Robo-advisors don’t want to be judged on their crypto advice

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Illustration: Sarah Grillo/Axios

Robo-advisors are gaining in popularity, offering investors cheaper, customized portfolios but when it comes to crypto, even they won’t take their own advice.

Why it matters: Most of the big traditional shops’ robos won’t touch crypto just yet, and the ones that do aren’t necessarily eating their own cooking. That is the core portfolios on which their performance is graded don’t carry a dose of the crypto wares they offer customers.

Context: The concept of the robo-advisor is to make investment advice more accessible to the average person.

They offer up ready-made portfolios of stocks and bonds often generated by algorithms to match a customer’s long-term investment goals, like saving for retirement or a house. the Grayscale Trusts or worksarounds for direct investment in tokens.

State of play: The Robo Report, effectively a quarterly performance review for well-known robo-advisors, tracks dozens of such platforms built by asset management titans like Vanguard, to fintechs like Acorns, Betterment, SoFi and Wealthfront.

They are graded on access to advisors, financial planning, transparency and conflicts, features, customer experience, costs as well as performance. But crypto is not incorporated into qualitative scoring, Thomas Leahy, co-author of the Robo Report, tells Axios. That’s not great news for someone looking to know which robo reigns crypto supreme.

The big picture: Robo-advisors, in theory, are good they have lower minimum buy-ins (if any at all), offer low-cost ETFs and mutual funds and services like tax-loss harvesting. Some even offer live human advisors for additional support.

Zoom in: But are they as effective in the realm of crypto?

“Betterment and Wealthfront are framing investments in the context of a [diversified] plan,” Leahy says. “If youre holding crypto and it has a large drawdown, I would rather you see that in the platform to see the negative effect on your future rather than seeing it on Coinbase, where you might not get that context, ” he says.

Details: Betterment’s crypto portfolios try to give customers direct access to the underlying crypto via a separately managed account through Gemini, Leahy says.

SoFi offers direct access too, with roughly 30 tokens on the platform, but custodies digital assets through its own subsidiary.

But this comes at a cost. The effort to deliver crypto via a non-packaged product means higher relative fees than investing in stocks.

Betterment charges a 1% advisory fee plus transaction fees that result from any rebalancing, while SoFi charges a markup of 1.25% rounded up to the nearest penny on crypto transactions.

Zoom out: What you’re not seeing, is funds incorporating crypto into the asset-allocation model, Leahy says. Put another way funds are still treating crypto as an opt-in, and not in their core portfolios.

“That’s a big risk [to the robos]to be out-of-benchmark if that goes the wrong way, that’s on your record,” he says.

What they’re saying: “We dont have a great way to gauge the long-term expected return of crypto. Its sort of like gold. You need estimates of expected return,” Alex Michalka, Wealthfront’s director of investments, tells Axios.

Acorns Chief Investment Officer, Seth Wunder, said bitcoin still needs to prove itself.”Bitcoin, through its 10+ year history, has statistically been a diversified asset, but still has time to prove its merit over a longer period,” he said in a statement to Axios. “Providing customers the optionality to further diversify with bitcoin is the beginning of how we plan to offer customers the ability to customize a portion of their overall diversified portfolio.”Acorns offers the ProShares Bitcoin Strategy ETF, an indirect play using futures. There is no actual bitcoin offered there.

Between the lines: Because there are no fundamentals driving bitcoin no cash flow expectations to measure and model it’s hard to predict where prices will go.

“Thats why you wont see gold or silver in our portfolio either,” Michalka says, explaining why crypto is not included in Wealthfront’s core portfolio graded by the Robo Report. “There are investors interested in it and those that werent,” says Jesse Proudman, vice president of crypto investing at Betterment, explaining why crypto is an “opt-in” offering and not automatically included in their core portfolios.

Crystal’s thought bubble: But wouldn’t it be interesting to see these crypto products in action in real-world portfolios over the good times and the bad.

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