Author Topic: The battle of the robo-advisors  (Read 987 times)

chicagobluu

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The battle of the robo-advisors
« on: July 04, 2018, 04:07:18 PM »
Have you guys noticed there's been a bit of a battle going on with the robo-advisors?   Everyone has stepped onto the scene offering their own unique take on the robo-advisor.  Schwab, Betterment, Wealthfront, E*Trade, Fidelity and others.  I was pretty hyped some time back when I saw Vanguard was rolling out their Personal Advisor Service (which is really just a robo advisor of Vanguard mutual funds).   Unfortunately they didn't have a competitive offering charging .30% AUM.   

I like Betterment and have used the service and will continue to do so since I don't want to incur capital gains taxes on my gains so far, but I've got to say the fairly newcomer to the scene, M1 Finance, has a pretty compelling offering which is a robo-advisor service that charges no fee.  It's my hope that other brokers will eventually eliminate the fee and this will be the new standard for all brokers.  Schwab technically has no fee but they force you to keep a large percentage in cash which causes cash drag.

I signed up with M1 and got an affiliate with them as well because I think they'll do well.   To me it seems pretty Mustachean to take advantage of free management and a robo advisor at least in taxable accounts.   In a retirement account I'd imagine it's fine to just go with a target date or lifestyle fund.   But since these funds realize taxable gains that puts the robo-management at an advantage if you deposit from time to time to avoid rebalancing.

Not sure if anyone would be interested but I did a write up of the service and a comparison of them against other robo advisors .  Take a look if you're interested.
« Last Edit: July 04, 2018, 04:42:14 PM by chicagobluu »

jacoavluha

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Re: The battle of the robo-advisors
« Reply #1 on: July 04, 2018, 04:58:54 PM »
I would not call M1 a robo-advisor in the same vein as Betterment and Wealthfront. M1 isn't "advising". Pick your portfolio and they'll automate where the money goes, but it's at your direction. Put it all in one fund if you like. Or 10 individual stocks. Or whatever. Not the same at Betterment or Wealthfront, where you can determine your AA through their risk profile, but then they're "advising" you and putting you in their portfolio of ETFs.

Also, no automated no tax loss harvesting at M1.


EricL

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Re: The battle of the robo-advisors
« Reply #2 on: July 04, 2018, 05:14:47 PM »
Unfortunately I can never hear a term with “Robo” in it without thinking of the TV show Futurama’s comic and perverse robot characters. 
Gentleman of Leisure

jacoavluha

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Re: The battle of the robo-advisors
« Reply #3 on: July 04, 2018, 05:25:48 PM »
I like Betterment and have used the service and will continue to do so since I don't want to incur capital gains taxes on my gains so far...

Reading between the lines it sounds as if you would leave Betterment but you don’t want to liquidate and realize gains resulting in a tax bill. You can transfer your holdings in kind from Betterment to M1. (Whole shares only; fractional shares are liquidated.) I did this so that I could slowly unwind the portfolio under my control, without paying brokerage fees.

I think anyone should be cautious using a robo advisor (or two) if they hold the same ETFs/mutual funds elsewhere in either another taxable brokerage account, IRA, or spousal account, because of the potential for unrecognized wash sales.

chicagobluu

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Re: The battle of the robo-advisors
« Reply #4 on: July 04, 2018, 09:23:06 PM »
I hadn't considered that jacoavluha.   I don't really mind having the two brokers though and I have a hunch that in the next few years Betterment could drop the fees to compete.   I hear you that M1 is not acting like as much of an advisor as Betterment/Wealthfront, but you could set up a portfolio in M1 and have it replicate the portfolio's of Betterment.  That info is publicly available.   I'm not sure how the algorithm works for M1 rebalancing.  Betterment claims to do things in the most tax efficient way.  I'm wondering if M1 does as well, in terms of how shares and liquidated etc.

jacoavluha

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Re: The battle of the robo-advisors
« Reply #5 on: July 04, 2018, 11:04:51 PM »
I hadn't considered that jacoavluha.   I don't really mind having the two brokers though and I have a hunch that in the next few years Betterment could drop the fees to compete.   I hear you that M1 is not acting like as much of an advisor as Betterment/Wealthfront, but you could set up a portfolio in M1 and have it replicate the portfolio's of Betterment.  That info is publicly available.   I'm not sure how the algorithm works for M1 rebalancing.  Betterment claims to do things in the most tax efficient way.  I'm wondering if M1 does as well, in terms of how shares and liquidated etc.

