On this week's special episode of the Financial Planning Podcast, David Goldstone explains why experience plays such a major role in separating the best robo-advisors from the rest of the pack.
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The Condor Capital ranking grades robo-advisors across more than 45 metrics. Each robo is then scored in the categories of features; financial planning; customer experience; access to live advisors; transparency and conflicts of interest; size and tenure; account minimums; costs; and performance to earn a total score out of 100.
The firm also provides performance data. Condor says because robo-advisors make that information hard to come by, the Condor Capital research team directly invests in, tracks, and monitors over 50 robo-advisor accounts at more than 30 different providers. From there, the team closely monitors trends in equity-only, bond-only and total-portfolio performance across these accounts.
During his conversation with FP Podcast host and lead editorial producer Justin L. Mack, Goldstone talks about the frantic pace of robo-related news in the first half of 2023; the biggest surprises of the latest robo-advisor rankings; and what's next for the future of robo advice as providers adjust to the market in real time.
Listen to the new episode — as well as to all future and past episodes — by subscribing to the FP Podcast on
Transcript:
Justin L. Mack (00:02):
Good morning, good afternoon and good evening. Welcome to the Financial Planning Podcast. I'm your host, Justin L. Mack, wealthtech reporter with Financial Planning. And it is my pleasure to introduce this week's guest, David Goldstone, a manager of investment research at Condor Capital Wealth Management. David, thank you so much for joining us this week on the Financial Planning Podcast.
David Goldstone (00:21):
Thanks for having me. I'm excited to be here.
Justin L. Mack (00:23):
Absolutely. Now, David brings to this week's show years of experience in the industry and a whole lot of insight in the world of robo-advice at Condor Capital. David is co-author of the
David Goldstone (01:35):
Yeah, sure. So we can go way back to my college days. So I was a biology major originally in college. Coming out of college. I wasn't sure if I wanted to pursue that. Had a couple experiences that I just wasn't sure if I still wanted to kind of continue in academia. I spent my junior year living in China. So after I graduated I decided I was going to buy myself a plane ticket, moved back to Shanghai, learned to speak Chinese and get into financial services. Get into the financial industry. So I pretty much did that. I moved back, interned at an investment bank, worked at a company that did financial events and that kind of started me off in my career. I spent a couple years living there when I moved back to the U.S., spent a little time working at a bank, worked as a financial advisor and kind of the rest is history. After a couple years, I joined the Condor team, took over the Robo Report and here I am now.
Justin L. Mack (02:29):
Very, very cool. And again, a biology background, which is … I ask that question a lot on this show and I've actually had quite a few scientists. People with science backgrounds who end up in this line of work. So I don't know what it is about financial services or financial advice that also was appealing to people who are into the scientific method or research or studying. Maybe that blends itself to being a good financial advisor or someone who's really good in wealth management. So scientists, come on over. We like new talent. Join us. We're nice, I promise.
And wanted to get into transitioning into doing the work you do now with the Robo Report. I imagine that especially at the time you joined Condor, it's a time where robo advice is growing. Everyone's talking about what it can be, how it actually works with DIY investors. And you joined in 2021 around the time that a lot more people started to try to do things themselves amid the pandemic, trying to figure out what they can do with their own investments. So probably a really cool time to join. Tell me about making that transition, learning about robo-advice and some of the other work that you're doing at Condor. It's stuff that I imagine you developed while you were also working on the report.
