Robo Advisors - Pros and Cons

I prefer a more self-directed approach to investing for retirement personally but after getting bugged by the annual Empower (formerly personal capital) rep, I was challenged by DH to explain why it’d be a bad decision to use them.

I’ve followed the quarterly robo report (The Robo Report - Condor Capital Wealth Management) for a couple of years to get a sense for the track records of various providers.


  • auto-pilot for those who want really passive investing
  • lower fees than your usual financial advisor
  • some offer access to CPAs and/or tax professionals and offer financial planning (estate plans, withdrawal strategies, tax avoidance/TLH,etc)


  • fees based on assets in management (most between 0.25% and 0.9% depending on asset levels, need for access to advisors, etc.). Fees are on top of other investment fees (like mutual fund expense ratios). For large portfolios, fees may well exceed cost of paying for CFP/CPA at fee-only rates.
  • limited to no control over investments (some have a few fixed robo portfolios with more or less risk to fit customer risk profile)
  • average performance on par with broad index funds/ETFs (which is what many invest in anyway)
  • letting go of your inner control freak (ok maybe that one is maybe a con only for me)

So did I miss any? What’s the general consensus on them here?

Also since the financial advice/planning is basically the same whether you have them manage $50k or $10M, could they be used to get cheap financial/tax planning?

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IMO the biggest Pro for after-tax accounts is automatic tax-loss harvesting. But it’s only useful when there are losses to harvest.

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Yes that was one of the main arguments from most of them (Betterment, Wealthfront, Schwab, and Empower). I have a difficult time figuring out how much that capability would amount to practically though. In other words whether the gains on tax loss harvesting would compensate the management fees.

But that brings up a good point that it could mean that these robo advisors may only be worth it for the taxable part of your portfolio. So no need to have them manage your IRAs or other tax-deferred accounts.

I would say they are useful if the benchmark is you otherwise using a full service advisor. You could put it in a mix of ETFs or a target date fund for free.


The management fee is only 0.25% / yr. 2020-2022 were pretty good years to harvest plenty of losses :joy:. 2023 not so much. I harvested ~13% in 2022, enough for 13 years worth of management fees (assuming 25% federal tax bracket for simplicity, and assuming you don’t contribute more funds).

Of course you could do the harvesting manually if you pay attention. In my case I have barely more than $5K in my account, and the first $5K is maintenance-free (wealthfront).

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I think Interactive Brokers has some automated facility for tax loss harvesting. Index replication too, if you want it.

My marginal tax rate is closer to zero so I haven’t really considered it, although I guess it rolls forward forever, a little bit at a time.


I probably don’t have the bandwidth, expertise, nor inclination to do it myself.

So if TLH was a concern for me (outside of real estate, 90% of our investment are in tax-deferred accounts), I might well be tempted to pay for the convenience of letting someone else do it more efficiently than I could for 0.25% fee. Especially considering I’d likely lose more than that in mess ups (inadvertent wash sales) or sub-optimal utilization of TLH.

I just did not realize it could make that much of a difference to be well worth the expense.

How are/did you all deciding on which robo advisor to use?
There are a bunch to choose from and I’m struggling to decide which one to go with. With index funds I look at expense ratios, w/ savings accounts I looked APY and FDIC/NCUA insurance, for credit cards I look at cash back %, etc. Not sure what factors to look at for evaluating robo advisors, how to weight the factors, etc.

I’m following a free quarterly newsletter called robo report. That has performance after fees of about 20 robo advisors over the last 1-5 years.

I’d start there in conjunction with deciding what you need the robo advisor for. In other words, whether you need a lot of help planning, including tax planning or if you just need an autopilot program for investing your money.

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Thanks! From what you’ve seen while you’ve been following the report has the ranking stayed pretty consistent quarter to quarter or the rankings bounce around semi-randomly?

Is Condor Capital a trustworthy source? I hadn’t heard of them before now.

The ranking have fluctuated quite a bit depending on the emphasis of some on specific investment strategies. For example, the ones focusing on growth equities have done great last year but not so well in 2022.

I’ve downloaded them locally for the last 3+ years to review trends but I’m not sure whether you couldn’t get older reports to compare robo advisors over time. Overall it seems to me that some are consistently in the top tier of performers. Wealthfront for example seems to be doing pretty consistently well, and usually a step ahead of Fidelity Go or Betterment. Schwab was not so much in the mix in 2022 however. Empower are consistently middle of the pack. Vanguard joined in late and did not seem very good until the last 2-3 reports. Etc.

Also muddying the waters a bit is that the reports also take into account non-performance things like access to advisors, depth of planning tools, etc. I can see these mattering to some but I care primarily about returns of the portfolios.

As far as whether they are trustworthy or not, I cannot say for sure. They don’t seem to be endorsing anyone in particular. The reports made them known to me as wealth managers but they also facilitated my decision to NOT use a traditional wealth management company so I don’t know how they profit from these reports.

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Wow! Thanks for all the info!

Am I missing something or does the report not factor in tax loss harvesting results/effectiveness? I see a few tax loss harvesting mentions in passing but it doesn’t look like tax loss harvesting factors into the rankings.

I chose Wealthfront years ago because (1) lowest fee, (2) automatic tax-loss harvesting, (3) you can customize your portfolio and don’t have to be stuck with their recommendations or their estimate of your risk tolerance. I don’t think anything changed since then.


No that’s what they still have and likely why they also look to me at the head of the pack.

The only thing missing for me with them is access to an advisor, for me especially someone who can help us optimize taxes (avoid RMD/IRMAA) while implementing our withdrawal strategy.

If that’s important to you or need more personal help planning, then it could be worth maybe keeping $25+k invested with Fidelity Go (0.35% AUM) or $50+k with Vanguard personal advisor services (0.30% AUM). Paying marginally more than the 0.25% AUM at Wealthfront on such small amounts could be cheaper than a fee-only advisor.

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How do taxes work w/ a robo advisor?
For each year, do you have hundreds of buy/sells transactions (and thus hundreds of gains/losses) made by the robo advisor to work through and account for? Or do you only have to deal with the money you put in/out of the robo advisor account (as if buying an index fund)? The former sound like a nightmare!

They generate a 1099 (B?) with long and short losses and gains combined (by type), so you have at most 4 numbers for your schedule D = (cost and proceeds) x (long and short). You don’t have to worry about every transaction.

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I imagine it depends first on which type of account the robo advisor is managing.

If it’s taxable, then it depends what they invest in. If invested in stocks/ETFs, I assume you’ll get a 1099-B (or 1099-DIV if invested in mutual funds). Standard brokerage reporting and entering in tax forms/software. Not sure if they’ll allow some flexibility on which cost basis method to use but probably not specific lots since they do all the buying/selling without your input.

Has your robo-advisor average yearly return be competitive with respect to, say, FXAIX?

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All my “robo-advisor” does is invest in the index funds that I selected (from the choices they provide), using the proportions that I selected. The performance is exactly that of the underlying index funds, minus the 0.25% annual fee, minus taxes owed on dividends, plus tax savings from tax loss harvesting (only in the years when that is/was possible).

I’m saying “exactly” because that’s what it is supposed to be and I see my money invested in interchangeable (and equivalent in all respects except the wash sale rule) Vanguard and Schwab ETFs. It’s not like I literally check every transaction to see if they’re skimming anything more off the top.