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Computer-Based Financial Planning: How it Works

Author: Daniel Jackson

Computer-based financial planning is on the rise, but for two very different reasons. The first and most obvious is that many investors are turning to a do-it-yourself approach thanks to lower fees, tax-loss harvesting, portfolio rebalancing, diversification and low net worth requirements. These investors are taking advantage of Betterment, Wealthfront, Personal Capital, FutureAdvisor and SigFig Wealth Management, among others.

The other reason for the increased popularity of computer-based financial planning, or robo-advisors, is that financial advisors are taking advantage of them. This might sound contradictory because many investors are turning to computer-based financial planning for lower fees. But there are also plenty of investors who can afford the higher fees, and financial advisors with those types of clients can complement their services (and increase the speed of their services offered) by implementing computer-based financial planning. For financial advisors, this is not a one-step approach. It's only one step on a long staircase. Financial advisors have many options for which computer-based financial planning service to use in this now-competitive industry, but Jemstep Advisor Pro is one of the more comprehensive services. (For more, see: Top 5 Robo-Advisor Myths.)

Let's take a brief look at what all the above services offer.


Betterment is the largest automated investing service in the world with 100,000 investors. And that's not a very big number. Expect future growth. It invests in globally-diversified and low-cost exchange-traded funds (ETFs), including: (For more, see: Betterment vs. Financial Advisor: Which is Best?)

Vanguard Total Stock Market ETF (VTI)

iShares Russell Mid-Cap Value (IWS)

iShares Russell 2000 Value (IWN)

Vanguard FTSE Developed Markets ETF (VEA)

Vanguard FTSE Emerging Markets ETF (VWO)

iShares National AMT-Free Muni Bond (MUB)

These are high-quality ETFs, but if you're looking for passive investing at a low cost, then you can simply invest in Vanguard's ETFs on your own without paying any external fees.


Wealthfront manages $2.5 billion in assets and will manage $100,000 for less than $20 per month. There are no commissions or other account fees. Rebalancing and tax-loss harvesting are available. (For more, see: Wealthfront Versus Betterment.)

Personal Capital

Personal Capital manages $1.5 billion in assets for approximately 80,000 people. This service will allow you to link all personal accounts to the Personal Capital Dashboard, where the aggregated information will be analyzed. A customizable plan for retirement (or other goals) can be established, or you can meet with an advisor to discuss your investment strategy.

Future Advisor

Future Advisor is set up to improve your investment accounts so you can reach your goals quicker. Future Advisor charges a half of a percentage point on assets managed, which is between one-sixth and one-half the average rate of a traditional financial advisor. Retirement and college planning are popular here. (For more, see: Choosing the Best Robo-Advisor.)


The goal for SigFig Wealth Management is to offer investors an opportunity to build intelligent, tax-efficient, diversified portfolios for a fraction of the cost of financial advisors. That cost is as low as 0.25% per year, but larger portfolios will cost $70 a month, which will include portfolio analysis, tracking and rebalancing advice. Regardless of the size of your portfolio, it will be balanced based on your goals. For example, a balanced growth for retirement portfolio might look something like this:

U.S. Bonds 17%

Short-Term Treasuries 16%

U.S. Equities 27%

International Equities 17%

Emerging Markets 17%

Real Estate 6%


Jemstep is different because it's geared to financial advisors. It allows financial advisors to reduce overhead and improve scale. For example, a client can be onboarded within 10 minutes, which includes Docusign and an advisor agreement. All imperative client information is integrated. A portfolio analysis is free and can indicate how client portfolio allocation might enhance returns and/or reduce risk. (For more, see: Robo-Advisors: Threat or Opportunity?)

For example:

Client Allocation

Target Allocation

U.S. Stocks



International Stocks









Commodities & other



Other features include live chat, email support and calendar integration. From there, clients can track their performance, review their holdings and transfer additional assets for management.

Employees at the following companies also use Jemstep:

  • Google Inc. (GOOGL)
  • eBay Inc. (EBAY)
  • PayPal Holdings, Inc. (PYPL)
The Hidden Risk

Why do you think computer-based financial planning has been so hot over the past several years? It's not just because of low fees and tax-loss harvesting. One big factor has been a bull market. Even if these algorithms (in some cases there are humans involved) were not picking well, the vast majority of stocks and bonds have performed well during this bull market, which then lead to word-of-mouth advertising, strong reputations and increased business. The hidden risk is a sideways market or a bear market. (For more, see: How Do Robo-Advisors Differ?)

For example, a computer is not going to dig into a Securities and Exchange Commission (SEC) filing to find clues as to what's really going on with an underlying business. A computer also isn't capable of checking management histories and industry trends and how will it impact certain industries in the near future, reading consumer spending and gross domestic product (GDP) reports, or determining what certain key metrics might mean for a company down the road.

The Bottom Line

Do all the services above have something to offer? Yes. But it's going to be very difficult for them to outperform the S&P 500 in a bear market. For that, you will need access to a wise money manager who basis his or her investment recommendations on deep-dive research. Finding that isn't going to be easy either, but at least you will have a chance. If you're investing with a computer-based program, you will have limited options in a bear market. You will not be able to use margin to open short positions, and you will not be able to buy puts. Moving to cash or U.S. Treasuries will help, but you will lack maneuverability. Fees might be higher for financial advisors, but you get what you pay for. Just make sure you do some comparison shopping prior to finalizing your decision. (For more, see: How Financial Advisors Can Adjust to Robo-advisors.)

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