David Goldstone (03:41):
Yeah, absolutely. So I've actually been working on the report since 2017. I joined the Condor Wealth Management firm in 2021, but I've been working on a very closely related project, which I won't get into, that's run by the founder of Condor and was built somewhat on the concept behind the Robo Report. So yeah, I've been doing the robo report since 2017. I think it's a really interesting industry. Robos really came out in 2008, but really gained steam kind of when Schwab and Vanguard launched their products in 2015, 2016. It's not every day that a whole new service enters the financial services landscape. So it's been really interesting to watch the industry evolve over time to where it is today. And to cover it very closely, I think the Robo report is also a great service for investors. It's unique out there in the world in that there's not anywhere else you can really go to get the performance of Robo advisors, a mutual fund for example. There's Morningstar, there's all kinds of information out there for retail investors. Robo-advice really is a black box as far as what you're going to be invested in and kind of the services that are provided. So we really try to fill that void
Justin L. Mack (04:57):
And like you said, you've been working on it since 2017, joining Condor in 2021, and I've had a chance to cover the report a couple of times now here at FP. I believe we're on the 26th report …. if I'm getting that right. And one thing that you kind of already mentioned is the freshness of the industry, kind of a brand new service within financial services. This report kind of gives us the opportunity to look back and look at some long-term performance trends and really don't have another place that we can do that because while we have the rankings, the report also, and again readers check it out, gives performance of different accounts from different robo-advisors and shows how those performances have changed over time. And David, correct me if I'm wrong, but this is probably one of the few places where you can look at long-term performance in the robo-advisory space because you have been tracking for as long as you have. I don't know if there's anyone else out there who's even close.
David Goldstone (05:52):
As far as I know, we're really the only ones that do. It's a pretty big hurdle to do. What we do is we open accounts at all of these places and we track every transaction in and out of the accounts, every buy and sell so that we can calculate accurate performance. So it takes quite a bit of investment capital just to open the accounts and fund them, and then quite a bit of work to track them to the level that we do. So as far as I know for true performance, we are really the only game in town.
Justin L. Mack (06:18):
Awesome. And as a reporter, I love the research side of this industry. I'm very much into that. I imagine as a scientist by trade in a sense, you are too. Is it interesting to see the results you get? Because with this being so new and you kind of being the only game in town to do it, the results you're getting are real time realizations that you're getting when you get this data back. You've not seen it before, there really is no basis of comparison for it because you're creating it kind of in real time. Is that exciting when these reports come in because you truly don't know what you're going to get? I know you're tracking it throughout the year, but when you really step back and look at their performance and all these different metrics that we mentioned, the 45 metrics, I imagine it's probably a really exciting set of data to get back as a researcher and someone who's doing this work.
David Goldstone (07:06):
Yeah, absolutely. So we work on it and track 'em all quarter and then, you know, kind of hit the button, get it all into your spreadsheet, and it's interesting to take a step back at that moment and look at who's really doing well and who's not doing so well. These products cover a pretty wide span of the largest asset managers out there, the largest financial advice providers. Now that adoption has really expanded across the board and these products are available all over the place. So it's really interesting to see how that's handled and to see how these professional, very large portfolio managers are constructing these portfolios. That said, the portfolios tend to be pretty simple in that they are typically really low cost ETFs, kind of broad based indexed ETFs, but still the managers are having to make those broader asset allocation decisions of how much is international, how much is domestic, how much large and small, et cetera. So it's definitely interesting to see the best and the brightest really whittling down their thoughts on macroeconomics and portfolio construction into these robo portfolios.
Justin L. Mack (08:17):
I want to transition to the latest rankings in this year's report a little bit. Won't give people the full list because again, as I mentioned, there is a lot to go into. It's a thick report, you guys, I won't lie to you. Read through it, sit down, get yourself a nice cup of coffee and take some time because there's a lot to dig through. But the names in this year's ranking that kind of came out at the top, names like Wealthfront, SoFi, fidelity, Merrill, Schwab, these names that you kind of mentioned that have been in this industry for a while. From the dawn of its newness and we're seeing the performance that they're having this year. Tell me a little bit about any highlights or standouts from this year's report … the biggest winners and losers, in a sense.
David Goldstone (08:56):
Yeah, sure. So Wealthfront we've liked for a long time. It's a very quality product. They launched as a quality product years ago. Them and Betterment are really kind of the founders of the modern industry of robo advice. Wealthfront is a quality product. I really liked that they have generally stuck to their guns as a digital-only advisor. So as the industry has matured more and more, they have these hybrid products where there's a live advisor component available as well. Wealthfront has really steered away from that and stuck to we're going to offer a really low cost, and a really great digital experience. The financial planner is very top tier in the market. They can take all kinds of different inputs, models, one-time events, social security, pensions, kind of all the stuff that you look to get out of a planner and really bring it down and simplify it into a single multi-goal integrated plan.
