The fourth quarter of 2017 appears to be a milestone in the robo-advisory industry, according to the latest industry report from BackEnd Benchmarking.
Not only did Morgan Stanley and Wells Fargo launch their own digital advisory services during the quarter, but seven leading robos have been in business long enough for The Robo Report to compare their latest two-year performance in addition to quarterly and one-year numbers. (Some leading robos have been in business longer than two years.)
The report, published by BackEnd Benchmarking, also anticipates offerings from Goldman Sachs and JPMorgan Chase.
Despite the growth in the number of robo-advisors and the amount of their assets under management, however, two primary misconceptions about the industry continue, according to the report:
- that investment selection and asset allocation are fully automated
- that digital advisors are attracting mostly mostly younger clients with limited assets
“Although robo-advisors are digitizing and automating many parts of the investment process [including onboarding and tax-loss harvesting], it appears most providers are relying on real people, not just algorithms, in the construction of the model portfolios and asset allocation,” the report states.
It also notes that “robo advice is proving most popular with investors who haven’t had a professional advice solution before,” no matter what their age or size of assets.
The report compares the performance of taxable accounts and IRA accounts among different digital advisors. Seven firms were included in the two-year comparison of taxable accounts that are generally invested in a 60/40 mix of stocks and fixed income and/or cash.
Schwab was the No. 1 performer, with a 27.7% return, followed by SigFig and Personal Capital, which posted gains of 16.3% and 25.1%, respectively.
Both Schwab and SigFig were the top two performers, respectively, for their equity and fixed income portfolios, which were both invested heavily in international assets. Personal Capital’s portfolio had a heavier weighting in stocks overall: around 70% compared with roughly 60% for Schwab and SigFig.
The two-year performance numbers for the fixed income portfolios of the seven robos showed a wide dispersion, ranging from 4% for Vanguard to 14% for Schwab. The Vanguard bond portfolio was invested exclusively in municipal bonds, which had a rough period following the presidential election in 2016, and the Schwab portfolio allocated large shares to international and high-yield bonds.
The Robo Report also included fourth quarter performance of taxable portfolios — stocks and bonds — for 20 digital advisors, with results ranging from a low of 3%, for Acorns, and a high of 4.3% for Weathfront.
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