robo-advisors

Best Robo-Advisors In A Nutshell

Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with limited human oversight. These platforms are becoming mainstream as consumers look for low-cost financial and investment advice. Many younger consumers also enjoy robo-advisors for their comprehensive digital financial planning tools and socially responsible investment portfolios. The global robo-advisory market size is predicted to reach over $41 billion by 2027.

SoFi

how-does-sofi-make-money
SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization.

SoFi is a fintech company that was founded in 2011 by Mike Cagney, Dan Macklin, James Finnigan, and Ian Brady. The company is known for developing a range of high-quality financial products, including student loan refinancing, mortgages, personal loans, and credit cards.

In 2019, SoFi released its own robo-advisor called SoFi Automated Investing. As part of the service, the company provides automatic rebalancing and goal-based planning to help users reach their life goals. Customers also get access to career services, financial advisors, and discounts on other products in the SoFi family.

Betterment

how-does-betterment-make-money
Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for business, cash reserve, and checking accounts.

Betterment was one of the first robo-advisors to hit the market. Launched in 2008, investors can easily get started by answering a few questions to determine their risk tolerance and preferred time horizon for cashing out their investment.

The platform then recommends a stock-and-bond allocation and automatically adjusts the balance whenever a deposit or withdrawal is made. Betterment algorithms also check for portfolio drift daily and will rebalance if necessary. 

Wealthfront

how-does-wealthfront-make-money
Wealthfront is an automated Fintech investment platform providing investment, retirement, and cash management products to retail investors, mostly making money on the annual 0.25% advisory fee the company charges for assets under management. It also makes money via a line of credits and interests on the cash accounts.

Wealthfront shares many similar features with Betterment, including a 0.25% annual advisory fee and tax-loss harvesting. Unlike Betterment, however, Wealthfront requires a minimum balance of $500 to get started.

The platform is also favored by parents because it offers a 529 college savings plan, which allows them to save for their kids’ future tuition. Wealthfront also offers a branded debit card with a 0.1% annual percentage yield (APY).

Ellevest

Ellevest is a robo-advisor platform and financial literacy program founded primarily for women, with approximately 90% of its 120,000 users identifying as female. Founder Sallie Krawcheck argued most investment platforms were made for men, with women tending to invest much lower amounts and parking 68% of their money in cash.

To that end, Ellevest was created to encourage more women to invest and save for life goals including retirement or the down payment for a house. The platform also offers advice on budgeting, saving, paying off debt, and even applying for unemployment. 

Ellevest has a three-tiered membership program, with the basic plan at $1 month including an approved savings account, branded debit card, and brokerage account.

M1 Finance

how-does-m1-finance-make-money
M1 Finance is a North American online trading platform for common and preferred stocks and exchange-traded funds (ETFs). The company also offers margin lending, cash management, and a checking or debit account service. M1 Finance has a standard assortment of revenue streams for an investment platform. As a market maker earns money on the bid-ask spread, M1 Finance also offers a single premium subscription dubbed M1 Plus, and through interest and interchange fees.

M1 Finance is preferred amongst more sophisticated investors because it offers a unique combination of automated investing and high-level customization. 

Consumers enjoy the M1 Finance platform because it offers a low-cost way to invest in fractional shares with a higher degree of control over portfolio construction. 

Importantly, the platform does not charge portfolio management fees, trading fees, or any fees associated with deposits or withdrawals to a connected bank account.

Key takeaways:

  • Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with limited human oversight. 
  • Betterment and Wealthfront developed two of the earliest robo-advisor platforms for simple goal-based investing. For more sophisticated investors or those desiring more customization, M1 Finance is a superb option.
  • Ellevest is a robo-advisor platform that was created to encourage women to invest and save for important milestones. Relative newcomer SoFi Automated Investing is also a platform developed by leading fintech product developer SoFi.

Read: SoFi Business Model, Betterment Business Model, Wealthfront Business Model, M1 Finance Business Model.

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