How to Open a Robo-Advisor Account

Opening a robo-advisor investment account is as easy as opening an online financial or banking account. Most robo-advisory accounts will be opened online, although if you select Fidelity, Schwab, or another platform with a physical office, you can also open the account in person.

Before opening your account, it’s wise to read reviews and explore the websites of several digital investment advisors to pick the one that fits your financial goals. After selecting a robo-advisor, create an account and answer a few questions related to your goals, age, timeline, and risk tolerance level. This information helps ensure that the mix of investment funds or portfolios is right for you. We’ll delve into all of the details, including robo-advisor comparisons, features, minimums, performance, and returns. 

Steps Needed to Open a Robo-Advisor Account

Step 1: Decide If Opening a Robo-Advisor Account Is Right for You

If you’re looking to simplify your financial life, then opening a robo-advisor account might be a smart move. A robo-advisor is a digitally driven online investment manager. Yet, the robo-advisory category is diverse. For example. SoFi offers a fee-free digital investment manager plus access to financial advisors, while Wealthfront combines digital investment management with access to hundreds of ETFs for customization. 

Management fees for robo-advisors range from zero at M1 Finance and Schwab Intelligent Portfolios to 0.50% of assets managed or more. However, most individuals seeking low-fee investment management will find a robo-advisor that fits their financial goals, investment style, and pocketbook. 

Signing up for a robo-advisor is as simple as opening an online investment account and will be discussed in detail below. Account security rivals that of any online financial institution. From access to financial advisors, tax-loss harvesting, and active or passive investment management, there is a robo-advisor suitable for most investors.

Step 2: Choose Where to Open a Robo-Advisor Account 

With dozens of available robo-advisors, it might be a challenge to pick the best platform for you. The best way to choose where to open a robo-advisor account is to determine what you are seeking in an investment manager. Consider features, types of accounts, account size, and robo-advisor pricing in your search. 

Before opening a robo-advisor account, think about these questions:

• How much do you want to invest? 
• Are you seeking a human financial advisor?
• How important are management fees?
• Is tax-loss harvesting important to you?
• What type of account do you need?
• Would you like a robo-advisor that is part of a large financial firm?
• Do you want to customize your investment choices?

Robo-advisor accounts vary from individual investment accounts to trusts, custodial accounts, and even a 529 account at Wealthfront. Many robo-advisors also offer SEP and SIMPLE IRAs for small business owners in addition to the usual traditional and Roth IRAs. Minimum investment requirements range from zero to $100,000 at Betterment Premium. You can sign up for a robo-advisor account at most large financial firms, including Fidelity, Interactive Brokers, Merrill, and JP Morgan. Stand-alone shops include Ellevest, M1 Finance, SigFig, Betterment, and Wealthfront. 

After clarifying the features, investment minimum, pricing, and account types that work for you, read robo-advisor reviews to select an appropriate match. 

Best Robo-Advisor Accounts

Step 3: Start the Application Process 

The core of understanding how to open a robo-advisor account online begins with account creation. Similar to the process at a bank or financial company, you’ll need basic identifying personal information as well as financial and banking details. First, complete an account application form by inputting the personal and financial information detailed below. Next, choose an account type, such as an individual or joint investment account, IRA, or trust. Before starting the application process, check the FAQ section of the robo-advisor to determine the available account types. 

Requirements for Opening a Robo-Advisor Account 

Each robo-advisor application is unique, but most require the following types of documentation. This information is needed to prove that you are who you say you are. Most robo-advisors based in the U.S. require that users be citizens or permanent residents in order to open an account and invest. 

Personal information you’ll need: 

• Name, address, phone number, and email address
• Driver's license or state identification card
• Social Security number
• Financial information such as net worth and income
• Level of investment expertise (sometimes requested)

Banking Information 

The money to fund your robo-advisor account is typically transferred from an existing bank savings or checking account. This banking information is also necessary when you withdraw funds from the account. In order to link your robo account with the bank, you’ll need to provide the following information about your bank.

• Bank name
• Account type
• Bank routing number
• Savings or checking account number 

Step 4: Complete the Questionnaire

At the heart of most robo-advisors is the initial questionnaire, which drives the investment portfolio. Nearly all platforms ask a handful of questions that include basic demographic information such as your name, date of birth, salary, and/or current financial assets. Investment goals and preferred account types are frequently included in the mix. 

The “risk tolerance” portion of the questionnaire involves specific questions designed to assess your comfort with portfolio decreases. In the robo-advisory world, risk equates to portfolio volatility, specifically losses. Investors that demonstrate comfort with larger portfolio declines, and younger investors with more time to make up losses, will be assigned more aggressive portfolios. A riskier portfolio means there will be a greater allotment to stock funds and fewer fixed-income or cash assets. Older investors or those indicating a lower risk tolerance will be presented with a greater allotment to fixed-income bond funds and cash assets.

