The Actual Cost of Robo Advisors Fees – What Are the Annual Fees?
Which robo advisor service offers the best bang for your buck?
Cost Comparison
Here’s a side-by-side comparison case study that showcases the real annual costs of the most popular robo advisor services. For this article, I chose these five leading robo advisors:
- Betterment
- Charles Schwab's Intelligent Portfolios
- Fidelity Go
- Vanguard's Personal Advisor
- Wealthfront
Click on the respective link to read our review.
I chose these firms because of their popularity, the amount of assets under management (AUM), and their automated, hands-off approach to asset allocation and investing.
We don't know the future returns of the asset allocation models each robo advisor provides, but we do know how much each service will cost per year.
The goal of this article is to report on one thing: the measurable annual costs of each investment provider.
Robo Advisor Fees Criteria
For this comparison study, I’m using a 60/40 stock/bonds mix, since for the most part, it’s considered the “gold standard” in asset allocation.
At least it’s a good starting point for doing an apples-to-apples comparison among the various robo advisors.
While things like tax efficiency are important, this adds too many variables for this comparison. Also, many individuals are opening tax-deferred accounts with these firms, so services like tax-loss harvesting will not matter with these types of accounts.
For the analysis I created sample investment amounts at $5,000, $35,000, $125,000 and $500,000. I did this to represent various pricing points of the robo advisors, but also to show fees and annual costs at different deposit amounts.
Why these benchmark amounts? These are the most common real-life price points that have popped up during my research and marked the point at which robo advisors changed their annual fees.
This article does not look at which service has a better asset allocation (there are too many variables for this comparison to answer that question) but to reveal the real costs of using each service. Not only does my research reveal the robo advisor fees, but fee efficiency in the selection of the ETFs used to generate the asset allocation.
In the tables below, the Total Annual Fee figure includes the robo advisor fees and ETF fees combined.
$5,000 Deposit
| Type | Betterment | Charles Schwab | Fidelity | Vanguard | Wealthfront |
|---|---|---|---|---|---|
| Robo Advisor Expense Ratio | 0.25% | 0.00% | 0.38% | N/A | 0.00% |
| Average ETF Expense Ratio | 0.15% | 0.23% | Included | N/A | 0.14% |
| Robo Advisor Annual Fee | $12.50 | $0.00 | $19.20 | N/A | $0.00 |
| Total Annual Fee | $19.97 | $11.25 | $19.20 | N/A | $7.19 |
$35,000 Deposit
| Betterment | Charles Schwab | Fidelity | Vanguard | Wealthfront | |
|---|---|---|---|---|---|
| Robo Advisor Expense Ratio | 0.25% | 0.00% | 0.38% | N/A | 0.25% |
| Average ETF Expense Ratio | 0.15% | 0.23% | Included | N/A | 0.14% |
| Robo Advisor Annual Fee | $87.59 | $0.00 | $133.32 | N/A | $50.00 |
| Total Annual Fee | $140.51 | $78.72 | $133.32 | N/A | $100.30 |
$125,000 Deposit
| Betterment | Charles Schwab | Fidelity | Vanguard | Wealthfront | |
|---|---|---|---|---|---|
| Robo Advisor Expense Ratio | 0.25% | 0.00% | 0.38% | 0.30% | 0.25% |
| Average ETF Expense Ratio | 0.15% | 0.23% | Included | 0.09% | 0.14% |
| Robo Advisor Annual Fee | $312.81 | $0.00 | $475.80 | $375.00 | $275.00 |
| Total Annual Fee | $501.81 | $281.13 | $457.80 | $492.50 | $454.63 |
$500,000 Deposit
| Betterment | Charles Schwab | Fidelity | Vanguard | Wealthfront | |
|---|---|---|---|---|---|
| Robo Advisor Expense Ratio | 0.25% | 0.00% | 0.38% | 0.30% | 0.25% |
| Average ETF Expense Ratio | 0.15% | 0.23% | Included | 0.09% | 0.13% |
| Robo Advisor Annual Fee | $1,251.35 | $0.00 | $1,903.32 | $1,500.00 | $1,212.50 |
| Total Annual Fee | $2,007.25 | $1,124.50 | $1,903.32 | $1,970.00 | $1,886.00 |
Charles Schwab's Cash Allocation
As stated in our review of Charles Schwab, anywhere from 6% to 30% of your portfolio is in cash. You cannot adjust this allocation. It's hard-coded into your portfolio model and a requirement for using Schwab's service. The cash allocation is also part of Schwab's revenue model.