(09:47)
So that's one of the things that really makes Wealthfront stand out. SoFi is another interesting case. They have a really wide suite of financial products, robo-advice is just a pretty small piece of all of what they do. But across the board their products are competitive. SoFi is interesting because they offer live planning to anyone who wants it and wants to engage a live planner. One of the drawbacks of SoFi is that the financial planning is not super well integrated with the digital experience, which is take it or leave it. But if you're looking for really top digital experience planning, well front's a very good choice. But SoFi is interesting. They're really out there kind of pushing the envelope on innovation, really offering a wide suite of very competitive products. Fidelity Go is another great product that's out there. They recently kind of combined their hybrid and the Fidelity go product and have done that, they wiped out fees on anybody who's got less than $25,000. And then above $25,000 you get the same fee, but it's not, sorry, excuse me, the same fee as previous that a very low kind of 35 basis point fee and no fees on the mutual funds that are in that product and you get full access to unlimited access to live planners and coaching.
(11:05)
So Fidelity Go, kind of an interesting combination of those two really working to where it's integrating their suite of advice so that they can serve individuals really at any service level and any wealth level. So yeah, those are all three great products that we like a lot.
Justin L. Mack (11:24):
Awesome. And then I always have to ask about any surprises in the reports this year, covering them is one thing. You see kind of the names reconfigure a bit, but certain top performers stay at the top as they do and it's kind of that switch. Who's going to be one who's going to be two. Anything that stood out to you as a wow, didn't see that coming kind of moment when you got the report of the rankings for the latest run?
David Goldstone (11:47):
Yeah, sure. So one of the things that we changed is Betterment has gone through a couple changes. One of them is that they introduced subscription pricing. So once you're below a certain amount, you only pay a monthly subscription. We used to have Betterment as our best for first-time investors. We kind of knocked them out of that spot this time because you really have to be careful of subscription pricing, even if it's low. It's only a couple dollars a month. If you only have a thousand dollar investment account, that very quickly eats into the performance. So you have to be careful when it's subscription pricing that you're going to have enough in the account to really outweigh that monthly dollar amount coming out. So that was one of the surprises to me this time that Betterment introduced. It wasn't that big of a surprise that they introduced subscription pricing, but also to leave that minimum at zero and kind of opened the door for somebody with $500 or $1,000 to invest to be paying $4 a month.
(12:43)
You can avoid that by a monthly contribution and some, but that was interesting as well. One of the others I would say is surprising is Schwab's performance, and I can go on about Schwab all day. One of the interesting things that I do not like about Schwab is that they have very high cash allocation. But really what they're doing is that because of that high cash allocation, they sweep that into their bank and it lowers their cost of deposits to increase their revenue account on the bank side. One interesting thing about that, as markets pulled back significantly last year, that cash allocation was kind of a ballast for them and really helped their performance. So Schwab becoming a strong performer last year was also a bit of a surprise in the long run. I expect that cash drag to kind of reappear again and be problematic over the long run, but over the short run it's definitely helped their performance and help them in the ranking
Justin L. Mack (13:45):
For sure. And also without realizing that you gave me a great opportunity to plug some more Financial Planning content. If you want to read more about cat sweeps and the impact they can have, check out our website. Tobias Salinger's latest cover story in-depth story is all about sweeps. So it kind of speaks more in-depth to what you just described with Schwab and a really interesting topic to dig more into. So with that, we're actually going to take a quick break and enjoy a word from our sponsors. But when we return we'll have more with David Goldstone of Condor Capital Wealth Management, talking about robos and a whole lot more. Stay locked. We'll be right back.
And welcome back to the Financial Planning podcast. I'm your host Justin Mack, and we're diving back into our conversation this week with David Goldstone, manager of investment research at Condor Capital Wealth Management and co-author of the Robo Report.
