Schapiro argues that roboadvisors are often overhyped to investors, leading to misconceptions about what a digital advice service actually offers to its clients.
“Roboadvisors suffer from the same problem as helicopter skiing: When people hear I go helicopter skiing, they think that I jump out of a helicopter, but that’s not true,” says Schapiro. “With robo-investing, people think there are a tremendous amount of trades being done and hidden algorithms that the human eye can’t figure out, but the vast majority of these platforms are very passive and the most dramatic thing that they do is the actual signup process.”
Thus far, Condor is tracking portfolios from Acorns, Betterment, eTrade, Fidelity Go, Future Advisor, Personal Capital, Schwab, SigFig, Tradeking, Vanguard, WiseBanyan, TD Ameritrade, Ellevest, Hedgeable and Merrill Edge. Since many of the accounts in the study have been open for fewer than two years, the most recent results should be taken with a grain of salt.
The study’s subjects varied greatly in performance and allocation over a very short time period, yet roboadvisors don’t talk about their differences in their marketing materials, says Schapiro, electing instead to emphasize their commonalities: low fees, ease of use, automation and all-digital interactions with clients.
“Also, the Department of Labor’s fiduciary rule is forcing retirement accounts to be fee accounts,” says Schapiro. “Young investors with small accounts aren’t going to garner the attention of traditional advisors because they won’t generate enough money on a fee basis to be profitable as clients. Roboadvisors are a good solution.”
According to Condor, approximately $150 billion in assets are now contained in roboadvisor portfolios. That number is expected to grow to $489 billion in 2020, according to a recent report by Cerulli Associates, accounting for more than one-fifth of total RIA AUM.
“We think people are still getting warmed up to the idea of allowing a digital platform to manage their investments,” says Schapiro. “I think we’ll find that more investors are okay with limited discretion moving forward.”
In the second quarter, total portfolio returns for roboadvisors ranged from 2.13 percent to 3.22 percent in taxable accounts, and from 2.71 percent to 3.88 percent in IRAs. The top three roboadvisors for total portfolio returns were E*Trade’s hybrid service, Vanguard and Betterment. In the first quarter, the top three roboadvisors based on trailing 12-month portfolio returns included Schwab, Sigfig and Personal Capital.
In the second quarter, the top three roboadvisors for equity returns were FutureAdvisor, E*Trade’s hybrid service and WiseBanyan. By comparison, SigFig, TD Ameritrade and Vanguard posted the best equity returns during the first quarter.
The top four roboadvisors for fixed-income returns in the second quarter were E*Trade’s hybrid service, Schwab and a tie between Fidelity and E*Trade’s ETF platform. In the first quarter, Schwab, SigFig and TradeKing Momentum had the best performing fixed-income allocations.