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Fidelity Loses Top Slot: Q2 Robo Report

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The second quarter was a strong one for robo advisors as the COVID-19 pandemic continues.

Not only did their portfolios on average match or exceed major market indexes but account openings surged, according to the latest Robo Report, published by Backend Benchmarking.

Their average equity portfolios returned 19.66% in the second quarter — in line with the 20% gain in the S&P 500 — and their average fixed income portfolio gained 4.15% — above the 2.9% return in the Bloomberg Barclays U.S. Aggregate Bond Index.

Plus, new account openings among several digital advisors soared, according to the Robo Report, citing data from Bloomberg.

Since the stock pandemic-fueled market sell-off began in late February (it ended about a month later), Wealthfront reported a 68% increase in new account openings, and TD Ameritrade’s robo-advisor reported a 150% jump in new accounts.

“While COVID-19 has caused widespread disruption in the markets, economies, and everyone’s lives, digital advice providers were well positioned to transfer to remote work, as they are … built for digital communication with clients,” said Ken Schapiro, CEO of Backend Benchmarking.

“Early reports show a surge in account openings at digital advice providers during the volatile first half of the year,” Schapiro explained. 

The second quarter saw a continuation of certain trends among robo-advisors, including more consolidation and growing popularity of socially responsible investing, as well as new Robo Report rankings among firms.

New Top-Ranked Robo

The Robo Report rated SigFig the No. 1 robo-advisor for the second quarter due to its strong investment performance, access to live advisors and quality of its platform, displacing Fidelity, which had held the top ranking previously. 

Sig Fig has a relatively low account minimum to open a self-directed account — $2,000 — and for an account with access to live advisors —$10,000. Also, it charges just 0.25% annually with no management fee on the first $10,000 invested.

In addition, Sig Fig has a “strong digital tool,” including a built-in retirement planner and links to external brokerage accounts and will analyze customer portfolios and flag issues such as high fees and improper diversification across and within asset types, according to the Robo Report.

It was also one of a handful of digital advisors that did little tax-loss harvesting during the first half.

The Robo Report ranked TD Ameritrade the No. 2 overall robo advisor and Fidelity Go, an earlier leader, third.

What happens to TD Ameritrade’s digital advisory services is still up in the year, since Schwab is in the process of integrating the firm.

Furthermore, Fidelity Go’s ranking could be affected by its recent announcement to lower fees: none for accounts with less than $10,000, $3 a month for accounts between $10,000 and $49,999, and 0.35% for accounts with $50,000 or more.

The Robo Report ranks digital advisors across more than 45 specific metrics including fees, financial planning, client experience and access to live advisors.

Fewer Players

The second quarter also saw the continuation of consolidation in the robo-advisory industry.

Motif, which focused on thematic investing, closed, selling its technology to Schwab and client accounts to Folio, which was subsequently acquired by Goldman Sachs.

(Related: Investing Platform Motif to Shut Down)

Empower Retirement announced its acquisition of Personal Capital, one of the oldest and more expensive digital advisory firms. 

Previously independent digital advisors FutureAdvisor, WiseBanyan and TradeKing were all acquired by large institutions.

Schwab’s integration of TD Ameritrade’s robo-advisor and Morgan Stanley’s of E-Trade are still pending.

(Related:  Empower to Buy Personal Capital in $1B Deal)

Growing Popularity of SRI, ESG 

Socially responsible investing among robo-advisors was another trend that continued in the second quarter along with better performance compared to non-SRI portfolios. 

The majority of their SRI equity portfolios outperformed traditional portfolios during the first half of 2020 despite higher and for one and two years, despite higher fees, according to the Robo Report.

Their sustainability scores, which measure their  environmental, social and governance (ESG)-related risks, based on Morningstar’s ratings, however, “were not significantly better than than their non-SRI counterparts.