WiseBanyan Free Robo-Investing Pioneer

What if you could get expert advice on balancing your portfolio to match your own risk tolerance, but didn’t have to pay any brokerage fees or commissions?

WiseBanyan was one of the first to offer free robo-investing. Now, that several competitors have emerged, it is time to see how WiseBanyan stacks up against products from competitors like Schwab and Betterment.

Getting Started

WiseBanyan only requires a minimum deposit of $10 to open an account, and getting started with WiseBanyan is simple. You first complete a questionnaire to assess your risk tolerance. The way you answer these questions will power the algorithms that select the assets for your portfolio.

If you later change your mind about your risk tolerance, you can go back and adjust the settings after your account is opened and the assets can be rebalanced. It can take as long as two weeks for your account to become funded, but it usually takes less than five business days. Once your account is funded, you have access to the tools and dashboard to check on your investments.

Because the purpose of the platform is to eliminate human tendency to let emotions cloud financial decisions, most of the tools are just windows that let you see the status and history of your account. WiseBanyan is not for people who want to be trading securities regularly. It is a place for buy-and-hold investors to put their money and know it will be automatically rebalanced according to their risk tolerance, without having to pay a lot of fees.

How It Works

When you set up your account you decide if you want to open a personal investment account, a Roth IRA, a SEP IRA, or a traditional IRA. You can also setup an automatic contribution from your bank account to your WiseBanyan account.

The WiseBanyan algorithms will give you a diversified portfolio made up of passively managed exchange traded funds (ETFs). The broker-dealer for WiseBanyan ETFs is FolioFN. This allows for the ownership of fractional shares, which is one reason you can get started with almost no money. If you are opening an account with less than $100, you won’t a single share of anything. You will own fractions of shares. This also means all of your money will be invested. You won’t have any loose change sitting around as cash, not growing.

The portfolios are made up primarily of seven different ETFs:

• iShares TIPS Bond ETF
• iShares iBoxx $ Investment Grade Corporate Bond ETF
• Vanguard REIT ETF
• Vanguard Total Stock Market ETF
• Vanguard Intermediate-Term Government Bond ETF
• Vanguard FTSE Developed Markets ETF
• Vanguard FTSE Emerging Markets

The exact makeup will depend on your personal risk profile. Not every portfolio will have all seven ETFs.

Costs

WiseBanyan doesn’t charge any management fees, though like with any robo advisor, the underlying ETFs do charge fees. WiseBanyan has selected a group of well-established, reasonably low fees ETFs. This means you will be investing about as cheaply as possible.

In addition to its free service, WiseBanyan does offer a customized portfolio management service for an annual fee of 0.50% to 1.0%.

WiseBanyan doesn’t have any hidden fees. It does charge for printed statements. Everyone gets electronic statements for free. But, if you need or want a paper statement it will cost you $10 per statement or $150 to have them mailed every month of the year. There are also fees for transferring money out and for requesting a payment by paper check.

How it Compares

Until the recent entry of Schwab’s Intelligent Portfolio product, WiseBanyan was the sole free robo-advisor. But Schwab’s Intelligent portfolio forces you to hold a significant amount of low-yielding cash and limits you to Schwab’s own ETFs.

The greatest strengths of WiseBanyan are its lack of management fees, ability to own fractional shares, and only $10 to open an account.

Most robo-advisors cannot compete with WiseBanyan in terms of fees and cost, but whether WiseBayan’s no-cost model will be sustainable in the long term remains to be seen.

Everyone from Betterment to Vanguard charges some form of annual management fee. It may be lower than what a standard brokerage would charge, but it is still more than the zero that WiseBanyan charges. Schwab also does not charge a fee for its Intelligent Portfolio. The underlying costs of the ETFs are about the same across the platforms.

The ability to own fractional shares is not unique to WiseBanyan, but it is also not the norm. Schwab does not allow the fractional ownership of shares, and instead pushes portfolios to have relatively heavy cash positions. But, the fractional share ownership coupled with the ability to open an account with just $10 means WiseBanyan is the only place to start investing if you have less than $100, to start.

The ETFs that makeup WiseBanyan portfolios are equal to the ones used by every other robo-advisor. The actual difference in long-term performance of the different portfolios is likely to be minimal, but there is not enough data yet to know for certain.

There are some drawbacks to WiseBanyan versus its competitors. It has a notoriously unimpressive user interface. Everything from logging in to using the tools feels clunky. For some, having a management fee free service outweighed the need for a slick interface.

As we hinted at earlier, another concern with WiseBanyan is the underlying business model. WiseBanyan is not making any money from its free services, and it is not clear that it has enough assets under management from its paid service to pay for the free services it offers.

WiseBanyan is trying to control its costs by limiting the number of free accounts. However, the sustainability of its business model should be a concern of investors looking to establish a long-term relationship.

Recommendations

If you are ready to get into the long-term investment game and only have a modest nest egg, WiseBanyan is a good place to start. You can get some experience and grow your money without having it eaten away in fees. Because all of your money will be invested, and none of it will sit around as idle cash, you will see faster growth in most cases.

If you have a larger amount to invest, $10,000 or more, WiseBanyan is probably not the best match for you. You would benefit from some of the more advanced services that other pay to play robo-advisors offer. You may also want to stick with a company that you know will still be around when you are ready to retire.