The Future of Robo Advisors

Highlights:

• Industry assets now exceed $1 trillion, but the era of explosive growth has transitioned to one of modest increases.
• Significant market consolidation continues: Goldman Sachs sold Marcus Invest, JPMorgan shuttered its Automated Investing, Ellevest has pivoted from robo to high-net-worth services, and UBS is sunsetting its Advice Advantage platform.
• The focus for major players has shifted from aggressive expansion to sustainable profitability, shown by fee restructuring at firms like Betterment.
• Despite industry challenges, firms like Betterment and Wealthfront report profitability, though the path remains difficult for many.
• Artificial Intelligence (AI) is a key area for development, with Robinhood acquiring AI planner Pluto and launching its own robo advisor.

Robos Reaching Maturity

With assets under management (AUM) surpassing the $1 trillion mark, the robo-advisor industry has clearly entered a mature phase. While this is a significant sum, it still represents a tiny fraction of the total U.S. advice market. When robo advisors first emerged, many heralded them as a revolutionary force set to dismantle the traditional financial advice model. Predictions of mass displacement of human advisors and a complete overhaul of the industry were common. However, while the revolution hasn't unfolded quite as dramatically, robo advisors have undeniably carved out a permanent and influential niche.

Instead of replacing traditional advisors, robo platforms have found their strongest appeal among self-directed investors already comfortable managing their finances online. This trend partly explains the success of established DIY investing giants like Vanguard and Schwab. These firms leveraged their vast existing client bases to cross-sell their robo offerings, quickly becoming market leaders. Vanguard, for instance, leads with over $360 billion in its Digital Advisor assets, while Edelman Financial Engines manages approximately $293 billion. In contrast, many standalone startups and newer entrants have found it challenging to acquire customers at scale. Consequently, robo advice has largely evolved into a valuable supplement to self-directed investing, rather than a substitute for, traditional advisors. Nevertheless, robo advisors have profoundly democratized access to financial advice, making professionally managed portfolios available to individuals with modest investment amounts.

Firms Continue to Exit or Restructure

The current landscape is less about new entrants and more about the strategic exits or restructuring of existing players. Goldman Sachs divested its Marcus Invest accounts by selling them to Betterment in June 2024, citing a strategic realignment. JPMorgan also quietly discontinued its digital-only Automated Investing product after it failed to gain significant traction.

Adding to this trend, Ellevest, a platform initially focused on women investors, recently announced the closure of its digital robo-advisor service to concentrate on serving higher-net-worth clients. Most recently, UBS has decided to sunset its Advice Advantage robo-advisor. Launched in partnership with SigFig  in 2018, the platform never significantly evolved. UBS is now transitioning these clients to its "Access House View" model. This decision follows UBS's failed attempt to acquire Wealthfront in early 2022, which fell apart in September of that year. These developments suggest UBS has struggled to define a clear robo strategy and is now largely stepping back from the standalone robo space. These recent moves echo earlier closures like BlackRock’s FutureAdvisor and Northwestern Mutual’s LearnVest, underscoring a stark reality: without a captive audience or a distinct, profitable, niche, maintaining a proprietary robo-advisor is an increasingly challenging proposition.

Shifting Focus from Growth to Profitability

With the initial wave of eager adopters largely onboarded, leading robo advisors are now concentrating on fine-tuning their pricing models and service offerings to bolster profitability. Betterment, under CEO Sarah Levy, has made several moves seemingly aimed at improving its profitability. The firm introduced a $4 monthly fee for accounts below $20,000 (unless minimum deposit requirements are met) and increased the advisory fee for its Premium tier to 0.65%. More recently, Betterment has also launched a new self-directed investing option, broadening its appeal. Despite market volatility, Betterment has maintained profitability since 2022. Similarly, SoFi—after seven years of offering fee-free robo-investing—introduced a 0.25% annual management fee on its core robo-advising platform in November 2024.

Vanguard, another major player, has sought to widen its reach by reducing the minimum investment for its Digital Advisor service from $3,000 to just $100. It also consolidated its advice businesses into a new $900 billion Wealth & Advice unit. Wealthfront, meanwhile, has maintained its 0.25% advisory fee and states it recently became profitable, attributing its success to its low-cost, all-digital business model and income from cash management services. The overarching theme is clear: while profitability in the robo space is challenging, it is achievable with the right strategy and scale.

Robo 3.0: More Portfolio Options and Customization

As the industry matures, innovation is shifting from launching new platforms to expanding the depth and breadth of portfolio options and customization features. We're seeing a move towards more sophisticated and tailored investment solutions. For example, Betterment, in collaboration with Goldman Sachs, launched a Tax-Smart Bond Portfolio in July 2024, designed to offer higher after-tax yields for clients in higher tax brackets by blending Treasuries, municipal bonds, and corporate bonds. Wealthfront introduced an Automated Bond Ladder in May 2024, allowing clients to build Treasury ladders with as little as $500.

SoFi began offering alternative investments, such as private‑credit and real‑estate funds, in January 2024, opening these strategies to everyday investors. When the firm rolled out a 0.25 % annual advisory fee on its core robo‑investing platform in November 2024, those alternative sleeves were folded into the base plan, with no surcharge for adding alternatives. This expansion typifies a broader industry shift toward “menus with guardrails,” where richer customization features like direct indexing, ESG tilts, and user‑defined asset‑class weightings give seasoned investors granular control while preserving a guided, default path for newcomers.

Artificial Intelligence and Advice

Artificial Intelligence (AI) represents the next major battleground for innovation in financial advice. However, the deployment of fully autonomous AI-driven advice is currently constrained by stringent fiduciary responsibilities and disclosure regulations. Robinhood’s acquisition of AI-powered financial planning company Pluto in July 2024, and the subsequent launch of its fully-fledged robo advisor in March 2025, open questions for how the company will provide personalized strategies in a way that complies with regulations. These offerings typically frame AI-generated insights as tools or suggestions rather than personalized financial advice, at least for the time being.

Regulators are observing these developments with a keen eye. In 2024, the SEC penalized two advisory firms for "AI washing"—making misleading claims about their AI capabilities. Furthermore, the SEC's 2025 examination priorities explicitly include the use of AI in portfolio management and marketing communications. Firms looking to integrate large language models (LLMs) and other AI engines into their advisory processes will need to implement robust governance and control frameworks to prevent misleading statements and mitigate algorithmic biases or conflicts of interest.

Outlook

The explosive growth phase of the robo-advice market is now in the rearview mirror. The industry has entered an era of refinement, consolidation, and a determined pursuit of sustainable profitability. We can expect continued consolidation as smaller players struggle to compete or are acquired. Leading firms will likely focus on diversifying revenue streams and offering more intelligent, personalized customization rather than solely chasing raw account numbers.

The next significant breakthroughs are anticipated at the intersection of AI-driven personalization, advanced tax optimization strategies, and broader access to alternative asset classes. However, all such innovations will invariably be shaped by the evolving interpretation and enforcement of fiduciary duties. Robo advice has firmly established itself as a permanent fixture in the financial advisory landscape. The ongoing challenge for the industry is to ensure these digital platforms remain not only profitable but also demonstrably more valuable to investors than a straightforward passive index fund strategy.