I think the article makes a good point. What is the value proposition of companies like Betterment and Wealthfront when a person can go to Vanguard or Charles Swab?<p>I'd be pretty worried if I was one of the new "robo advisor" startups, quoted only because I can't think of a better name for them.<p>1) By definition you're a passive investor so you don't provide any service that can't be replicated by the big players in a very quick manner.<p>2) you don't have any where near the economies of scale as the big players so when this becomes a fight to the bottom to lower management fees you'll be the first to lose.<p>3) Your going to put your clients money into funds run by the big players so even if you pull money from the big players you are helping your biggest competitors by investing back into them.<p>I can't see anyway this isn't head Wealthfront loses tails vanguard wins.<p>Couple that with the possibility of VC money starting to dry up and you've got to ask, if Wealthfront and Betterment receive no more VC money from today onward are they ready to fight head on with companies 2-3 orders of magnitude larger than themselves who can afford to keep lowering fees for years to come.<p>Can someone here make the case why anyone would chose to invest with these new companies rather that Vanguard or Charles Schwab?
I look at Vanguard's Target Retirement Date funds as the predecessors to these automated/partially-automated advising services. I'm not convinced the robo-advising can do any better than one of these funds since the fees for the Target Retirement funds are half of Vanguard's advising fee.<p>The vast majority of retirement investors don't need unique advice. They really just need to be saved from themselves. If putting all the decision making in the hands of some software achieves that then I suppose they do provide some value.
I think that there are 2 things that will likely continue to help robo advisors:<p>1) Vanguard or Charles Schwab products that do automated investing likely take an opinionated approach towards only owning their own assets. This means that the amount of the investable market I can actually buy into at any point is much smaller, and possibly less optimal. I imagine this also has an impact on how effective the robo advisor can tax loss harvest.<p>2) Betterment has shown their cards (in my opinion) once they started allowing users to link external accounts. Initially it has been exposed as a way to track networth and investment progress towards your goals. However, I'm not convinced it will stop there. The obvious next step is that Betterment will manage your asset allocation, monitor wash sales, etc across all of your investment accounts, regardless of whether they actually have the money invested through them directly. In this way, they are an ambivalent service that you pay for.
Betterment and Wealthfront are just showing Vanguard and Schwab how to do business in the future. Their UI/UX is easily copied.<p>The startups are betting on that the big guys will continue to be incompetent in UI/UX.<p>Maybe that bet will pay off, but it's not a bet I would make.
For more info on index funds, and Vanguard in particular, there's a great podcast by planet money (with transcript) at <a href="http://www.npr.org/2016/03/10/469897691/armed-with-an-index-fund-warren-buffett-is-on-track-to-win-hedge-fund-bet" rel="nofollow">http://www.npr.org/2016/03/10/469897691/armed-with-an-index-...</a>
I recognize my question has little to do with the OP. But I can't get past this investment dilemma. Let's say I have $100k in two different accounts. Assume both accounts only hold one stock, an index tracker, that grows annually at 6%.<p>Example 1) A retail E-Trade account<p>Example 2) A Roth-IRA account.<p>With the first account, I paid commission upfront when I purchased and again when I sold.<p>In scenario 2, I probably paid commissions AND I pay 1% fees on assets annually.<p>30 years later account 1 will have ~$575K and account 2 will have ~$432K. So even if you consider tax advantages you are better off with the retail E-Trade account.<p>If I don't need an advisor AND I do want the tax advantages of a ROTH IRA, what do I do ? Right now I am paying 1% annual fees to a guy who I met once 10 years ago who was just lucky enough to fax in my paperwork. Thanks in advance.
I saw the mention of 0.30% annual fee for the robo-advisor... Isn't that still quite high? I know that Vanguard is happy with making that money, I just don't think their costs are anywhere near that.