Morningstar Publishes Robo-Advisor Landscape Report Finding That Digital Investment Advice Can Play an Important Role for Smaller Investors

Rhea-AI Summary

Morningstar, Inc. (MORN) released its inaugural "Robo-Advisor Landscape" report, evaluating 16 U.S. robo-advisors. Vanguard and Betterment emerged as the top performers due to their low costs and comprehensive financial tools. The report highlighted the typical robo-advisor's median advisory fee at 0.30%, far below traditional advisors. While digital investment advice benefits smaller investors, concerns over transparency and fee structures remain. The report aims to guide consumers in selecting suitable robo-advisors and encourage improvements in the industry.

Positive

• Vanguard and Betterment recognized as top robo-advisors for low costs and comprehensive tools.
• Median advisory fees among surveyed robo-advisors at 0.30%, significantly lower than traditional advisors' 1%.
• Vanguard received a 'High' assessment, standing out in low fees and tailored investment approaches.

Negative

• Concerns over transparency and higher fees in some robo-advisors.
• Limited financial planning features in poorly scored robo-advisors.

Vanguard and Betterment stand out as the strongest overall offerings among 16 robo-advisors evaluated

CHICAGO, March 31, 2022 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today published its first "Robo-Advisor Landscape" report, which examines the current digital advice landscape in the United States by providing a detailed evaluation of 16 U.S.-based robo-advisors.

Morningstar's manager research analysts qualitatively assessed each robo-advisor on the features and benefits that are most likely to help investors reach their financial goals, including fees, quality of investment advice, and breadth of financial planning tools. Those assessments took the form of "High," "Above Average," "Average," "Below Average" and "Low."

"Digital investment advice can be a good option for smaller investors who may not be able to afford a traditional financial advisor. However, there is work to be done on the level of transparency, higher fees in some cases, and financial planning tools that support investors with varied investing goals. We hope this guide will make it easier for investors to choose a robo-advisor and encourage the industry to improve," said Amy C. Arnott, portfolio strategist at Morningstar and lead author of the report. 

The Robo-Advisor Landscape report is available here. Key findings from the report include:

• The typical robo-advisor playbook includes portfolios composed of passively managed, low-cost exchange-traded funds with a range of risk levels. However, asset allocation ranges vary, and many providers add quasi-active strategies, such as factor tilts, strategic beta, and direct indexing.
• The median advisory fee among robo-advisors surveyed was 0.30% of assets per year—making them significantly cheaper than traditional financial advisors' typical 1% levy.
• Vanguard Digital Advisor and Betterment stood out as the strongest overall offerings based on the assessment criteria, including low cost, transparency, reasonable asset allocation approach, and a broad range of financial planning tools. Fidelity Go, Schwab Intelligent Portfolios, SigFig, and Wealthfront also received above-average scores.
• Titan, E*-Trade Core Portfolios, Merrill Edge Guided Investing, Morgan Stanley Access Investing, UBS Advice Advantage, and Wells Fargo Intuitive Investor scored poorly because of higher fees, limited planning features, and in some cases, a lack of transparency.
• Vanguard was the only robo-advisor to earn a 'High' assessment, with its low annual fees, tailored investment approach, and strong parent organization helping it stand out in a crowded field. Vanguard's premium-level service provides comprehensive financial planning advice at a cheaper asset-based fee than any competing offering.

Morningstar today published an article on Morningstar.com, "Should You Be Using a Robo-Advisor?" The article can be viewed here.

Methodology
The Robo-Advisor Landscape report was designed to provide useful information to the consumer before signing up for a robo-advisor. The report's methodology draws on the Morningstar Analyst Rating™ for funds and other assessments.

In the assessments, Morningstar's analysts looked for low, transparent fees; a robust risk tolerance questionnaire; logical mapping to portfolios; sound portfolio diversification that steers clear of questionable asset classes and investment tactics; and a broad range of planning-related features. Morningstar scored robo-advisors on a five-point scale, High, Above Average, Average, Below Average and Low, along with four dimensions: total price (30% weighting); the process used to select investments, construct portfolios, and match portfolios with investors (30%); the parent organization behind the digital platform (20%); and the breadth of services (20%). Morningstar weighted each category score and then summed it to arrive at an overall score, which was then used to rank the robo-advisors.

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $265 billion in assets under advisement and management as of Dec. 31, 2021. The Company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc. 

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Morningstar's Manager Research Group produces various ratings and assessments including the Morningstar Analyst Rating and the Morningstar Quantitative Rating. The Morningstar Analyst Rating is derived from a qualitative assessment process performed by a manager research analyst, whereas the Morningstar Quantitative Rating uses a machine-learning model based on the decision-making processes of Morningstar's analysts, their past ratings decisions, and the data used to support those decisions. In both cases, the ratings are forward-looking assessments and include assumptions of future events, which may or may not occur or may differ significantly from what was assumed. The Morningstar Analyst Ratings and Morningstar Quantitative Ratings are statements of opinions, subject to change, are not to be considered as guarantees, and should not be used as the sole basis for investment decisions. This press release is for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.  

©2022 Morningstar, Inc. All Rights Reserved.

MORN-R

Media Contact:
Erin Parro, +1 312-244-8981 or newsroom@morningstar.com 

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SOURCE Morningstar, Inc.

FAQ

What did Morningstar's Robo-Advisor Landscape report find about MORN?

The report evaluated 16 robo-advisors, with Vanguard and Betterment rated the best for low costs and good tools.

What are the advisory fees for the robo-advisors evaluated by Morningstar?

The median advisory fee was 0.30% per year, which is significantly lower than the 1% typically charged by traditional advisors.

Which robo-advisors received poor ratings in Morningstar's report?

Titan, E*-Trade, Merrill Edge, Morgan Stanley, UBS, and Wells Fargo scored poorly due to higher fees and limited planning features.

How does the Robo-Advisor Landscape report assist investors?

The report aims to help investors choose a robo-advisor and encourages improvements in fee transparency and service offerings.