Gurley's post [1] (from 2014) gives one possible end goal: "Learning about Yu’e Bao gave us an epiphany that Jack Ma likely had years ago. If you want to truly disrupt the financial services industry, perhaps you need to stop attacking the transactional experience and launch a competitive product on the asset gathering side. Once you have the assets, all the disruptive things that Silicon Valley types want to do will be easy. The hardest part has been getting access to the funds."

[1]: http://abovethecrowd.com/2014/06/18/disrupting-finance-from-...

Since this is a community of programmers, you might be interested in doings things like this yourself instead. There are a couple of options:

- Quantopian (http://quantopian.com/): Python based, kinda a little bit open source (backtesting only), live trades on Interactive Brokers or Robinhood. Has a big community for stocks.

- QuantConnect (http://quantconnect.com/): .NET based, more open source (includes live trading), live trades on Interactive Brokers, has a similarly sized community but the community's attention is spread to other asset types like Forex as well.

Both have numerous example algorithms you can clone and run without much trouble. An example vaguely suited to investing: https://www.quantopian.com/posts/modern-portfolio-theory-min...

This article didn't mention it specifically, but Betterment already put in a rate hike. You used to be able to get 10 basis points if you had over 100k and they just increased that to 25 in a really underhanded way. I had been using Betterment for about 2 years when they did this.

I had been happy with Betterment but it's clear that they want to get as many people in under the low rates and slowly increase it on you, knowing that you can't easily move it around to another provider (especially if you're dependent on their tax loss harvesting etc).

In the article, it states that Chase is offering 0% funds, yet Betterment claims that their "All-in Actual Cost" for a 100k fund is better than Chase's due to cash drag and a lower expense ratio. (Found here: https://www.betterment.com/comparison/schwab-intelligent-por...)

This is confusing and hard to fact check. Who do I believe?

Wealthfront has raised ~$100M and Betterment has raised ~$200M. If they are only burning $4M/year to grow as fast as they are, they are doing fantastically well. I suspect though that the author's burn rates are off by an order of magnitude.

While we're on the topic of robo-advisors, I'd love to see a robo-advisor that lets clients customize a portfolio allocation and just advises them on when and what to trade to keep their portfolio balanced on a regular schedule, for a fixed fee. That is, instead of these so-called robo-advisors that are actually robo-managers, in the sense that they manage your portfolio and trade on your behalf, and are compensated as such, for a percentage of the entire value of your portfolio.

I'm sure there is enough space in the market for both types of products, the robo-advisor and the robo-manager. Personally, I'd prefer the former.

The failure of articles like this is that they take a snapshot of a company at a point in time and assume that the company's business model and reach doesn't change. This is the same mistake that many analyst make on early stage companies.

Companies evolve over time and grow in terms of scale. Take a look at Facebook and Google as an example.

I think that he's definitely right about consolidation and then acquisition.

I work in HNW wealth management and I think that there needs to be better education on what for example a young person's IRA should look like. An ideal robo-advisor would make buy recommendations, ask you to never sell, and use education along the way to help prevent you from making the same mistakes most people fall trap to. I also think that if any of these companies have a desire to stay around for a while they need to be targetting the IRAs of young, high-income programmers. With a good fee and good education and assistance they can probably retain these customers, encourage them to max out contributions into their IRA (you should!!) and slowly build up a long tail of decent-sized accounts from people that may have only been interested from a tech perspective initially.

I haven't switched to a roboadvisor product for a few reasons, but one of them is that saving for retirement is a decision you make on a 30+ year timeline. Most startups hardly last 3 years, much less 30. Why would I trust my money to an industry where the typical case is a flameout in only a few years?

If you want a good robo advisor with no fees, check out Wise Banyan. I'm a client, but a happy one and that's my only relationship with them.

If you guys want to see a comparison of historical performance and fees of the top robo-advisors check this out https://senzu.io/investing/robo-advisors

I don't use them, but I can tell their strategy is working. My broker (through work) is Fidelity and lately they've been throwing up pop-ups on login, and sending me emails, urging me to try their low-cost funds that they insist are cheaper and better than Vanguard. They're definitely feeling the heat; I don't think companies like this push their low-fee funds on you unless they're up against the wall.