(14:33)
And David, we talked a lot about in the first half how you got to doing the work you're doing now and the never dull moments in the world of robo-advice, especially now. We have actually (talked to you) quite a bit over the past six to eight months about all the news that's happening in the space. I kind of will go back to the point, the Thanos snap if you will, that kind of woke a lot of people up, which was the end of the Wealthfront and UBS deal. That was kind of a big moment happening. And since then it's been one thing after another. You've got Schwab sending checks to robo customers; Betterment layoffs and settlements; BlackRock selling the FutureAdvisor robo biz to Ritholtz Wealth. There's something every week and it's kind of hard to cover it, and I'm often bothering you about it. So what are some of your thoughts on the pace of movement and headlines and robo-advice? Does it bode well for the space, or is it just one of those things where when it rains it pours? Anything to take away from it?
David Goldstone (15:30):
Yeah, so it's been since the end of last year. It's been a fair amount of headlines after a period of a lull. I'd say there's some interesting things going on there. A lot of it is just an extenuation of some longer term trends here. So FutureAdvisor selling the direct-to-retail business to Ritholtz. This consolidation, this kind of closing of a lot of the smaller players in the market. BlackRock obviously is not a small player in the market. FutureAdvisor, a relatively small player. This has been going on for years. There was an explosion I would say from 2015, 2016, 2017, 2018. There was an explosion of these products. All these places adopted it. There were a bunch of new entrants on the independent side, on the startup side as well. Since that moment there's then a reverse of that trend as things often go, a fair amount of providers have closed, been sold off, been consolidated, been acquired into these larger firms.
(16:30)
So that's been going on. FutureAdvisors is just kind of another step in that direction. I think what's been driving a lot of that is I think it's difficult to make these products profitable as standalone businesses. I think across the board there was an underestimation of customer acquisition costs to really make one of these products. In my opinion, you have to have a pretty good marketing plan and you have to be ready to go out and get your product in front of retail investors. I think that the cost to attract clients has just been chronically underestimated across the market and I think that's driving a lot of the consolidation and a lot of the closures that we've seen at some of these smaller firms. I'd say Bloom is another example of that. They were kind of specific in the 401k space. They also kind of abruptly shuttered and said that they were not managing accounts anymore and then some of the technology and the management team got hired over at Morgan Stanley.
(17:30)
So that's just another example. I'd say the Wealthfront-UB-S almost deal is another example of companies trying to … some of these larger companies really trying to get a cohesive, good robo plan. UBS's robo advice execution has kind of been all over the place from the start. They already have a robo-advisor through SigFig called Advice Advantage that launched weeks after they closed the European robo-advisor that they had acquired back in I think 2016. And then out of the blue, there's this announcement they're acquiring Wealthfront that then later fell apart. I'm not quite sure why. I still don't really have great insight as to what happened there.
Justin L. Mack (18:15):
Oh darn it. That was going to be my next question is can someone finally tell us what exactly happened there? <laughs> It's been that everything's fine. And again, the continued independence by Wealthfront, they seemed enthused about it, got an influx of cash out of it, but what happened? And I was going to ask you, so I guess I'll take you off the hot seat in advance. But yeah, that's one of those. And it was kind of going to be my next question and you mentioned it, is it a matter of profitability? How to really make these money drivers for the institutions that are launching them more for the standalone entities that are operating solely as robos. How do you make this profitable? How do you actually get through that period of attracting people to your platform, but then turn it into something that is a growth driver as opposed to line allocation in the annual budget that you don't really want to look at? Do you think it's just a matter of wanting to appeal to people early on by saying you can get in for just this, just come on by type of thing that it's kind of in a way biting people in the end by being so welcoming or accommodating at the beginning?
David Goldstone (19:25):
So I think profitability is definitely part of the picture, I think, and the answer to profitability is scale. For these products, they must operate on razor-thin margins. They are offering their products for very low costs, right? 25 basis points for a professionally managed advice relationship was unheard of prior to modern robo-advice. So I think that's a piece. I believe that Betterment and Wealthfront are both profitable at this point. I'm not 100% sure, but I think they have, at last check, somewhere in the range of like $30 billion assets under management. So you have to get pretty big, I think, before you're profitable and that's a component to it. The other piece is like you mentioned, I think that the attractiveness for larger firms of a robo-advice product is starting a relationship, an advice relationship with their clients at much earlier in the client lifecycle.