Stocks are considered riskier because they are more volatile and have the potential for greater price declines in any given year, while bond funds typically trade in a narrower range. Investors demand higher returns from stocks due to the potential for loss. Consequently, long-term investors can expect higher returns from portfolios with larger stock fund allocations. 

After responding to the risk questionnaire, you are presented with a sample investment portfolio that aligns with your responses to the questionnaire. Fortunately, all firms that we cover indicate that you can adjust your portfolio if the asset mix isn’t right for you. An older, experienced investor might up their stock allocation and be comfortable with greater risk, for example, than what is recommended by the platform, and vice versa.

To better understand how a robo-advisor creates a portfolio, you can try Merrill Guided Investing. Without having to open or fund an account, you can see the questions it will ask you and what investment funds it intends to use within your portfolio.  

Step 5: Fund Your Account

Next, fund your account and begin investing. You’ll link a bank account which will be used to transfer funds. Robo-advisors encourage you to set up an automatic transfer from your bank account into the robo-advisor. Obviously, the firm wants to manage more of your assets. But this auto transfer is also good for you, since it means you will regularly invest through both up and down markets. This provides the opportunity for dollar-cost averaging, which enables you to buy more shares when prices are lower. 

Other ways to fund your account include a one-time bank transfer, a wire transfer, or mailing a check to the firm. If there are branch offices, you might be able to drop off a check in person. The sooner you begin regularly investing, the more time your money has to grow and compound in the financial markets. 

Factors to Consider When Opening a Robo-Advisor Account

Minimum Investment Requirement

Unlike a bank or savings account, which doesn’t usually require a minimum investment amount, some robo-advisors require a specific amount of money in order to use the platform. Minimum investment requirements vary based on the platform and the services they offer. Several robo-advisors, such as Betterment, M1 Finance, and SoFi Automated Investing do not require a minimum to open an account. Investors can begin investing with as little as $10. However, Wealthfront requires $500 while Schwab Intelligent Portfolios requires $5,000 to invest. Robo-advisors with unlimited financial advisor access typically require higher minimums than other digital platforms.

Account Fees

Many robo-advisors charge a management fee, described as a percent of the value of your portfolio or assets under management (AUM). The most common fees range from 0.25% to 0.50%. A few platforms, such as Schwab Intelligent Portfolios, M1 Finance, and SoFi Automated Investing, do not charge management fees for their basic digital service. For access to greater features, there are additional charges.

Ellevest and Schwab Intelligent Portfolios Premium (with access to financial advisors) charge a monthly fee, regardless of account size. With the exception of Fidelity Go, which offers Fidelity fee-free mutual funds, the funds owned within the robo-advisory accounts charge small fund expense ratios that go directly to the fund provider. These range from 0.03% to 0.90% AUM, in general. 

Past Robo-Advisor Performance

Robo-advisor performance is determined by several factors; when the money was invested, which funds were selected, and the date the performance calculation was made. Robo-advisor returns will vary based upon individualized information. Certain types of funds perform better during certain periods. Many robo-advisors list performance of certain portfolios during specific periods. That is not an indication of the return you will receive.

Fortunately, most robo-advisory portfolios include low-fee, passively managed index funds spanning diverse asset classes. Research has shown that index funds typically outperform actively managed funds. Ultimately, we don’t recommend selecting a robo-advisor based upon past performance.

Investment Options

Investment options vary among providers. Most offer low-fee exchange-traded funds spanning the most popular stock and bond asset classes. Some platforms, such as Wealthfront, provide additional ETFs investors can use to diversify their portfolios. A few robo-advisors offer distinct strategies, such as smart beta, income, or actively managed approaches. Every platform we’ve researched offers its portfolios with varying ratios of stocks to bonds in order to align with conservative through aggressively oriented investors. Before funding your account, review the investment strategies to make sure that they fit your needs.

Option to Speak to a Licensed Advisor

Most customer service representatives at robo-advisory firms have basic securities licenses, like a Series 7. Hybrid robo-advisors that combine digital investment management with human financial advice are a popular option and usually provide unlimited access to highly trained Certified Financial Planners.

Some platforms offer an all-digital option at one price point and a hybrid option at a higher cost with a larger required minimum investment amount. For example, Vanguard Digital Advisor charges a 0.20% AUM fee and requires a $3,000 investment minimum. The Vanguard Personal Advisor option includes access to a trained financial advisor, but requires a $50,000 minimum investment and charges a 0.35% AUM fee. Betterment and Ellevest offer low-fee financial planning meetings, while all SigFig and SoFi Automated investing clients can speak with a financial advisor. However, Fidelity Go clients with more than $25,000 can chat with a financial coach.