Vanguard, Fidelity Top Morningstar’s List of Robo-Advisers

Morningstar Inc. weighed in on the top robo-advisers for managing investments and providing financial advice as the firm tracks the growing market for tech-driven financial advice and investing with limited human interaction.

Morningstar based its assessment on the “factors that most directly help investors reach their financial goals,” including fees; quality of the investing portfolio and advice offering; and financial planning tools. The five leaders, in order, were: the Vanguard Group Inc., Fidelity Investments, Charles Schwab Corp., Betterment LLC and Wealthfront Inc.

“Digital investment advice is booming,” Amy Arnott, a portfolio strategist for Morningstar Research Services LLC, wrote in a June 23 post. “As access to these services has increased, so have investors’ questions about their suitability, cost, and range of offerings.”

Arnott wrote that automated advice has been growing in popularity for reasons including “Generation Z’s ability and preference to handle its finances online, the pandemic-driven shift to virtual interactions with advisors, and increasing interest in novel assets like cryptocurrency.”

Vanguard Digital Advisor

Vanguard’s robo-advisers, Digital Advisor and its hybrid sibling, Personal Advisor Services, were the leaders for the second year in a row. The service combines automation and human expertise and includes ESG options, active funds and tax-efficient strategies. It provides customizable portfolios, planning tools and access to financial planners, but it has faced criticism for its customer service and pricing concerns, according to Morningstar.

Fidelity Go

Fidelity Go came in second for its research and asset-allocation team. Taxable or retirement-focused portfolios are determined through a risk-tolerance questionnaire, offering seven risk levels. Ongoing support includes alerts and nudges, but tax-loss harvesting is not available. Participants have access to spending and debt management tools, as well as coaching on retirement planning and budgeting. However, some advisers may not have a Certified Financial Planner designation, according to Morningstar.

Schwab Intelligent Portfolios

Morningstar noted that Schwab’s portfolio-construction process is robust, with portfolios available at 12 risk levels and comprehensive asset-class exposure. However, excessive cash allocations ranging from 6% to 30% hinder returns over time. Schwab Intelligent Portfolios Premium provides a CFP-designated financial planner for investors with $25,000 or more. Despite the cash issue, Schwab remains a top option, according to Morningstar, providing advice on areas including mortgages, college savings, retirement savings and retirement income.

Betterment

Betterment stood out to Morningstar due to its services and value, but investors were advised to focus on its core offering and avoid “gimmicky” extras like cryptocurrency. It offers a glide path for portfolio adjustments and offers low-cost ETFs with exposure to major asset classes. While Betterment has a wide range of services at an affordable price, investors should be aware of its recent fine for misstatement regarding tax-loss harvesting, Morningstar noted. Nevertheless, Betterment provides strong core investment options and a user-friendly interface.

Wealthfront

Morningstar noted that Wealthfront has strengths like low cost and high-quality funds, but it is held back by questionable allocations and strategic shifts. It incorporates behavioral economics research for risk evaluation and offers a thoughtful approach to tax-loss harvesting through direct indexing. However, some of Wealthfront’s strategies follow popular trends, rather than prudent investment practices, with portfolios on the aggressive side and investors allowed to put up to 10% of their assets in cryptocurrency funds, according to Morningstar.