Understanding automated investment management performance

Low costs

One of the perks of using an automated advisor is access to convenient, personalized advice at a low cost, especially when compared with human financial advisors. Among 20 leading digital investment advice providers Morningstar reviewed, the median yearly advisory fee was 0.25% of assets.² And while that's cheaper than most human advisors, management fees and commissions can eat into your total returns and decrease the value of your advisory service. High minimum investment requirements can also make some automated investment management inaccessible, so pay attention to the required initial investment.

Personalization

A key component of advice is personalization. Does the service understand your current financial situation and goals? Generally, digital advisors begin by asking about your financial profile (like income and spending), what you're looking to achieve, and how much risk you're willing to take. Your answers to these questions allow the service to personalize your portfolio management and help uncover and refine your financial goals and objectives.

An automated advisor's investment options and tools can affect the level of personalization and value it's able to offer. For instance, your financial goals and attitudes toward risk may change as you move through your financial journey. Does the automated advice service offer diversified investment portfolios catered toward different risk tolerances, investment preferences, and tax brackets?

You may also benefit from personalized tools that can add value to your portfolio, such as an account aggregator to paint a more complete picture of your finances, or an emergency savings tool to help calculate how much money you should save for rainy days.

Underlying philosophy and values

Automated advisors provide financial advice using computer algorithms. Algorithms are step-by-step programs that follow predetermined investment philosophies and rules to recommend investments. So when you're evaluating an automated advisor, you're also considering the company's investing philosophy and commitment to clients and how that's reflected in the service it provides.