The second quarter of 2018 was a busy one for robo-advisors. Hedgeable announced its impending closure, WorthFM became history and LearnVest notified customers it was discontinuing its planning and online investment services.
During the same quarter, US Bank and Fifth Third Bank launched their robo-advisor platforms and SoFi, a fintech lender with a robo product, introduced checking accounts with debit cards, further blurring the lines between banking and digital advice. And U.K.-based Wealth Wizards, an independent digital advisor with AI capabilities, is exploring a talking robo-advisor.
“Closings are to be expected,” said David Goldstone, research analyst at Backend Benchmarking, which publishes The Robo Report. “The robo-advisor market is maturing. The big expansion phase is slowing down but incumbents will continue to roll out robos.”
Goldstone said he’s still waiting on rollouts from Goldman Sachs through its Marcus by Goldman B-to-C operation and from JPMorgan. He’s also expecting more consolidation among the smaller independent robos, who are dependent on funding for their staying power along with profitability, which remains uncertain. WiseBanyan appears vulnerable because “it hasn’t achieved scale,” Goldstone said.
The Robo Report compares the performance of robo-advisors for the second quarter, year to date, one year and two years — all through June 30 — for taxable accounts split 60/40 stocks and bonds held by investors in high tax brackets and for tax-deferred equity IRA accounts.
This quarter it introduced “Normalized Benchmarking” for balanced portfolios in taxable accounts with different equity and bond allocations in order to reduce the inherent advantage of portfolios whose equity allocations topped 60%. Rankings in this category are based on the portfolio returns above or below the normalized benchmark.
Using this methodology, Vanguard led the pack for total portfolio returns over two years ended June 30, trailing the benchmark by 0.02%. SigFig followed, returning 0.11% below the benchmark, then E-Trade, off 0.34%. The actual annualized returns were, respectively, 9.11%, 9.33% and 8.95%.
Rankings for equity-only and fixed income-only taxable portfolios are based on annualized returns. Here SigFig took second place for equity-only and fixed-income portfolios, returning 15.14% and 0.62%, respectively, on an annualized basis.
E-Trade was the top performer for equity-only portfolios, up 15.2% annualized, while Vanguard placed third, up 15.07%.
In the fixed-income only portfolio, Schwab led, returning 2.39% on an annualized basis, while Betterment placed third, gaining 0.24% (Vanguard’s was just behind, up 0.23% on an annualized basis). Schwab’s outperformance was due to its diversified bond portfolio consisting of international, high yield, Treasury inflation-protected securities, municipal and corporate bonds, according to The Robo Report.
That same diversification, however, set Schwab back in the one-year performance of its bond-only portfolio, up 0.90% compared with over 1% for Fidelity Go, SoFi, Vanguard, Wealthfront and Wealthsimple SRI.