Ratings Methodology for Robo-Advisors

How our robo-advisor ratings work: NerdWallet’s overall ratings for robo-advisors are weighted averages of ratings in the following larger categories: Our ratings formula calculates a base rating for each robo-advisor overall, from 1.0 to 5.0 stars. The rating is based on core features of the robo-advisors — the factors that matter most to the average investor and directly affect how investors choose an advisor and use their accounts. Those are:

• Account minimum
• Account fees
• Portfolio mix
• Accounts supported
• Customer support
• Automated services
• Human advisor option

We then apply a standard adjustment to the final score to account for factors we consider table stakes offerings. If the financial advisor doesn’t offer these, they do not get an adjustment. For the online financial advisor’s overall score, this standardized adjustment applies if they earn four stars for advisor access and relationship, which requires offering each client a dedicated advisor with no extra fee or additional asset minimum requirement.

Data collection and review process

NerdWallet currently reviews 15 robo-advisors that together constitute the majority of the robo-advisor market based on their assets under management.

We collect data from providers and observe provider demonstrations, as necessary. Our process starts by sending detailed questionnaires to providers. The questionnaires are structured to equally elicit both favorable and unfavorable responses. They are not designed or prepared to produce any predetermined results. The questionnaire answers, combined with product demonstrations, interviews of provider personnel and hands-on research by our specialists, make up our proprietary assessment process that scores each provider’s performance across more than 20 factors. The final output produces overall star ratings.). Ratings are rounded to the nearest tenth. These overall star ratings appear on roundup pages and the provider’s review.

Information updates

Our writers and editors conduct robo-advisor reviews on an annual basis. Throughout the year, we maintain contact with providers and update any changes to their offerings.

Factor weightings

The weighting of each rating factor is based on our team’s assessment of which features are most important to consumers and which ones impact the consumer experience in the most meaningful way. Providers earn an overall score based on the factors and weightings detailed on this page. However, as described above, the factors considered and how heavily those factors are weighted is then adjusted to create lists that target specific types of consumers.

The review team

The review team comprises seasoned writers, researchers and editors who cover stocks, bonds, mutual funds, index funds, exchange-traded funds, alternative investments, socially responsible investing, financial advisors, retirement, and investment strategy. In addition to appearing on NerdWallet, the work of our team members has been published in The New York Times, The Washington Post, Forbes, USA Today, Bloomberg News, Nasdaq, MSN, MarketWatch, Yahoo Finance and other national and regional media outlets. Each writer and editor follows NerdWallet’s strict guidelines for editorial integrity.

The combined expertise of our investing team is infused into our review process to ensure thoughtful evaluation of products and services from the customer perspective. Our writers and editors together have more than 50 years of experience in writing about finance.

Account minimum

We consider the minimum dollar amount (if any) required to open an account. An account minimum of up to $25 earns the highest rating, and an account minimum of $25,000 or higher earns the lowest rating.

Account fees

This category takes into account the following:

• Account management fee: No account management fee earns the highest score, and a fee of 0.45% or more earns the lowest score.
• ACAT partial transfer fees, annual fees and inactivity fees: If a provider does not charge these fees, it earns the highest rating. Partial outgoing transfer fees of $75 or more and full outgoing transfer fees of $100 or more earn the lowest ratings. ACAT transfers allow customers to transfer assets to a different brokerage firm without liquidating them.
• Investment expense ratios: Average expense ratios of 0.10% or less earn the highest rating, and expense ratios of more than 0.30% earn the lowest rating.

Portfolio mix

We consider:

• Level of diversification, based on the mix of U.S. and international stocks and bonds, plus commodities and REITs. Providers that offer exposure to all of the above earn the highest score; those with limited diversification earn the lowest score.
• Availability of specialty portfolios such as smart beta, income portfolios or customization. If a provider offers customers the ability to customize their portfolios, it earns the highest rating. If it offers no speciality portfolios, it earns the lowest rating.
• Socially responsible investing options. If a provider offers multiple managed SRI portfolios, it earns the highest rating. If it offers no SRI portfolio options, it earns the lowest rating.

Accounts supported

We consider the number and type of accounts the provider is able to manage, including:

• Taxable accounts
• IRAs
• 401(k)s
• 529 plans
• Trusts

Providers that offer all of the above options, or that manage accounts held by outside custodians, earn the highest rating. Those that offer only an IRA or a taxable account earn the lowest rating.

Customer support

We rate customer support on two factors: Phone support and website usability. If a provider offers 24/7 phone support, it earns the highest rating. If it offers no support by phone, email or chat, it earns the lowest rating. We define website usability as how easy it is for our reviewers to find key details on the site. If we can find all information in under five minutes, a provider earns the highest rating. If we can’t find any information, the provider earns the lowest rating.

Automated services

This takes into account whether a provider offers:

• Tax strategy. If a provider offers direct indexing or another specialized tax strategy, it earns the highest rating. If it offers no tax strategy, it earns the lowest rating.
• Automatic rebalancing, and if so, how often it occurs. Advisors that offer automatic rebalancing as needed earn the highest score; those that require a minimum balance or charge an additional fee for this service earn the lowest score.

Human advisor option

We consider whether robo-advisors offer financial planning advice from a licensed professional, whether that advice carries an additional fee, how accessible those professionals are, and what licenses they carry. If a provider offers unlimited access to CFPs, it earns the highest rating. If it offers no human advisor option, it earns the lowest rating.

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