Investing > How Do Robo Advisors Make Money?

How Do Robo Advisors Make Money?

Robo advisors often advertise themselves as free to use. This might seem confusing. How can they make money if they offer a service for free?

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Updated March 15, 2024

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Wondering how robo advisors work since they are free to use? 🆓

We should say that “free” does not necessarily mean free. When robo advisor firms claim they are free to use, that normally means that they do not charge any commission fees on normal trades or that they have no minimum investment amounts.

There is pretty good evidence that robo advisors perform as well as traditional passive management services. That being said, a big question consumers have is: How do robo advisors make money?

There is no single answer here. Robo advisors make money in all kinds of ways; it depends on the specific advisora as there is a lot of assets under robo advisors management. Let’s take a look at the most popular robo advisors and break down their business models.

Top Robo Advisors Apps

We examine apps based on usability, features, fees (or lack thereof), and trading technology:

  1. M1 Finance
  2. Betterment
  3. Wealthfront
  4. Ellevest
  5. Vanguard
  6. Personal Capital
  7. Schwab Intelligent Portfolios
  8. Acorns

The Simple Answer: Management Fees 💰

At their heart, robo advisors are money managers and have the same revenue model as other money managers. Robo advisory firms draw the majority of their revenue from account fees.

Like traditional firms, robo advisors charge an annual management fee that is usually a percentage rate of current assets under management. The average annual management fee for robo advisors can fall anywhere between 0% to 0.75%. Most of the time, these annual account fees are lower than traditional human advisory services.

$5,0000.00%0.25% 0.25%0.75%
$10,0000.00% 0.26% 0.25%0.75%
$100,0000.00% 0.36%0.30% 0.89%
$10,000,0000.00%0.30%0.25% 0.59%

Here is an example of how this works. Say you open an account that has a 0.25% annual account fee. With $5,000 under management, that comes out to just around $12.5 per year; at $10,000 in assets under management, the fee would be $25.

As you can see, robo advisor’s low account fees are one of their most attractive features.

In general, the larger the value of assets under management, the larger the annual fee will be. For instance, the average robo advisor fee for accounts that hold more than $1 million in assets is around 0.30% and 0.59% for over $10 million in assets.

Some platforms entirely eliminate management fees for high-value accounts. Betterment eliminates the management fee for accounts that have more than $2 million in assets.

Robo advisors can charge such low account fees because they have very low expense ratios. A handful of robo advising platforms, such as Acorns, charge a flat management rate.

Low account fees are one area in which robo advisors outperform traditional advisement services. According to Investopedia, the average annual account fee for in-person advisement services is around 1.02% of assets. That corresponds to an annual management fee of $100 for $10,000 under management.

Trading Fees 💸

We should say upfront that the vast majority of the best robo advisory firms have either completely eliminated or are in the process of eliminating commission fees on normal stock transactions. Vanguard, one of the largest robo advisor firms in the world in terms of assets managed, recently eliminated commission fees on all normal stock transactions.

That being said, most robo advisors do still charge a small fee on certain types of securities transactions, most commonly ETFs mutual funds, and bonds. Robo advisors may offer a certain selection of free mutual fund trades while others have trading fees.

The lack of trading fees with robo advisors is an important feature and one of the reasons why they are so popular. Since they only charge based on assets under management, and not on a per-transaction basis, you can trust that they are actually going to work in your favor. After all, they would not make any money if they did not!

Advisory Services 📞

Robo advisors also make money by offering additional services for extra fees. Robo advisors may offer in-person financial advice for a percentage fee and hybrid robo advisor/human advisor firms might factor advisory fees into account management fees.

Some robo advisory firms might offer free financial advice for accounts under a certain minimum or they might charge flat rates. There is a lot of variability in advisory fees so make sure you know exactly what you will be paying for.

The exact amount charged for advising fees depends on the specific advisory services. A simple session with a human advisor about specific investment decisions might charge a small fee while continual meetings with a financial planner might cost more. There are also robo advisors that do not offer human advisory services.

Other Transaction Services 💳

Additionally, robo advisors might charge you for wire transfers, withdrawals, expedited deposits, and other kinds of transactions. In general, the rate on these kinds of transactions is a percentage of the amount involved.

Non-Investment Services 💵

Some robo advisor firms are branching out of solely the investment world and entering other realms of the financial sector. M1 Finance, for example, recently started offering loans with up to 4% interest. Account-holders are eligible to take out a loan for up to 35% of their portfolio.

Robo advisors might also offer tax preparation for a small fee.  In all cases, your robo advisor will have a record of your financial transactions but some may let you pay for documentation. We still recommend getting human help with your taxes as there have been instances of robo advisory firms messing up tax preparation for clients.

