By Efi Pylarinou

The robo-advisors space is in-vogue, despite the tarnished “robo” prefix (following the aftermath of the 2008 housing crisis and the use of “robo-signing” to hasten the foreclosure process on homeowners).

The two biggest independent robo advisers, Betterment and Wealthfront, have together attracted more than $3.4 billion. From the financial giants, Charles Schwab Intelligent advisor only, raised a staggering half a billion dollars in the first three weeks. Their large-scale marketing campaign, covered the New York transit system, with a launch at the Grand Central Terminal; and in a recent MarketWatch article (a Dow Jones & Co online publication) there was an impressive ROBOSCHAWB illustration.

A dozen articles popped up at the same time on MarketWatch about Robo-advsiros. It felt like on Twitter land, where you tweet about the same topic in different ways at different times. And then two days later, MarketWatch launched The New portfolio service, which is powered by Next Capital. This new service is an investment-tracking platform to sync all of your accounts (a la SigFig) while integrating Marketwatch’s financial analysis, along with news from The Wall Street Journal. Next Capital is not a registered investment advisor yet, like all the robo-advisors that I mentioned above. However, they offer broad online financial planning, mostly automated.

Today, I will confine myself to financial services that offer low cost; online automation (full or semi-); only asset allocation mainly passive (not broad financial planning); to retail investors and financial advisors. I wont touch upon those that offer low cost, automated services for asset management (mainly active) either through alternative financial products (hopefully new alpha); more quantitative strategies or artificial intelligence signal providing.

On the high end of the market, there are start-up robo-advisors like Wealthfront and Betterment competing with financial giants such as Vanguard and Charles Schwab.

There are more than two-dozen of such stand-alones mainly in the US (list is too extensive for this post). Elsewhere, there are remarkably fewer, like WealthSimple in Canada, Nutmeg in the UK, Stockspot in Australia, Quirion in Germany but more of an online advisor.

It is clear by now that there are cost savings in their offerings especially for small to medium size investors. Of course, fees shouldn’t be the only factor considered.

Robos inherently, offer a limited choice of investment products. This is necessary to reduce both costs and complexity to a manageable level. They typically, use index ETFs and maybe fundamental ETFs (small cap, high-dividend, growth etc). Most end up suggesting less than a dozen holdings. Very few allow individual stocks and bonds as part of the portfolio mix. Robo-advisors that consider investments such as real estate, commodities, are TradingKing and MotifHorizon. I don’t know any robo advisor that include options.

The last hidden (not deliberately) feature is the way holdings are rebalanced. Initially, based on the client’s age, goals, and risk tolerance, the weightings of the allocations are determined. As a result, lets say one gets a 20% allocation to an ETF tracking European equities. If the markets move favorably, and this holding grows to be 25%, then the rebalancing requires selling a quarter of the ETF holdings and reinvesting those proceeds in other ETFs in the portfolio to restore the original ratios. The portfolio review is done constantly and automatically and usually a 5% divergence in the allocations will trigger automatic corrective actions.

Similar, if one wants to withdraw cash from the robo-account, the system will sell the appropriate amounts of ALL allocations to raise the cash demanded.

UBS, Bank of America, and Morgan Stanley stand out in the traditional global wealth-management industry, with each responsible for handling more than $1 trillion in investors’ assets. These firms continue to draw multimillion-dollar clients, but the robo-advisers seem to be attracting the under banked (not earning enough to pay for the fees of human financial advisor) and the so-called HENRY (“High Earning, Not Rich Yet”) clients.

TD Ameritrade is taking a different approach that is geared towards financial advisors rather than retail investors. For financial advisors that custody with them with TD, they offer an open architecture solution via the Veo platform to access to robo-advisors like Jemstep, Upside, and Nest Egg Wealth. Additionally advisors also can be accessed, such as Edelman Financial, SigFig, Financial Engines.

Fidelity bought in Feb, eMoney Advisor, a leading wealth planning software company that really falls in the advanced CRM category for financial planners. It is in alignment with the larger Fidelity vision to continue enhancing via digital solutions across its retail, workplace and institutional channels. I mention this because it gives us a sense of the broad strategic choices that wealth and asset managers can choose from as they head towards a digital transformation.

At the same time, Wall Street is funding robo-type ventures. Citi Ventures for example, has contributed more than $100 million to Betterment. USAA and BlackRock are investors in Personal Capital.