It should be said it can be a significant drag on long-term returns.
As an example, for the $500,000 with a minimum of 6% allocated to cash, that's $30,000 of your portfolio. If you took the current risk-free return of, say, 2% per year, that's $600 lost in possible returns for just one year. If you add that amount to Charles Schwab's annual expenses, they are no longer the cheapest at $1,724.50 — they are in the middle of the pack.
That's the best-case situation. If you take other situations into account it's possible your expenses are much higher.
If you took that cash and invested in a traditional 60/40 stock-to-bond ratio, Charles Schwab's cash drag is even worse. If you figure a 7% annual return, that's $2,100 lost in returns. Granted, this isn't a guaranteed return, but it still shows the possible cash drag.
Keep in mind this is at their minimum 6% cash portfolio. Many of Charles Schwab's portfolios are at much higher cash allocations. So the drag on returns, the loss of gains in the market, is even greater. Over a 10-year investing period, this drag can be dramatic.
Summary
Based upon not charging any fees for their service, it looks like Wealthfront is the cheapest robo advisors today.
Surprisingly, despite their low ETF fees, Vanguard didn't come out the winner at any deposit amount. In fact, they turned out to be one of the most expensive of the six. While Vanguard does allow you to speak to an advisor, I'm not sure what value they add since they won't give advice on funds outside of their service. Is Vanguard's service worth five basis points more than the competition? That remains to be seen. Vanguard is also somewhat limited for the beginning investor since they require a minimum of $50,000 to invest.
With any of the robo advisors, understand the real annual fee you pay. Which provider has the better allocation for higher future returns? Who knows — that's a crapshoot.
While you cannot control what the market will do, you can control taxes and fees. Make sure you are getting the best service available, at the lowest possible fee. That's not to say you should automatically go with the lowest cost robo advisor, but the one that best meets your investing objectives.
Hmmmm. The real key is what you get in exchange for the money, both in terms of investment performance and in terms of financial planning advice. It’s hard to get that piece of it, isn’t it? Most of the evidence we have about the good and bad of individual advisors is anecdotal.
I’m pretty sure your calculations are incorrect. With Betterment the only fee you pay is what you call the robo advisor expense ratio. There is no annual fee or additional ETF expense ratio since that’s built into betterment’s expense ratio.
Hi Chris,
You are not correct. In fact, I allowed each robo-advisor to review our spreadsheets before publication. Annual ETF fees are NOT included in their robo-advisor fee.
Is there a spreadsheet or article which shows the total costs with ETF fees?
Maybe it is something we can add per review when we list the ETFs?
Would you be able to add Personal Capital to the mix please?
Hi Vivek,
We’ll look into it. Problem is their portfolios are somewhat custom to the individual, so not sure if we can get a true apples-to-apples comparison like we can with these automated services.
Hi Larry, have you had the opportunity to evaluate Personal Capital and FutureAdvisor? Also suggest that you include in your comparison which ones aggregate external accounts. Thank you
We will look into it.
Larry, can you please advise which Robo Advisors aggregate the accounts from different sources and can provide a holistic advice for example include funds that are in a company deferred program or other brokers? Personal Capital is able to do it but would like to know which other provides such service.
Excellent article. I am in all three, Wealthfront, Betterment and Wisebanyan. I’m still not sure they are better than putting it all in Vanguard or Fidelity ERFs and skipping the yearly fees. I guess I’m trying to decide which one is better since they all buy the same thing.
I have cashed out of the Robos. I want monthly return or quartly. I went with low fee Fidelity ETFs. I’ll see how this goes for a year.
Thanks for the update RGF! I’m a DIYer and wondering if I should get in a robo; not sold yet. Good luck this year!
Hey, Larry, thanks so much for the analysis. It is so helpful to see these side by side. I’d love to see an update that includes Future Advisor.
Hi, thanks for this, I was making my own comparison. Regarding Schwab, other than the drag on performance, does the cash holding carry other hidden fees? I have read some funds make money on the cash by putting it in their own “cash vehicles” where they collect operating fees as they would with a fund.