Charles Scwab does take fees in a way, their robo advisor requires a certain percentage of your account be cash. This cash in turn is invested for their own profits.

I looked into these companies but couldn't find a reason to invest through them. I don't understand what value these guys bring. If I am already paying a commission for each fund I don't know why I shypay these guys a cut again.

Eventually I think these guys will and must come up with their own funds. Else it does not make sense for them.

The article's scenarios top out at 16B AUM , but vanguard is at 4T with a T. Their problem is not lack of TAM.

Why can't I buy VTI and dividend reinvest? I compared that to Betterment since 2004 and it wins handily. What am I missing? Tax loss harvesting sounds fancy but what's the actual bottom line benefit after fees?

I tried out these services, and it just freaks me out too much having $50,000 sitting in an iPhone app. I get that they are insured and legit, but it's just too much money for me to hand over to a startup.

For a different perspective, here's Schwab's response to critics on its decision to keep a mandatory cash component in its robo-advisor offering: https://www.aboutschwab.com/ceo-statement#anchor-copy-ceo-st...

I think their reasoning is sound in theory, but it strikes me as suspect that they would not allow even the option to stay fully invested for clients who would prefer to manage the cash component of their portfolio in a bank account where it can actually be spent at moments notice. And it does also strike me as a bit too convenient that their decision to remove this option from clients just happens to directly benefit Schwab's bottom line.

Their decision to compose more than half of the equity portion of their portfolio using dramatically higher-cost fundamentals ETFs from Schwab in place of using solely market cap ETFs also triggers similar warning bells for me, however sound the technical reasons for doing so might be: https://intelligent.schwab.com/public/intelligent/insights/w...

That said, I'm curious how Betterment came up with their numbers for their cash drag analysis. If cash drag on the highest end of the spectrum of a portfolio with 30% in cash is supposed to cost investors 0.56%, I'm not sure how they derived the lowest end of a portfolio with 6% in cash to be 0.38%. It seems to me Schwab might not be the only one here guilty of misleading potential clients.

Disclaimer: I am a Schwab client, but am not actively using their Intelligent Portfolios offering. I have done a bit of research into it back when it was announced though.

Neither option is better than a Vanguard account with one of their target date funds (or funds targeted by level of aggressiveness).

Vanguard is a mutual company; they exist for the benefit of their users. Hard to compete against that.

Disclaimer: moved from Betterment to Vanguard

Index-based robo-advisors generally invest your money in vanguard, ishares, schwab broad-market etfs, which come with their own fees (industry-lowest). The expense ratio is the accumulation of all those fees. To check the accuracy of the claim, you would need to find the specific instruments each company invests in, at what proportions, and add up their fees.

Cash drag is the penalty you pay for the time and amount of your wealth that is spent in sub-productive, inflationary cash. The article states:

"Schwab allocates up to 30% of a portfolio to cash. In certain circumstances, keeping up to 30% in uninvested cash can result in up to a 0.56% annual return penalty"

This sounds like a worst case scenario. To roughly calculate cash drag, you can take the avg percentage of wealth that will be in cash throughout the year, then multiply by 5% rule of thumb avg returns. For example if you had to keep 10% in cash, that would be 0.1 * 0.05 = 0.5% in lost potential earnings due to cash.

Shameless plug, but I'm actually working on a product that does exactly that. It started as a personal tool that integrated with my brokerage account to take the hassle out of rebalancing and knowing which trades to make with my monthly contributions. It currently only works with Questrade, but I'm looking at adding support for more brokerages.

https://rebalancr.com/

Another shameless plug: I made a service like this for myself and a few friends: https://zenve.st

It actually trades on your behalf, but only to keep your portfolio balanced and to allocate any cash you deposit into the account. It works on top of Vanguard, and you can customize it to invest in any Vanguard ETFs with whatever allocation you want.

Currently, you can only sign up for the waitlist, as I don't know if people would be interested in something like this.

My 457 plan has a Morningstar service that does this, but it won't tell you proactively.

You answer their questions or pick a portfolio and they update a report monthly that will tell you what to buy/sell to line up with your target.

that's a good insight. i also tend to think advice and sales should be done by separate parties. otherwise the advice won't be independent or bias-free.