A robo-advisor promises something that used to require a human advisor and a large balance: a diversified portfolio, automatic rebalancing, and sometimes tax optimization, for a fraction of the traditional price. The pitch is mostly true, but "low cost" can hide more than one kind of fee, and an algorithm only knows what you tell it. This guide explains how robo-advisors work, how their pricing differs, and where their limits are.
Key takeaways
- A robo-advisor is a registered investment adviser that uses software to build and manage a portfolio based on a questionnaire about your goals and risk tolerance [1][2].
- As of September 17, 2026, published advisory fees at major U.S. providers range from $0 (with conditions) to 0.35% per year, before the expense ratios of the underlying funds [3][4][5][6][7].
- "No advisory fee" does not always mean free: the SEC found Schwab's robo-adviser earned money on client cash while marketing no hidden fees, leading to a $187 million settlement in 2022 [8].
- Tax-loss harvesting can offset some taxes in taxable accounts, but its value varies and it is subject to wash-sale rules [9].
- Robos may collect only limited information about you and may offer little or no human guidance when markets fall [1].
What is a robo-advisor?
A robo-advisor (the SEC spells it "robo-adviser") is an automated investment advisory service. You answer an online questionnaire about your age, goals, time horizon, and comfort with risk. Software recommends a portfolio, usually built from low-cost exchange-traded funds (ETFs) or mutual funds, and then manages it on an ongoing basis [1][2].
Robo-advisors in the U.S. are generally registered with the SEC as investment advisers. That means they owe clients a fiduciary duty, a legal obligation to act in the client's best interest when giving advice. You can look up any adviser's registration and disciplinary history on the SEC's Investment Adviser Public Disclosure site [1].
Hybrid robo-advisors add access to human financial planners, usually for a higher fee or a higher minimum balance.
How robo-advisors work, step by step
1. The questionnaire
You describe your goals, timeline, income, and risk tolerance. The SEC notes that some robos collect "only limited information," so the recommendation may not account for your debts, other savings, or real estate unless you add them [1].
2. Portfolio construction
Most robos use a version of modern portfolio theory: spread money across asset classes, such as U.S. stocks, international stocks, and bonds, in proportions that match your risk level. A younger investor with a long time horizon might get more stocks; a near-retiree might get more bonds.
3. Automatic rebalancing
Over time, markets push your mix away from its target. Rebalancing means selling some of what has grown and buying what has lagged, to return to the target. Robos do this automatically, often using new deposits or dividends first to reduce taxable sales.
4. Tax-loss harvesting (in taxable accounts)
Tax-loss harvesting means selling an investment that has dropped in value to "realize" a loss you can use to offset capital gains, then buying a similar (but not "substantially identical") investment to stay invested. The IRS wash-sale rule disallows the loss if you buy a substantially identical security within 30 days before or after the sale [9]. Some robos coordinate this across your accounts at that provider, but they generally cannot see accounts elsewhere, including a spouse's.
Harvesting does not eliminate taxes; it often defers them, because the replacement investment has a lower cost basis. Its benefit depends on your tax bracket, market conditions, and whether you have gains to offset. Provider marketing claims about harvesting benefits are not guarantees. Related field note
5. Extras
Many platforms bundle goal tracking, cash accounts, automated deposits, and retirement projections. Some offer direct indexing, which means owning individual stocks instead of a fund, typically at higher minimums.
What robo-advisors cost
There are two main layers of cost:
- Advisory fee: what the robo charges to manage your account, usually a percentage of assets per year.
- Fund expenses: the expense ratio of each ETF or mutual fund in your portfolio, charged inside the fund.
Some providers have other ways of earning money, such as interest earned on your cash allocation, revenue from affiliated funds, or securities lending. Those don't show up as a line-item fee, so read the provider's Form CRS (a short client relationship summary advisers must provide) and its Form ADV Part 2A brochure.
Published fees at five large providers (as of September 17, 2026)
| Provider / service | Advisory fee (published) | Minimum to open | Notes |
|---|---|---|---|
| Betterment (Automated Investing) | $5/month on balances $0–$24K; 0.25%/yr if balance is $24K–$1M or with a $200+ monthly recurring deposit [3] | None stated on pricing page [3] | Premium plan with planner access: 0.65%/yr [3] |
| Wealthfront (Automated Investing Account) | 0.25%/yr [4][10] | $500 [10] | Form CRS dated July 23, 2026 lists conflicts, including a securities lending program and an affiliated money market fund [10] |
| Vanguard Digital Advisor | Gross 0.20%/yr (index) or 0.25%/yr (active options); net fee is lower after credits for fund revenue [5] | $100 per enrolled brokerage account [5] | Vanguard says an all-index portfolio costs roughly $15–$16 per $10,000 per year, maximum $20 [5] |
| Schwab Intelligent Portfolios | No advisory fee [6] | $5,000 [6] | Part of each portfolio is held in cash at Charles Schwab Bank, which earns income on it [6] |
| Fidelity Go | $0 under $25,000; 0.35%/yr at $25,000 and above [7] | No minimum; $10 needed to invest [7] | Coaching available at $25,000+ [7] |
Fees exclude underlying fund expense ratios unless noted. Pricing changes; confirm on each provider's site. This table is a neutral comparison, not a recommendation. Explore the fee worksheet
What those fees look like in dollars
Using only the published advisory fee (fund expenses extra):
| Balance | 0.20% | 0.25% | 0.35% | $5/month flat |
|---|---|---|---|---|
| $10,000 | $20/yr | $25/yr | $35/yr | $60/yr |
| $50,000 | $100/yr | $125/yr | $175/yr | n/a |
A flat monthly fee can be a higher percentage on small balances: $60 a year on a $5,000 account is 1.2%. Minimums, deposit rules, and tiers matter as much as the headline percentage.
