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Investing

Review of IHT 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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IHT Wealth Management is a quickly growing Chicago-based firm with 99 advisors, many of whom are certified financial planners, across its more than 30 offices and affiliates located throughout the country. The full-service firm provides financial planning and wealth management services, primarily to individuals and high net worth individuals, and currently has nearly $1.3 billion in assets under management (AUM).

All information included in this profile is accurate as of February 24th, 2020. For more information, please consult IHT Wealth Management’s website.

Assets under management: $1,267,880,055
Minimum investment: None
Fee structure: Percentage of AUM for wealth management; hourly charges for financial planning
Headquarters: 123 N. Wacker Drive
Suite 2300
Chicago, IL 60606
http://www.ihtwealthmanagement.com/
(855) 295-2828

Overview of IHT Wealth Management

Founded in 2014, IHT Wealth Management is a Chicago-based financial services firm that offers investment advice and money management services. It is principally owned by founder and president Steven J. Dudash, a former Merrill Lynch financial advisor. The firm has grown quickly since its founding, often by acquiring the firms of retiring advisors.

The firm has about 150 employees, two-thirds of whom serve as investment advisors. Many of IHT Wealth Management’s advisors hold designations such as certified financial planner (CFP) and chartered retirement planning counselor (CRPC). Its team of advisors includes 90 registered broker-dealers and 35 licensed insurance agents.

What types of clients does IHT Wealth Management serve?

IHT Wealth Management works almost exclusively with individual investors, fewer than 20% of whom are considered high net worth individuals. (The SEC defines high net worth individuals as those with at least $750,000 in assets under management or a net worth of at least $1.5 million.) Additionally, the firm is capable of serving pension and profit-sharing plans, charitable organizations and trusts.

With no minimum account balance and a broad geographic footprint, the firm serves a fairly broad clientele. It has over 30 offices in a dozen states, with its largest presence in Illinois and Florida.

Services offered by IHT Wealth Management

IHT Wealth Management works with clients to evaluate their portfolio and make personalized investment recommendations based on their holistic financial situation, then execute the strategy on behalf of the client. The firm’s asset management services are offered on a discretionary basis, meaning that managers make all decisions to buy, sell or hold securities without having to consult with the client.

IHT Wealth Management also provides financial planning services, for a separate fee, to clients who request them, and, in addition, serves as a consultant to retirement plan sponsors.

Here is a full list of services offered by the firm:

  • Investment advisory services/portfolio management
    • Tax-sensitive investments
    • Concentrated stock strategies
  • Financial planning
    • Retirement planning
    • Estate and legacy planning
    • Charitable giving
    • Education planning
    • Tax planning
    • Cash flow analysis
    • Savings and emergency funds
    • Stock option analysis
    • IRA and 401(k) rollovers
    • 401(k) and pension plan review
    • Long-term care planning
    • Divorce planning
  • Insurance planning and risk management
  • Employee benefit plan fiduciary services
  • Collaboration with clients’ lawyers, accountants, etc.

How IHT Wealth Management invests your money

IHT Wealth Management uses several types of analysis to choose investments for its clients’ portfolios based on research and data. The methods the firm uses include:

  • Optimization: This uses mathematical algorithms to determine your best asset allocation based on the market and the client’s risk tolerance.
  • Quantitative methods: This analysis of investments is based on historical, performance and earnings data.
  • Technical analysis: This involves charting price and volume data to identify price trends.
  • Computer models: This is used to estimate the future value of an investment based on various data assumptions.

The firm uses these strategies to create a portfolio for its clients, based on that client’s financial situation and goals. These portfolios may be based on one of IHT’s model portfolios, which range from conservative to more aggressive. Advisors may also recommend other types of investments, including real estate investment trusts (REITs), pooled investment vehicles and variable annuities. While the holdings of individual portfolios vary, they generally contain a diversified mix of investments, which the firm believes is key to creating the best outcome.

Fees IHT Wealth Management charges for its services

For advisory services, clients pay IHT Wealth Management a percentage of their assets under management, with the rate ranging up to 3%; those with smaller accounts may pay higher fees. Advisors negotiate fees directly with clients, and may recommend both wrap-fee programs — meaning that clients won’t see additional charges for individual transactions within their account — and non-wrap fees programs.

For financial planning services, clients pay hourly fees, negotiated directly with advisors, that range from $250 to $500, depending on the complexity of the plan. Clients may pay a 50% deposit upfront for the plan, based on the estimated time necessary for completion.

IHT Wealth Management’s highlights

  • Highly accessible: The lack of a minimum account balance, along with a broad geographic footprint, means there are few barriers to potential clients who want to work with the firm.
  • Personalized service: Advisors work with each client to take their individual financial picture, risk tolerance and timeline into account to create a customized portfolio for them or match them with one of the firm’s available model portfolios.
  • Credentialed advisors: Many of the advisors at IHT Wealth Management hold certifications, such as CFP or CRPC. This means the advisors have undergone extensive training as well as continuing education. The firm’s team of advisors has an average of 15 years’ experience.
  • Industry recognition: The firm has appeared on The Financial Times’ list of the top 300 RIAs for the last two years.
  • Clean record: IHT Wealth Management does not have any disciplinary disclosures on its record (see more below).

IHT Wealth Management’s downsides

  • Potential conflicts of interest: Some of IHT Wealth Management’s advisors are licensed insurance agents and broker-dealers. That means they may earn a commission for recommending certain investment and insurance products to you, which can create a potential conflict of interest.
  • Higher than average fees: While each advisor negotiates fees directly with their clients, the firm’s rate can go up to 3% — more than double the industry average of 1.17%, according to the financial advisor industry company RIA in a Box.
  • Separate financial planning fees: Clients who want financial planning pay a separate fee of $250 to $500 per hour for those services. Some other firms include financial planning as part of their overall investment management fee.

IHT Wealth Management disciplinary disclosures

IHT Wealth Management does not have any recent disciplinary disclosures on its record. All SEC- registered firms must report any disciplinary disclosures on their Form ADV, documents that they file with the SEC. Disclosures include any regulatory actions, criminal charges or legal development, such as liens or civil judgments, taken against the firm, its employees or its affiliates.

IHT Wealth Management onboarding process

You can get in touch with the firm by filling out this form on IHT Wealth Management’s website, or by calling or emailing your local office (you can find contact info here). Advisors will look at your current portfolio and learn about your financial situation, and they will then use that information to recommend a portfolio that they believe will help you meet your goals.

Once your portfolio is set up, your advisor will check in regularly to report on performance and recommend any changes based on the market or your personal situation. On request, advisors will also create a financial plan for clients, which carries separate fees from the asset management service. Upon completion, the advisor will present the plan and discuss potential next steps for implementation.

Is IHT Wealth Management right for you?

Since it has experienced advisors on staff, no minimum account balance requirement and a fairly broad geographic footprint, IHT Wealth Management can serve the needs of a range of clients.

Keep in mind, however, that many of its advisors are also licensed insurance agents or dually registered as broker-dealers, so they may have personal financial incentives to make certain recommendations. Advisors negotiate their own fees directly with clients and these rates typically include transactions costs, but the firm’s fees may be higher than the industry average, especially for clients with smaller account balances.

It’s always important to do research on any investment advisor you’re considering, and to shop around to make sure you’re choosing a firm that best fits your needs.

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

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.

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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.

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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.

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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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