

Robo-advisors can be an excellent option for users who are starting their investing journeys, rolling over a 401(k) or who want to minimize the time needed to manage their investments. By creating a customized portfolio based on your financial goals and automatically rebalancing your account, a robo-advisor can help to maximize your return while taking on the right amount of risk.

Because robo-advisors run off of automated algorithms, you should be comfortable with little or no human touch for your investments. The upshot to low human interaction is that fees are generally much lower than with a registered investment advisor, which may be worth the tradeoff as part of an overall financial plan.

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