Robo Advisor Average Fees 🪙

Now that we have covered the main ways that robo advisors generate revenue, we are going to cover leading robo advisory firms and talk about their revenue models. We will account for management fees, transaction fees, advisory fees, and give a total fee estimate for each firm.

1. M1 Finance

M1 Finance Homepage Screenshot
The M1 Finance robo advisor services are completely free.


  • Low minimum deposit
  • Automated investing available
  • ETF orders available


  • No human advisor support
  • Limited customer service
Visit M1 Finance on M1 Finance’s website

M1 Finance has absolutely no management fees which means you don’t have to pay an annual fee to maintain your account. Like most robo advisors, M1 Finance gives account holders access to a large range of ETFs with fees between 0.06-0.20%.

M1 does not offer and advisement services and only has an account minimum of $100. Account-holders can make a wide range of accounts including IRAS, taxable brokerage accounts, and LLC business accounts. M1 Finance also allows account holders to make loans of up to 35% of their portfolio amounts.

One great thing about M1 finance is the investment portfolio templates. These templates, called “pies”, are pre-built investment portfolios based on Modern Portfolio Theory (MPT). You can pick a specific template or customize one however you want. They offer a wide range of stock and low-cost ETFs.

2. Betterment

Betterment Homepage Screenshot
Betterment was the first company to launch robo advisor services on their platform.


  • Lower management fees
  • No minimum account balance
  • Automatic tax-loss harvesting and rebalancing


  • 4 to 5 day wait time on withdrawals
  • No direct indexing for taxable accounts over $100,000
Visit Betterment on Betterment’s website

Betterment is one of the first robo advisors on the scene and is one of the largest robo advising firms in the world. As of 2020, Betterment handles over $21 billion in assets under management and holds accounts for over 270,000 customers. Betterment has a basic digital account management fee of 0.25%. Their premium plan has a higher management fee of 0.40%. This higher management fee includes in-person advisory services.

Betterment also offer lower management fees for high-value accounts. They provide their clients with à la carte financial planning options. Betterment has one of the more flexible pricing structures of robo advisors.

Betterment is probably the leader among top robo advisors and has built up a sizable client base in the decade it has been around. Both account options have no minimums and give unlimited access to expert financial advisors.

3. Wealthfront

Screenshot of Wealthfront Robo-Investing Homepage
Wealthfront offers you a combination of both human and robo advisor services.


  • First $5,000 managed free
  • Daily tax-loss harvesting


  • No large-balance discounts
Visit Wealthfront on Wealthfront’s website

Wealthfront is another one of the first robo advisor firms to emerge and is also a large player in the current robo advisor market. Its accounts have a minimum account amount of $500 and charge no management fees on accounts valued under $5,000. Accounts over $5,000 are charged a 0.25% annual account management fee.

Advisory services are available for free for accounts under $5,000. Advisory services are paid out of the 0.25% management fee for accounts over $5,000. Along with traditional brokerage accounts, Welathfront lets users set up IRAs, 529 college spending accounts, trust funds…

Welathfront also has a unique new cash account option which lets you invest cash and get at least a 1.82% interest rate. This account is also insured by the FDIC. The cash account also comes with access to Wealthfront’s free financial planning advice.

4. Ellevest

Ellevest Homepage Screenshot
The Ellevest robo advisor promotes socially responsible investing and gender equality.


  • No account minimum
  • Goal-focused investing approach


  • No tax-loss harvesting
Visit Ellevest on Ellevest’s website

Ellevest has two basic account options. Their basic account option charges a 0.25% annual account management fee and does not come with in-person financial advice. The Premium account option charges 0.50% annual fees and gives account holders access to financial planners and life coaches.

Ellevest has one of the lower ETF expense ratios for robo advisors we have seen and they offer tax-advantage accounts like traditional IRAs. Ellevest is also focused on promoting women in investment circles. Its algorithms factor in salary expectations for whatever gender the client is and give more options to invest in socially responsible companies.

Ellevest has a rather limited selection of account options, limited to taxable accounts, IRAs, and rollover IRAs. They also do not offer tax-loss harvesting, which is a service that has become much more common in modern robo advisors. No tax-loss harvesting can be a turn off for wealthier investors who are interested in making capital gains.

5. Vanguard

Vanguard Investor homepage
Vanguard manages more than $112 billion in assets and is considered as the biggest robo advisory firm worldwide.


  • Commission-free stock
  • Low-cost funds


  • Limited research and data
Visit Vanguard on Vanguard’s website

Vanguard is the single largest robo advisory firm in the world and manages more than $112 billion in client assets. It has a rather high minimum account balance of $50,000. Vanguard has a hybrid structure and accounts are managed by both human advisors and robo advisors.

