laptops on my desk

Leaving OSU was always going to be an adventure, but one of the things that I really looked forward to was the freedom to learn and teach about a wider variety of topics than I might’ve at OSU. Password security was the first product. But now, I’d like to introduce you to my next, and much more in-depth project: Robo-advising.

What are Robo-advisors? Robo-advising is the natural outgrowth of rising investor awareness of the importance of minimizing fees on their portfolio, ever-cheaper computing power, and investors’ increased comfort with online relationships for everything from shopping to medical advice to investing. Robo-advisors are investment accounts who’s investment strategy and transactions are performed automatically and algorithmically based on the offering firm’s strategy and assessment of the investor’s goals and risk appetite.

So this is just a review, right? Yes and no. When I started at Ohio State in 2001, we had the choice between joining the traditional state pension system or the Alternative Retirement Program (ARP). Enrollees in the ARP opened 403(b) accounts (similar to a 401(k)) and all of the contributions that would normally have been made to the pension system were instead deposited into our 403(b) accounts. The kicker is that the state of Ohio has never joined the Social Security system, so the contributions to the 403(b) had to be at least as large as our SSI contributions–employer and employee. When I left OSU, I rolled all of this into a traditional IRA with Charles Schwab–where I opened my first online trading account in 1986–to escape the high fees associated with the 403(b) account I was in.

What about the robo-advisors? I’d read and heard a lot about Robo-advising, and was intensely curious. I came to the realization a number of years ago that the best thing I could do to improve my retirement prospects was to spend less time ‘investing’ and instead focus on earning and saving. Over the past 15 years, I looked at my investment account balances about once per quarter, rebalancing them when I felt like it/remembered to, and changing investment allocations about every three years. The prospect of an account that could ostensibly do all of that for me is pretty attractive.

Which Robo-Advisor? Who knows? Betterment and Wealthfront seem to be the original robo-advisors, or at least the firms that really popularized the concept, but now, nearly every investment firm, large and small, seem to offer some sort of robo-advising platform, including [Schwab][intelligent.schwab.com]. But reading dozens of articles made it very clear that not much is clear about the different platforms. They are all slightly different, and of course, the algorithms that make allocation recommendations are also different. However, I could narrow it down to three:

  • Betterment is one of the original robo-advisors, and clearly bends over backwards to market to young savers. It has low fees, and is 100% online only.

  • Charles Schwab Intelligent Portfolios is the name of Schwab’s robo-advisor service. I’ve been a Schwab customer for nearly 2/3’s of my life, and I’ve never been unhappy with them. They do nearly everything, and though they may not be best-of-breed, Schwab is always competent.

  • Liftoff is the outlier here. When I’ve told others what I’m doing with this project, and mentioned Betterment and Schwab, I got knowing nods, but Liftoff? Who’s that? Liftoff is the robo-advisor of Ritholtz Wealth Management. RWM’s namesake Barry Ritholtz is a contributor to Bloomberg, and produces one of the best financial podcasts out there, Master’s in Business. But it’s really Josh Brown’s Reformed Broker blog that first introduced me to RWM. I’ll admit that I have a bit of an intellectual/professional man-crush on Josh. His writing is excellent, his insights profound, and his wit is cutting. Finally, as a reformed broker myself, there is some small bit of kinship I feel.

Because I didn’t feel like I could narrow it down any further without actually being a client, I just opened accounts at all three. I wouldn’t buy a car without test-driving it, so why would I trust the largest asset on my balance sheet to someone cold-turkey? Over the coming year, I’ll be updating this series with information on my experiences with the three.