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The New Transparency of Robos

New Robo Report™ Offers 2 Year Performance Numbers for 7 Top Robo Advisors

MARTINSVILLE, N.J., Feb. 2, 2018 /PRNewswire/ — The 6th Edition of The Robo Report™, a leading report on the performance and portfolios of robo advisors in the digital advice industry, published by BackEnd Benchmarking, has been released for the fourth quarter 2017.

For the first time, the Report now has full two year performance return numbers for robo advisors at Betterment, SigFig, Schwab, Vanguard, Personal Capital, WiseBanyan, and Acorns. In addition, the Report covers Ally Financial, Ellevest, E*Trade , Fidelity Go, FutureAdvisor, Hedgeable, Merrill Edge, SoFi, Ameritrade, TIAA, WealthFront, WealthSimple and this quarter introduced Zack’s Advantage and T. Rowe Price. Next quarter it will introduce portfolios from USAA, Wells Fargo, Morgan Stanley, United Income, and Capital One.

Full Two-Year Analysis

“Now that we have full two-year analysis on the seven top providers, we can present a long-term view of their management and performance. This is the only source that retail investors and industry pro’s have to make informed decisions on where to invest in the financial digital advice industry,” said Ken Schapiro, Founder of BackEnd Benchmarking.

The new Report includes interviews with Schwab, Merrill Edge and TD Ameritrade, as well as risk/return analysis, Robo Reviews, and a discussion on trading activity seen in the portfolios.

Alongside reporting performance, The Robo Report™ includes a discussion on the trends during the quarter that drove performance as well as a news section covering recent industry events.

The Report ranks the top three Robos by quarterly performance in Equity, Fixed Income and Total Portfolio as well as historical performance since each accounts’ inception.

A deeper knowledge of underlying assets

To get a first-hand understanding of how the providers operate and invest, BackEnd Benchmarking opened and funded portfolios seeking a similar asset allocation to allow for comparison. The knowledge of the underlying assets held helps to understand the structure of the portfolio, the risk, and what is driving performance.

This report represents BackEnd Benchmarking’s research, analysis, and opinion only; the period tested was short in duration and may not provide a meaningful analysis. There can be no assurance that the performance trend demonstrated by robos vs indices during the short period will continue.

Excerpts from the report: Bringing Transparency to Robo-Investing

 Executive Summary
Digital advice is transforming areas of the financial advice industry. It is becoming increasingly apparent that incumbent financial service firms are adopting digital advice solutions across the board. This quarter Morgan Stanley and Wells Fargo launched products, and we still anticipate offerings from Goldman Sachs and JP Morgan Chase. As more firms bring on digital advice solutions, we continue to open and fund portfolios and collect performance data.

This quarter we added portfolios from Zack’s Advantage and T. Rowe Price. Next quarter we will be publishing the first round of data on portfolios from USAA, Wells Fargo, Morgan Stanley, United Income, and Capital One. Over the past year we have seen many robos introduce an option to invest in a socially responsible portfolio and have opened three portfolios with this theme. In our next report we will be publishing results from socially responsible portfolios at Morgan Stanley, Betterment, and TIAA. Additionally, we have discontinued coverage of the e*Trade Hybrid portfolio as this strategy is no longer available to new customers. We have also changed how we cover the Ally Financial, previously TradeKing portfolio. Ally acquired TradeKing in 2016 and at the end of Q1 2017 we witnessed a significant change in strategy. In the interest of
representing to our readers the portfolio and performance they would receive with Ally Financial we now report the Ally Financial account as of Q2 2017, after the transition. We still publish the performance on the portfolio before the transition
under “TradeKing” in the addendum.

Although client on-boarding, determination of risk tolerance, rebalancing, trading, tax-loss harvesting, and other functions are automated in most robo advice products, the asset selection, allocation, and construction of model portfolios in most cases is not an algorithmically driven, automated process

Closing out a year of fantastic equity returns, we now have seven portfolios that have been open and risk return sections will be focusing on these seven portfolios as we dive into the long-term results of Schwab, Betterment, Vanguard, Acorns,
WiseBanyan, and Personal Capital. 2017 was a great year for both equity markets and The Robo Report™, and we look forward to another year of bringing transparency to the robo advice industry.

This quarter, we interviewed three of the top institutional players with live digital advice products. Tobin McDaniel, Senior Vice President of Digital Advice and Innovation at Schwab, Keith Denerstein, Director of Guidance Product Management at TD Ameritrade, and David Poole, Head of Merrill Edge Advisory, Client Experiences and Digital Capabilities, at Merrill Edge, shared their insights with us on both their view of the future of digital advice their takeaways from the success of the individual products. 

During our time covering robo advisors, we have seen two large misconceptions in both the investing public and the financial professional communities about robo advisors.

The first misconception is many individual investors hear about robo advisors and assume that algorithms and automation are at the core of the investment selection and asset allocation process.  Although client on-boarding, determination of risk tolerance, rebalancing, trading, tax-loss harvesting, and other functions are automated in most robo advice products, the asset selection, allocation, and construction of model portfolios in most cases is not an algorithmically driven, automated process. 

David Poole of Merrill Edge points out that their digital advice offering “is coupled with a strong partnership and support on the Merrill Lynch CIO side as far as designing the portfolios and [their] ongoing management.” Poole later goes on to cite
the role the chief investment ofce plays in attracting a broad spectrum of clients. “A big part of that is confidence of the CIO, we have heard it in the feedback, it’s not just algo’ driven, there is Merrill Lynch, this trusted entity behind it, that is developing the portfolios and managing through.” We heard a similar story from Tobin McDaniel at Schwab about their asset selection process. 

“Charles Schwab Investment Advisory, who has investing experts, CFAs, PhDs and the like, identify the portfolio allocation so that it is appropriate across the risk spectrum.” Once allocations are chosen, the team responsible for the digital advice offerings “is looking at the universe of ETFs available, those that are big enough, liquid enough and track their indexes, and picking among the lowest cost…” Although robo advisors are digitizing and automating many parts of the investment process, it appears most providers are relying on real people, not just algorithms, in the construction of their
model portfolios and asset selection.

The Robo Report™ is available for free at https://theroboreport.com/. Follow the Report on Twitter @theroboreport.