How We Rank the Robos
The robo advisors are ranked on a comprehensive set of criteria. The final robo score is made up of a qualitative review of their services, platform, company, and features, as well as a quantitative score based primarily on the costs and performance of the portfolio. A small portion of the quantitative score is based on the size and tenure of the robo advice product. When scoring the qualitative aspect of the service, we look at six main criteria: financial planning, user interface and customer experience, product features, access to live advisors, transparency and conflicts of interest, and account minimums.
Below, we give examples of what earned robos points in each section.
Financial Planning: Here we graded the platforms on the quality of financial planning services offered. Robos that allowed users to build or create single or multi-goal financial plans were awarded points. Other financial planning tool features that earned points were those that allowed for “what if” scenarios, helped users calculate retirement spending needs, including social security benefit estimates, allowed for the inclusion of pension or other retirement income, and offered suggestions on appropriate monthly saving goals.
User Interface and Customer Experience: Here we evaluated the user interface and the digital customer experience. We looked at the ease of getting to basic account information and general accessibility of the site. We measured the number of clicks required to access basic account and portfolio information, and used third-party software to produce an “accessibility score.” Points were also awarded to platforms that had good content and articles on basic personal finance and investing topics. During onboarding, we looked to see if the online process took less than 30 minutes from start to account opening, and if the onboarding questionnaire took into account a user’s comfort with investing and inquired or mentioned whether the user has an emergency fund. We also scored robos that had the ability to aggregate held-away accounts for a holistic financial picture. Availability of live chat options and mobile apps also helped robos score higher in this category.
Product Features: Robos were awarded points for different types of features. Tax-loss harvesting, tax efficiency, automatic deposits, ability to trade fractional shares, rebalancing, types of accounts offered, access to impact or other themed portfolios, and the ability of a robo to customize a portfolio to a specific customer situation were the features we looked for in this category. We also included a field for unique and additive features that were not explicit in our scoring. This unique and additive features criteria was a small portion of the overall features score.
Transparency and Conflicts of Interest: In this category, we looked for things like whether or not a user could easily compare their portfolio to relevant benchmarks to help them understand performance. We also awarded points for platforms that made their models available before account opening, and further points if they also published performance of their models to prospective customers. Availability of white papers and other information on how portfolios are constructed were also awarded points. We also awarded points to those portfolios that did not rely entirely on proprietary products or chose no proprietary products when constructing their portfolios.
Access to Live Advisors: Robos with access to live advisors, or the ability to upgrade to a product that has live advisors, earned points. Robos earned more points if there was a dedicated live advisor option, if they required their advisors to hold CFPs, and if live advisors were made available to all service levels. Partial points were awarded to firms that had products or programs with live advisors if those programs were not part of the digital advice offering.
Account Minimum: Robos earned points for having lower minimums. This section was weighted less than the other five categories above.
Costs: Robos with low management fees and low fund expense ratios received higher scores. Additionally, we consider a cash allocation as a cost if the cash holding is earning less than 1.00% APY. If a cash position was earning 1.00% or more, robos received full points in this section. Robos with cash positions that are earning less than 1.00% received less than full points in this category. The cash allocation had a much smaller impact than management fees and weighted expense ratios.
Performance: We used two metrics to grade a robo’s performance. The first was Sharpe ratio, which is a measure of risk-adjusted returns. The second was their return above/below the Normalized Benchmark. This measurement method reduces the impact of different equity/bond allocations in the portfolio. The method of using a Normalized Benchmark was created by the team at The Robo Ranking™ and is explained in detail in the Normalized Benchmarking section on the website.
Size and Tenure: This score is based on the AUM and age of the robo advice products. Large amounts of AUM and older products are less likely to be discontinued in the future, forcing a client to change providers or products, which can be disadvantageous to the client. Robos that do not publish their AUM specific to the robo advice product only received the points available for the age of the robo. We encourage robo advisors and their parent companies to release AUM data for their different products in the interest of transparency to the investor.