The Bottom Line: Five of the top 10 robo-advisor platforms per Barron’s recent rankings offering sustainable investing options but offerings vary by range and scope.
Robo-advisor platforms offering sustainable investing options vary by range and scope
Robo-advisors, the digital platforms that provide automated algorithm-driven financial planning services with little to no human supervision, have experienced a surge in recent years as they have come to be viewed as an appealing alternative to conventional investing. According to one estimate, Robo-advisor assets under management are expected to reach $1.06 trillion by the end of this year. At the same time, the number of investors using rob-advisors grew significantly while the number of platforms has also expanded. Ease of use, cheaper fees and lower savings entry points are just some of the reasons investors have gravitated to these platforms that offer an automated goals and risk-based approach to client portfolio construction using algorithms to establish target asset allocations. These aim to achieve optimum expected returns by investing client assets in mutual funds, ETFs and individual securities. Some but not all platforms also feature socially responsible investment options. Based on research conducted by Sustainable Research and Analysis that was focused on the 10 top ranked robo-advisors featured in the July 31 edition of Barron’s covering a total of 40 robo services, five of the ten top robo-advisors were found to offer a sustainable investing option. The sustainable investing offerings available on these five platforms, however, are limited as to their range and scope. On the one hand, the five platforms offer one or more low-cost diversified equity-oriented mutual funds and ETFs. On the other hand, sustainable investment options are limited beyond equities. For example, fixed income allocations are achieved by reliance on conventional fixed income funds while other sustainable asset classes or themes are not offered at all. Also, sustainability profiling or a values-based assessment equivalent to the automated goals and risk-based appraisal conducted to assess financial risk-based goals, are not available on any of the platforms. The option to construct a tailored sustainable portfolio comprised of individual stock/bond selections is also not offered and impact reporting or outcomes-based reporting are not mentioned.
Using a simple scale to rank order a robo-advisor’s sustainable investing offerings from 1 (Low), to 2 (Medium), to 3 (High), none of the five platforms achieves a score of 3. Rather, a score of 2 is attributed to four firms, including TD Ameritrade, Betterment, Ellevest and Wealthsimple while E*Trade receives a score of 1. Refer to Table 1.
| Platform (in rank order) | Socially Responsible Investing Options | Ranking |
| SigFig | Not offered at this time | None offered |
| TD Ameritrade* | Exposure to sustainable investing is provided in the form of five Socially Aware portfolios constructed around conservative, moderate, moderate growth, growth and aggressive strategies via a combination of exchange-traded equity-oriented funds that employ an ESG integration approach combined with exclusions. At the same time, fixed income allocations are executed using conventional funds and ETFs. | 2 |
| Fidelity Go | Not offered at this time | None offered |
| Vanguard | Not offered at this time | None offere |
| E*Trade** | Investors are offered an option to select a socially responsible ETF for inclusion in their portfolio that’s recommended on the basis of a goals-based investment approach stratified along five risk/reward categories. | 1 |
| Betterment*** | Sustainable investing target asset allocation strategies rely on mutual funds and ETFs based on risk tolerance, time horizon and client investment goals. These investment products are selected on the basis of low cost, global diversifications and liquidity and are currently limited to iShares MSCI ETFs investing passively in large cap US stocks, emerging market stocks and developed market stocks. Indices are constructed by relying on MSCI ESG scoring to qualify stocks on top of various exclusions. Otherwise, portfolios are combined with conventional ETFs, including fixed income. | 2 |
| Ellevest | Using a risk minimization goal-based investment approach that emphasizes low cost, portfolios are constructed with mutual funds and ETFs selected in collaboration with Morningstar to achieve the desired asset class exposures. An impact-oriented portfolio seeking to advance women on boards, senior leadership teams and other related policies and practices has been available since the end of 2019. | 2 |
| Wells Fargo | No dedicated socially responsible investment options at this time. | None offered |
| Wealthsimple | Based on the client’s investment goals and risk acceptance level, a recommended portfolio is constructed using passively managed diversified ETFs. Three portfolio categories are available, based on risk-return profiles ranging from conservative to balanced and to growth-oriented. Complementing the conventional portfolios are three investment options that seek to achieve a responsible investing mandate. The portfolios are constructed using sustainable equity ETFs and a combination of one sustainable fixed income ETF as well as conventional ETFs. | 2 |
| SoFi Wealth | Not offered at this time. | None offered |
