AMTD TD Ameritrade Holding Corporation

By Bailey McCann 

When the first robo advisers were launched, the idea was to offer everyone access to investing. The slick apps offered ready-made portfolios with minimum investments and account fees as low as $1 a month, appealing initially to younger investors.

Now, more than a decade later, robo-advising firms have expanded into other low-cost, accessible financial services as they vie with each other for clients and try to expand their customer base.

Robo advising has grown to a $600 billion-plus market that includes cash accounts, financial advice, lending and retirement services -- attracting a wider variety of investors than ever.

Robo-advising companies including Acorns, Betterment, Personal Capital and Wealthfront offer cash accounts ranging from basic checking to high-interest-rate savings accounts, and some offer debit cards. Investors can set up rules that automatically route cash into savings goals, investment portfolios and retirement funds. Acorns, Betterment and Personal Capital also offer individuals the ability to do basic financial planning.

All these services are low cost. An Acorns cash account, for example, has no overdraft fees or minimum balances, and it includes free ATM use.

'Self-driving money'

Wealthfront has gone so far as to say that the robo label is too limiting for its services. Kate Wauck, a spokeswoman for the company, says its goal is to offer fully automated finances to consumers. As a step toward that goal, Wealthfront is launching what it calls "self-driving money," a suite of services that will allocate every dollar that comes into an account in accordance with rules set by the account holder.

When money is deposited in a Wealthfront cash account, the money can be automatically distributed into bill payments, investments, loan payments, retirement and savings goals.

Ms. Wauck says a majority of Wealthfront's new customers are coming in through the cash-account option -- the company doubled the assets it oversees to $24 billion with the launch of cash accounts. Customers tend to move into investing later. Wealthfront's minimum for an investment account is higher than those of many of its rivals, at $500.

Widening impact

More robo-advising firms are also marketing to investors who say they want to better align their investing with their values.

Newday Investing offers cash accounts and robo investing, targeting investors who want to align their portfolios to sustainability or social-impact goals. Individuals can choose the impact they want to focus on, and the site will generate a portfolio that fits. The investment minimum is $100.

Options for investors include a gender-lens strategy, a sustainable real-estate investment trust and a strategy that focuses on ocean health. In the future Newday plans to offer faith-based portfolios.

In addition, Newday's cash account provides sustainability and impact information on everyday purchases.

On a more personal level, Ellevest, a robo-advising firm that targets women, has expanded to include career coaching alongside investment help. Ellevest users can get tips on how to improve their job prospects and negotiate for higher salaries, as well as financial planning.

Hybrids draw older investors

Investment minimums for robo-adviser accounts at the more-established financial firms, like Vanguard Group and Charles Schwab Corp., can be more than $10,000. For that, investors get access to more financial advice than the more-accessible services generally offer, in some cases directly from a human. Investors in these robo advisers often come over from other business lines at these firms or from self-directed accounts and include older investors, in part because of the higher initial minimum investments.

Vanguard, which has the largest share of the robo-adviser market at $148 billion, offers a hybrid: automated portfolios with human advice on issues like investment choices and tax considerations. It recently started offering an all-digital option, with no human advice, for a lower fee.

Schwab, which recently acquired TD Ameritrade and its robo business, is the second-largest robo adviser, overseeing $43 billion. Hybrid services are available, as well as a new feature that helps investors spend down their retirement accounts smartly.

Looking ahead, both the newer firms and the more traditional financial giants are likely to keep expanding what is offered under the umbrella of robo advisory. Technology provides a low-cost way to offer an array of services to clients that can help boost customer loyalty. New entry points like cash accounts can also serve as a path into investing or other services like lending or retirement accounts.

Ken Schapiro, president and chief executive of Backend Research, a service that monitors developments in the robo market, says he expects cash accounts to be the next frontier for the more-traditional firms.

Industry estimates suggest that the robo market could top $2 trillion in assets by 2022. Mr. Schapiro says firms are "all in" on continuing to improve the robo-adviser apps and adding services as users have come to expect an Amazon.com-like experience. "They're going to keep pushing the envelope," he says.

Ms. McCann is a writer in New York. She can be reached at reports@wsj.com.

(END) Dow Jones Newswires

March 08, 2020 23:25 ET (03:25 GMT)

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