(20:21)
I think that, and that's a transition that I think is happening across the industry, is that by the time you reach a million dollars in investable assets and you're really at that level that's attractive for traditional advisor, you very well likely going forward, there's a good chance you're already going to have some type of advice relationship in place. And I think the battleground for clients is shifting to earlier in the client life cycle. And I think all these firms are keen on that and that's driving these robo-advice strategies. I think a lot of them probably operate somewhat as loss leaders. For example, Fidelity must be a loss leader because they're not charging anything on it. There's no fees on the mutual funds that are underlying the portfolio and up to $25,000, they're not charging fees at all. So clearly that's a loss leader that's just trying to get people into the door, offer them a product, and then as they grow in wealth and as they grow and the complexity of their situation can, you know, graduate them or they can graduate to different tiers of service.
Justin L. Mack (21:26):
Interesting. Yeah, and I think that that foot in the door, starting that advice relationship, and for the consumer, for the client, it's probably a great opportunity to do a vibe check in a way. Am I interested in working with this institution long term as I start to accumulate wealth and become someone with the kind of assets that you want to manage in the first place? Well, do I like the culture? Do I like the firm? Do I like the experience? Just because, as you know, a lot of the interactions that clients will have with their firm or what their advisors are going to be facilitated through technology anyway. So this is a great way to see what it's like to work with Fidelity in a very, very low cost way to see that will I like this firm or this entity? And like you said, really starting that relationship at a place where that client might not even be thinking about a long-term relationship, but without them knowing it, there is some loyalty and some favoritism developing in the background.
(22:21)
So it's an interesting strategy. And then looking forward, as we head towards the end of the podcast here, I want to talk about the future. Where do you see robo-advice going? Because we've already talked about some of the ways that people stand out or do things differently. Is it appealing because of the fees? Is it appealing because we're giving you access to a live advisor? Do you just like our software? Is it just a preference? Is it a Bing versus Google thing? Do you just like this more? So I'm always interested in what you think is going to be the differentiator maybe five years from now. Obviously interested in how AI might play a role in all this stuff. So I'll let you give us your crystal ball prediction in the future. What do you think is going to help the best performing robos stand out or really create that loyalty and connectedness with clients?
David Goldstone (23:07):
Yeah, absolutely. So I'm interested to see where the industry goes from here. As far as the innovation front, I would say that there was a lot of innovation, automated tax-loss harvesting, these great digital planners that some of these places put out. Aggregation is another piece and by aggregation I mean being able to pull information from outside accounts that aren't held at your institution and provide some advice or some budgeting or some different pieces on that as well. I think a lot of that has happened. I'd say the pace of innovation has certainly slowed within robo-advice. They've accomplished a lot of things, but going forward as they concentrate a little bit more on profit profitability and some other things, I haven't seen as many improvements to products. The pace of product improvements has definitely slowed down. I'd say going forward. The trick for some of these larger firms is really figuring out how to integrate your different levels of service.
(23:59)
So kind of the three typical levels of service that you see. And this is emerging as a model across the industry. So you have a digital only robo-advice, you know, may be able to call into a call center or something to get some help, some logistical help, and then having a hybrid service where there's actually the live advisor involved and then having a full traditional full service model as well. So how do you create those three channels and then how do you make the graduation across those channels seamless and both seamless and attractive to the client? So I think that kind of integration of these different pieces is really the trick going forward so that you're doing a good job servicing each one of your clients at the level that they're at and at the wealth that they're at. And then also making it easy and providing additional value to the client at each additional step.