Hi Tim, According to memory Schwab lends that money out or invests it in assets. That is how Schwab makes money (besides the ETF annual fees).
That sounds like a huge hit to portfolio performance over the long term in terms of opportunity cost if Schwab is forcing a significant percentage of a portfolio to remain in cash vehicles, not really invested, and therefore not available for potential (compounded) gains. If so then that seems to be a much bigger cost factor than annual fees.
Been with VPAS 6 months and not so sure I want to spend $3,600.00 year on this service . They did adjust my folio some, but really not that much change was needed since I have followed an initial 2001 Vanguard Financial Plan @$400.00 total . That was an eye opener and really got a hodge-podge folio on track with big tax savings . I drifted from that plan, but not by much even during the 2007-08-09 Depression ! Not much to say to the VPAS advisor now . Partly because our good pensions cover our expenses, and we only only tap the taxable account periodically for big ticket items,..Vangyard offers fee counseling 1x year to Flagship members . Thinking maybe that’s all we need per rebalancing …Just have to “execute “their recommendations at that time .
Suggestions are welcome .
Thank you for disclosing the true costs of robo-advisors, but more importantly, is there any way to evaluate their actual (relative) performance in both up and down markets?
Measuring performance to get true apple-to-apples comparison is harder. Though discussing some options to eventually present something on the subject.
It seems as though the main advantages of roboadvisers over DIY are that they rebalance,no emotion in investing, and automatic tax loss harvesting. If I mimic the assets allocation of a roboadviser with many offerings and rebalance myself, what are the disadvantages? I could use a vanguard account and invest in vanguard ETFs at no trading fees. I have about 500 k in retirement, recently retired early on my own, and live on 24 k per year. So the fees are significant on 500k, considering my overall living expenses
What am I missing? The robo advisor is an automated investment program that picks etfs and adjust the allocation of the portfolio over time. So I suspect that some will do better than others depending on the time period much like any managed account. This means that it might make sense to have two different ones just like you may invest in two different no load funds. Then you may want to diversify even more and buy a few stocks. My point is what is the difference between a robo advisor than any other managed investment account or mutual fund? ..Portfolio managers have been creating investment systems for decades! These things are not run by IBMs Watson! I think they are making a big deal out of just another managed account.
John,
The difference compared to human portfolio managers primarily is the fee.
Agree but the deal is the low fees.
You keep noting as a negative “no fractional shares,” but how is it possible to have fractional shares in a Robo fund that uses ETFs? My understanding is that you can’t have fractional shares of an ETF.
I’m interested in your insight here because I have a Windhaven account (last two years) and am very disappointed with its performance. Yes it behaved well in the short down markets we’ve had, but it has grossly missed the up moves. I have $0.9M and lost about 10K while in the “general market” I would have gained about 90K!
I could move my Windhaven to Intelligent Portfolios – ( and then watch the market crash 🙂
ETFs can certainly have fractional shares. It is a negative because it means not all of your money is going to work. While not a huge drag on performance in the long run (20-30 years) it can add up.
Hmmmmm. I must be missing something. When I enter a buy for 5.5 share at Schwab I get a message “It is not possible to buy fractional shares” and at Vanguard I get “please enter a whole number between 0 and a billion shares”. All my Windhaven holdings are in integral shares. I know mutual fund shares can be fractional, but I don’t see how ETFs can be.
Charles Schwab doesn’t support fractional shares with their service. Not sure about Vanguard as they do support fractional shares. Perhaps just not the initial purchase.
Vanguard does not. The review page of them is incorrect, but the comparison page is.
Ok, so many opinions, hard to decide. Would YOU recommend betterment for instance if it is over a million dollar account
With changes in Betterment’s pricing, they will cap their fees at $2 million. So if you have that large of an account it will help you.
Hi Larry,
I am a bit confused for the 5k and 35 k sections you have marked all the rows as N/A for Vanguard. Won’t you have something for Average ETF Expense Ratio?
In order to use Vanguard’s service you need at least $50k hence N/A.
Betterment’s fee drops to .15 % at 100k afaik
Hi Seth,
That is no longer the case. Betterment’s pricing is 0.25% across the board.
Bummer. Thanks for responding, Larry.