For context, the SEC warns that a robo "may offer lower-cost investment advice, but if the robo-adviser utilizes investment products with high costs, your total overall costs could still be high" [1].
The "free" robo and cash drag
Cash drag is the reduced return from holding cash instead of investing it. Holding some cash is normal, but a large, fixed cash allocation can lower long-term returns, and the provider may profit from it.
In June 2022, the SEC announced that Schwab subsidiaries agreed to pay $187 million to settle charges that they misled robo-adviser clients about cash allocations in Schwab Intelligent Portfolios from March 2015 through November 2018. The SEC said Schwab's own analysis showed the cash allocation would generally lower client returns, while Schwab earned money by sweeping the cash to its affiliated bank [8]. Schwab's current disclosures state that Schwab Bank "earns more the larger the cash allocation" [6].
The lesson applies broadly: when a service is advertised as free, look for how it earns money.
The limits of robo-advisors
- Limited view of your finances. A questionnaire may miss debts, an employer retirement plan, or a pension [1].
- Limited human help. During a market crash, a robo will keep rebalancing, but many offer no human to talk you out of selling. Hybrid tiers cost more.
- Narrow product menus. Most use a limited set of ETFs or proprietary funds [1].
- Complex situations. Stock options, a business sale, estate planning, or special-needs planning usually need a human professional.
- Tax optimization blind spots. Harvesting and asset location work only within accounts the robo manages.
- Risk tolerance isn't static. You must update your answers when life changes [1].
Questions to ask before you sign up
- What is the total annual cost, including advisory fee and fund expense ratios?
- How much of my portfolio is held in cash, and who earns the interest?
- Does the provider use its own or affiliated funds?
- Does tax-loss harvesting apply to my account type and balance?
- Can I talk to a human, and what does it cost?
- What conflicts of interest are listed in the Form CRS?
Related field note Related field note
FAQ
Are robo-advisors safe? Robo-advisors don't eliminate market risk; your investments can lose value. Securities held at a brokerage are typically covered by SIPC protection against a brokerage's failure, not against market losses. Check each provider's disclosures.
How much does a robo-advisor cost? As of September 17, 2026, published advisory fees at the providers in our table range from $0 (with conditions) to 0.35% per year, with a $5 monthly option at Betterment for smaller balances, plus fund expenses [3]–[7].
Is a robo-advisor a fiduciary? Robo-advisors registered as investment advisers owe clients a fiduciary duty, but the scope depends on the services and information provided [1].
Does tax-loss harvesting always save money? No. It usually defers taxes rather than eliminating them, doesn't apply in retirement accounts, and is limited by the wash-sale rule [9].
What is cash drag? The lower returns that come from holding cash instead of investments. A large cash allocation can cost you and benefit a provider that earns interest on it [8].
Sources
- U.S. Securities and Exchange Commission (Investor.gov), "Investor Bulletin: Robo-Advisers," https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-45 (February 23, 2017; accessed 2026-09-17)
- Investor.gov, "Robo-Adviser" (glossary), https://www.investor.gov/introduction-investing/investing-basics/glossary/robo-adviser (accessed 2026-09-17)
- Betterment, "Pricing," https://www.betterment.com/pricing (accessed 2026-09-17)
- Wealthfront, "Pricing," https://www.wealthfront.com/pricing (accessed 2026-09-17)
- Vanguard, "Vanguard Digital Advisor," https://investor.vanguard.com/advice/digital-advisor (accessed 2026-09-17)
- Charles Schwab, "Schwab Intelligent Portfolios," https://www.schwab.com/intelligent-portfolios (accessed 2026-09-17)
- Fidelity Investments, "Fidelity Go Overview," https://www.fidelity.com/managed-accounts/fidelity-go/overview (accessed 2026-09-17)
- U.S. Securities and Exchange Commission, "Schwab Subsidiaries Misled Robo-Adviser Clients about Absence of Hidden Fees," Press Release 2022-104, https://www.sec.gov/newsroom/press-releases/2022-104 (June 13, 2022; accessed 2026-09-17)
- Investor.gov, "Wash Sales," https://www.investor.gov/introduction-investing/investing-basics/glossary/wash-sales (accessed 2026-09-17)
- Wealthfront, "Form CRS: Client Relationship Summary," https://www.wealthfront.com/static/documents/form_crs.pdf (July 23, 2026; accessed 2026-09-17)
Last updated September 17, 2026. This article is for educational purposes only and is not financial, investment, legal, or tax advice. It does not recommend any provider. Investing involves risk, including loss of principal. Fees and features change; verify current terms, Form CRS, and Form ADV disclosures directly with each provider.