M1 is not going to sell anything unless you tell it to. You create your portfolio and the platform will allocate contributions you make and dividends received to whatever is most underweight relative to the portfolio you’ve created. But unless you actually click “Rebalance” or eliminate a holding, they won’t sell anything.

Contrast that with Betterment or Wealthfront who will sell for tax loss harvesting or if your portfolio drifts too far off target.

I don’t see Betterment eliminating fees. They increased fees not that long ago.

shinn497

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Re: The battle of the robo-advisors
« Reply #6 on: July 14, 2018, 04:01:14 AM »
I am at betterment!

Lately I have spent a lot of time analyzing their portfolio. IT seems to have a small cap value tilt to it and is heavily weighted toward international. I am curious what peoples' opinions of that are.


jacoavluha

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Re: The battle of the robo-advisors
« Reply #7 on: July 14, 2018, 07:02:24 AM »
The tilt to small and value and emerging markets - overweighting these factors relative to their market cap -  is the most common tilt starting from a basic three fund portfolio. I believe a tilt toward small and value has data to support a higher risk adjusted return. Not sure about emerging markets. You can read betterment’s research and they’ll explain their leanings with terms like modern portfolio theory and efficient frontier. Betterment wealthfront etc have to build some complexity into their portfolio otherwise few people would think the fees are worth it if they were just using three or four funds. But certainly the three fund portfolio is the foundation for their “slice and dice” portfolio

Indexer

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Re: The battle of the robo-advisors
« Reply #8 on: July 14, 2018, 08:16:35 AM »
I was pretty hyped some time back when I saw Vanguard was rolling out their Personal Advisor Service (which is really just a robo advisor of Vanguard mutual funds).   Unfortunately they didn't have a competitive offering charging .30% AUM.   

FYI:  Vanguard's offering isn't a robo. You work with a CFP on an ongoing basis. Considering most companies charge 1%(or more) for that level of service I would say 0.3% is very competitive.

I don't use it, but they also offer free consultations to Vanguard clients so I like to talk to them about once a year to get their thoughts.

My average fund cost is 0.06%, and I have access to a CFP. I think that's a pretty good deal.

shinn497

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Re: The battle of the robo-advisors
« Reply #9 on: July 15, 2018, 11:32:25 PM »
The tilt to small and value and emerging markets - overweighting these factors relative to their market cap -  is the most common tilt starting from a basic three fund portfolio. I believe a tilt toward small and value has data to support a higher risk adjusted return. Not sure about emerging markets. You can read betterment’s research and they’ll explain their leanings with terms like modern portfolio theory and efficient frontier. Betterment wealthfront etc have to build some complexity into their portfolio otherwise few people would think the fees are worth it if they were just using three or four funds. But certainly the three fund portfolio is the foundation for their “slice and dice” portfolio

I have read through everything. They throw around fama french and blackk litterman but don't go further deep into it. I also staked Dan Egan a bit and found his quora profile. That was a bit illuminating, but still not enough to explain their allocation.

My impression is that they have a tilt to small cap value and invest in international to match the current market weighting by country. I mean I don't hate this. Lately it has been underperforming comared to US :/ but I can see a lot of promise in international markets so who knows.

I am sticking with them because I like their behavioural approach but i am still not 100% confident with their portfolio construction.

jacoavluha

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Re: The battle of the robo-advisors
« Reply #10 on: July 15, 2018, 11:38:13 PM »
Remember they tout the tax loss harvesting feature, and slicing the portfolio into a greater number of holdings / factors should create  more opportunities for tax loss harvesting

Some would argue more complex than it needs to be but then those folks are not their target audience.