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Most of us are well-aware that nothing good in life is free. But what about financial products that operate as free (or close-to-free) services, designed to earn us money while allowing us to, well, keep more of it… like robo-advisors? Is there some sort of catch that we don’t know about or a caveat that will come back to bite us later?

Robo-advisors have become a dominating presence in the investment world since their introduction in 2008. In only a short decade, they have earned the trust of investors big and small, allowing them to safely manage their funds in the most affordable way. They come in the form of apps and web platforms, and fees range from entirely free to miniscule (at least, compared to most financial advisors).

But while most investors understand how robo-advisors work and how much money these new(ish) platforms can save them in the long run, there’s one question that most can’t answer: How exactly do robo-advisors make their money? After all, a company isn’t exactly sustainable unless it’s able to bring in revenue of its own. If not charging fees to investors, how exactly do these robo-advisor companies keep the lights on?

Let’s take a look at some of the most popular robo-advisors and how they are making their money.

Investment Kickbacks

Some robo-advisors are free for you to use, but they still make money off of your investment choices. In this case, their revenue model is more kickback-based.

Companies like Schwab, with their Intelligent Portfolios robo-advisor, won’t charge you a single penny for managing your investments. They also won’t charge you for tax loss harvesting or rebalancing your portfolio at any time. All of the services provided to their investment customers are free.

Instead, when you choose to invest in their proprietary ETFs, the company will receive compensation, similar to a referral bonus. They can also earn revenue from specific third-party ETFs (also on a referral-type basis) or even from the cash feature of the investment accounts themselves.

Here’s the answer to this question in Schwab’s own words:

Schwab afffiliates earn revenue from the underlying assets in Schwab Intelligent Portfolios accounts. This revenue comes from managing Schwab ETFs™, providing services relating to certain third party ETFs that can be selected for the portfolio, and from the cash feature on the accounts. Revenue may also be received from the market centers where ETF trade orders are routed for execution.

Charge a Percentage

Some robo-advisors will charge you a percentage-based service fee in order to use their platform. They may only have one option or they may offer various subscription levels, based on your needs and portfolio size. However, you’ll typically be charged one flat percentage that will cover all of your management and any transactions involved.

This is the category where most of the robo-advisors fall: they aren’t free and they don’t claim to be, but they can be affordable depending on what you need and how much you have. Some of them will even offer to manage your first few tens of thousands of dollars free of charge. After that, you’ll need to pay up.

Companies operating under this model include Personal Capital, BettermentWealthfront, and Vanguard’s Personal Advisor Services. The services offered vary as do the fee structures, so you can’t go based on price tag alone. (We’ve done many, many comparisons of these robo-advisors to help you decide which one really meets your needs!) Just to give you an idea, though, here’s how much they’re currently charging:

Personal Capital

  • First $100,000 – managed free
  • $100,000 to your first $1 million – 0.89%
  • $1 million to $3 million – 0.79%
  • $3 million to $5 million – 0.69%
  • $5 million to $10 million – 0.59%
  • $10 million+ – 0.49%


  • Digital plan – 0.25% per year with no minimum balance requirement
  • Premium plan – 0.40% per year with a minimum $100,000 balance requirement
  • No additional fees for transactions, transfers, trades, advice, balancing, tax loss harvesting, or even buying/selling securities


Annual advisory fee of 0.25%, regardless of balance size.

Vanguard Personal Advisor Services

  • All balances under $5 million – 0.30%
  • Beyond $5 million – will need to inquire for your rate

Ads and Sponsors

One of the easiest way that a company–even a robo-advisor–can make money is through sponsors and ads. If you have a website and/or an app, adding banners, pop-ups, and other solicitations is an easy and effective way to fund your operations. The strong majority of websites and free apps operate under this system.

Not all robo-advisors will allow ads on their sites or in their apps, but it is one option for bringing in revenue. This might be through a pop-up while you’re using the free mobile platform, or a banner when you’re on the advisor’s website. Blog posts on the advisor’s website, or even their email newsletter, might be sponsored by a particular company, too.

Sell Something Else

There’s a very common money-making practice that proliferates almost every industry imaginable: give something away for free and increase your chances of selling something else to that same customer. It’s the concept behind beauty counters giving out samples, stores offering free shipping on orders over a certain amount, and even companies like Home Chef sending you your first meal or two for a discount. They hope that by hooking you in–either to them as a company or to the product itself–you’ll be more willing to fork over your hard-earned cash in the future. And it’s a great marketing move.

Some robo-advisors will offer you free financial advisor services, helping you to rebalance your portfolio and manage your investments sans fees. However, you’ll often be solicited for other services, such as upgraded advice and guidance for your investments, the ability to combine portfolios and accounts, tax loss harvesting advice, and even services for saving money or budgeting.

There are a handful of questionable companies out there (in the robo-advisor world and really everywhere) that might make money from selling your personal information. By selling off your email address, contact info, or even anonymous information related to how you invest and how much you have in your portfolio, they can further line their pockets. This practice is frowned upon–and the idea of it probably makes you feel uncomfortable–but it does happen.

Let’s take a look at WiseBanyan. This robo-advisor provides a free service, and they won’t do anything shady with your personal information. Instead, they make money by offering you optional, affordable a la carte options for your investments. Their packages will help you with things like tax protection, tax loss harvesting, selective trading, and can even assist you in converting a back-door Roth.

These packages only cost a few dollars a month and you won’t be hassled to sign up. Instead, if you want to make your investing even easier and optimize your tax benefits, WiseBanyan will be there to help for less than the cost of a cup of coffee each month. If not? Continue using the free service and enjoy managing your ETF portfolio.

Related: Best Robo Advisors

Should You Use a Robo-Advisor?

In today’s consumer-led, technology-based world, it appears that the robo-advisor is here to stay. This is a great thing, as they are improving in quality and function every single day, and offer an affordable alternative to investors who either have a smaller portfolio or want a hands-off approach to their money.

Even “free” robo-advisors aren’t entirely free, though, and they have to find a way to make their business model successful. By employing certain strategies or offering additional services to customers, they can continue to offer excellent, low-cost services while also bringing in their necessary revenue.

Author Bio

Total Articles: 99
Stephanie Colestock is a respected financial writer based in Washington, DC. Her work can be found on sites such as Investopedia, Credit Karma, Quicken, The Balance, Motley Fool, and more, covering a range of topics such as family finances, planning for the future, optimizing credit, and getting out of debt. She is currently working toward her CFP certification. Her full portfolio can be found at stephaniecolestock.com.

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