Financial advising fees are subsumed in the 0.30% annual account fee and accounts holding more than $500,000 get access to a dedicated personal financial manager. It also has some of the lowest ETF fees in the market and they offer a wide variety of investment accounts.

Vanguard is one of the best low-cost traders out there, and it’s the most ideal for retirement savers and long-term investors. Vanguard does have a higher management fee than average but they have a very large selection of high performing and commission-free stock and ETF options. The only downside is that they only have one online trading platform.

6. Personal Capital

Personal Capital Homepage Screenshot
Personal Capital requires you to pay high account fees but the more you make the lower the fees are.


  • An excellent retirement planning platform
  • Ability to trade individual stocks


  • High management fees
Visit Personal Capital on Personal Capital’s website

Personal Capital stands apart from competitors due to its powerful suite of financial tracking tools. They are a “hybrid” robo advisor firm. They do have rather high account fees and have a $100,000 minimum investment amount. The benefit of these high account fees and investment minimums is that you get advisory services and there are no ETF fees.

Moreover, the more you make, the lower account fees are. Also, a sizable chunk of their powerful investing tools is available for free, even to non-account holders. Personal Capital also offers more personalized advising fees to help plan for retirement, marriage…

Personal Capital has high management fees and a high account minimum so it’s best for high-net-worth investors. It also appeals to DIY investors who can use the company’s powerful analytics tools to get valuable insight into the market. Otherwise, we would say that the restrictive account fees and high account minimum make it a poor choice for beginners.

7. Schwab Intelligent Portfolios

Screenshot of Charles Schwab Intelligent Portfolios Automated Investing Page
Schwab Intelligent Portfolios is the robo-advisor service provided by Charles Schwab with no fees required.


  • Customizable portfolio
  • No management fee


  • High account minimum
Visit Charles Schwab on Charles Schwab’s website

Schwab Intelligent Portfolios is the robo division of Charles Schwab, a household-name investment firm. Schwab IP has 0 account fees and 0 advisory fees. They also offer a wide selection of very low-cost ETFs and mutual funds.

Schwab Intelligent Portfolios offers basic financial advice for free but you can get more personalized financial advisory services for a one time fee of $300 and a monthly fee of $30. This higher advisory fee balances out the lack of any account management fees.

However, Schwab IP requires that account holders have at least 30% of their funds in cash at any time. This feature is critical for their revenue generation model.

Schwab has some pretty unusual stock allocation that are not commonly seen in other robo advisors, like REITs, high dividend stock, and Master Limited Partnerships. These unusual stock allocations are a great way to further diversify your portfolio. Schwab IP also has a neat simulation called the Play Zone which lets you set hypotheticals to see the potential impact on your finances.

8. Acorns

Online Trading Broker with Acorns
Acorns is an investing app that was designed to provide younger users with robo-advisor services.


  • A plethora of educational content
  • Automatically invests spare change


  • High fee on small account balances
Visit Acorns on Acorns’ website

Acorns is a bit new and has a really interesting revenue model that makes it stand out. Acorns is part of the “micro-investing” trend and primarily deals in small transactions. Acorns links to users’ credit cards and debit cards and rounds up every purchase. That extra amount gets invested.

The app is free to download but requires users to have at least a 5$ account minimum to start trading. After that, every time you swipe your card, you get some spare change deposited into your account which is immediately invested.

Acorns take user data like age, income, timeline, and goals, and recommend one of 5 pre-built portfolios ranging from very conservative to aggressive. The portfolios are smaller than your average brokerage account, but that makes sense given their business model.

Acorns allow users to invest in all kinds of securities from stocks to low-cost ETFs and corporate and government bonds. Even if you have a smallish account balance around $500, there is enough variety to have a decently diversified portfolio.

Conclusions 🏁

In a way, you could say that robo advisors have adopted and modified the freemium structure that has been so successful with mobile apps. Freemium apps provide a basic range of functionality while upselling additional features for those who want more.

Robo advisory firms are able to adopt this low-cost model as robo advisor accounts require very little cost to operate. Ultimately, that means you save on fees and have more to invest.

This kind of revenue model is the explicit core philosophy of some robo advisory firms. For instance, Brain Barnes, CEO of Chicago-based robo advisory firm M1Finance, claimed that the company’s recent elimination of transaction fees reflects its shift to a model oriented towards generating revenue from upsold services.

“You can make enough money on backend and ancillary services,” Barnes told TearSheet. “[Incumbents] know that in 10 years they will not charge commissions for trades.”

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.