(24:57)
And then some clients will step up along that. Some clients will make it to tier two and not to tier three, but how do you make that service quality at each one of those levels and provide the right amount of service and then make that integration seamless and effective as clients, as some clients grow and wealth and in the complexity of their situation. I'd say that's probably the biggest, the thing going forward. As far as AI goes, I'm interested as well to see how that everyone, we're all watching it. I think AI in robo-advice is going to be challenging. I can definitely see lots of applications on the financial planning front. I think the real challenge is going to be on the regulatory front. Robo-advice was enough of a step, was already a pretty big step on how do you define the an advisor.
(25:47)
The SEC is looking at it, it's like, well, can you really have a computer program providing advice and is that acceptable? Right? I think when you start to integrate AI, there's a lot of applications there on the financial planning front, but how do you control for the consistency of a language model really providing consistent and good advice and not making mistakes. And I think that's very challenging. I think the full integration of AI where AI, you're really talking with an AI and they're providing advice to you, I think that may never come to financial advice just because of the regulatory hurdle there. I'm not quite sure how you control the consistency. I think what will probably happen in lots of industries is that it will probably as it's integrated or if it's integrated, it will move towards AI augmenting and helping live financial planners do a better job. So that still that human control piece there to make sure that whatever the model is isn't spitting out erroneous or bad advice
Justin L. Mack (26:52):
For sure. More so AI helping with the navigation, but not exactly driving the car because like you said, it gets tricky. And it's all fun and games until the regulators get involved and then the innovation starts to hit that point. Where are we innovating beyond the point of regulation and then are we getting into trouble? So really interesting stuff to keep an eye on. A lot that I know we'll be covering at financial planning and I'm sure stuff that will be reflected as the robo report continues on and on, a lot to talk about and exciting time to be in the space. So with all that we've talked about this week on the podcast, we talked about your transition from biology major to robo-advice guru, all the things that are motivating the top performers in the space right now. The crazy pace of news and major happenings in robo-advice right now. A lot to do, but I got to ask, let's transition to something that has become a tradition here on the Financial Planning Podcast. Let's end with some good vibes. Tell me what you love most about the work you do because you're busy. I'm sure as soon as we get done talking, you have 17 things you're going to do when you hang up with me. So what do you love most about all that work you're doing every single day?
David Goldstone (27:57):
It's going to sound real cheesy, but help helping investors and helping clients. That's really kind of what drives me, what drives a lot of people in this industry. At the end of the day, these are very real things. If you're managing a portfolio for somebody, if you're helping somebody get into a good advice portfolio that's going to have very real effects on very real things in their lives, accomplishing their long-term financial goals, sending their kid to college, kind of all of these different things that have very real impacts. So that's the part of my job at the core, the why behind what I do and why I enjoy what I do. Writing the Robo Report, I would say it's a lot of fun, but I don't know if that'd be entirely true. But it's a unique service out there. I think we really have the best data.
(28:47)
We have the performance data. We really go a lot more in-depth into all of these different products, and that's what I like doing. It's interesting to really be, we are a client of all of these different providers, so really getting a look at how these things are doing and then providing that service out to the retail, investing public to help them make good decisions. That's what I enjoy. On the Condor side, I cover a lot. We do individual equities, we cover mutual funds, we do alternatives for some clients looking at individual companies and saying, okay, which companies are really going to outperform? Which companies have a good business model, which companies are prepared for what's coming next in the world of innovation? That's great. Looking at funds, looking at alternatives. I enjoy all that stuff. The analytical side of me really enjoys diving in on all those different fronts and trying to construct quality portfolios for our clients
Justin L. Mack (29:45):
For sure. And like you said, it sounds cheesy. Yeah, it is. But you know what, I'm from the Midwest. Cheese is more than welcome around here, and I appreciate you sharing that passion and all that enthusiasm with us this week on the Financial Planning Podcast. I want to thank you again for joining us this week.
David Goldstone (30:00):
Absolutely. Thanks for having me, Justin.
Justin L. Mack (30:02):
And I want to thank everyone for listening to the Financial Planning Podcast. This episode was produced by Arizent with audio production by Kevin Parise. Special thanks again to our guest, David Goldstone of Condor Capital Wealth Management. Rate us, review us and subscribe to all of our content at