Looks like Wisebanyan is the best Robo with no fees.
If the fees for Betterment are the most expensive, what benefits does it have compared to the other services to allow them to charge more?
What happened to Personal Capital? they have been i other surveys and are larger AUM than Betterment?
Hi Joseph,
They aren’t as large as Betterment and is hard to compare with cost since Personal Capital’s plans are tailored to the individual. So it wouldn’t be a true apples-to-apples comparison.
Larry, thanks for this great analysis. Wouldn’t Wealthfront’s Direct Indexing feature (for accts > $100k) bypass ETFs and thereby reduce ETF expenses? Is that feature built into your model of Wealthfront’s $125k and $500k portfolios? Approximately how much is the fee reduction impact? Thanks!
Hi Jonathan,
No since that will be variable based upon stock returns. I don’t calculate this and you can visit Wealthfront for what they state as the discount. I’m only calculating fees of the services, not any possible increase of returns based upon strategies implemented by them.
Hi Larry – Very interesting post. My question to you is, do the costs for Charles Schwab take into account the cash drag costs? To me, if you take WiseBayan out of the equation (to your point, their long term viable is very questionable), Schwab is the cheapest Robo at most levels (excluding the $5,000 level). If those figures take into account the potential cash drag cost, Schwab is among the lowest cost Robo’s out there. Thanks for the input!
Hi Brian,
No it does not include cash drag for Charles Schwab.
Thanks for the reply, Larry!
Thoughts on how the fees of a target date fund would compare to the fees of a robo advisor? Taking into account for example a vanguard tdf using their higher fee’d mutual funds compared to etf’s by the robo advisors? I read the other article comparing the two but not sure how the fee breakdown would compare between two.
Is there an article that takes your excellent work and compares net and gross returns for the five robo-advisers with different deposits? Maybe it isn’t necessary since they invest in they same stuff.
Thank you Larry for the excellent articles on robo advisors. I’m considering a switch to low-cost investing (ETFs, index funds) after being with mutual funds and managed portfolios for 30 years- tired of the fees and lack of service. What are your thoughts on how much I should allocate to a robo advisor account like Fidelity Go? If I have 200K to invest- would you invest it all in one robo account like Fidelity Go or in two accounts- one robo and the other in an advisory type account? I’m a little skittish not having invested in ETFs before- just mutual funds. Your thoughts?
How is Zack’s Advantage robo-advisor? Its suppose to use a proprietary investment model.
Hi We haven’t reviewed it yet, but on our list.
This is an excellent article. Confirms my choice. I’ve been with WiseBanyan since the beginning. I can’t understand why Robo users don’t use WiseBanyan.
Not very popular and not sure if they will survive since they don’t charge a fee but only for their additional services are the primarily problems.
Ive been with Wisebanyan for three years. They have premium packages that put their fees in line with the other guys for the same services. Want tax-loss harvesting you pay .25%. Actually, its cheaper to go to Wealthfront and have the first 15K managed for free and get tax loss harvesting. Free is great, but you also get less unless you pay their annual fee. Also Wisebanyans interface is very childish. I asked years ago to get rid of the “Meow” crap and make their website and app more “adult”. Just not for me anymore. I don’t see them being around in 5 years. Their AUM are tiny and there is no way that they will make money to survive. They are surviving off of VC money and it will dry up eventually. Its great for people to start with, but once you build some assets they are not the best to be with.
You may want to update this article – as of April 1, 2018, WiseBanyan will make IRA accounts a mandatory part of their Tax Protection service – which is 0.24% per year up to $240/year max.
Thanks. Though we were discussing taxable accounts in our costs for the purpose of this article.
Does Robo investing do any active management? Like going into cash if they see a broad market decline? Or they just change asset allocation? Also is that done on a daily basis?
Hi Larry, How to reconcile ?? The article says it was updated May 25, 2020 but the comments are 2 to 5 years old !
So listen , your articles really are very good & quite helpful & I appreciate reading them….
But because of the old age of the comments I’m wondering if the articles may be dated
Thanks & I hope you reply
Jerry
Hi Jerry, I am Moriah, the current editor at Investor Junkie. You are correct that this article was written a few years ago… however we keep the information on all of our articles updated to be as accurate as possible, so hence the May 25,2020 updated date.