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Is FutureAdvisor Right For You? Find Out In Our 2015 FutureAdvisor Review

FutureAdvisor Review Updated for 2015

FutureAdvisor is an asset management company that aggregates all of your account information and provides you with personalized portfolio recommendations based on your risk tolerance, age, and other factors. FutureAdvisor will analyze your current asset allocation and provide you with recommended changes. For a low fee of $9/month (or $16/mo if you have assets greater than $50,000), FutureAdvisor will automatically manage your portfolio for you. The company now has assets under management of over $600 Million and features live advisors creating a technology driven platform with a human touch. You can also now manage your 529 College Savings Plan with FutureAdvisor.

How Much Does FutureAdvisor Cost?

They have two plans.

1. The free plan is a DIY version that provides you with a personalized asset allocation, fee savings opportunities, tax savings opportunities, and self-directed rebalancing alerts. FutureAdvisor currently has over 320,000 registered users who are tracking over $40 billion in assets.

2. For asset mangement, FutureAdvisor charges 0.5% of assets under management.

Asset management includes the following services:

Personalized portfolio allocation
Tax aware portfolio design
Tax loss harvesting
Rebalancing
Email alerts regarding your investments

Investment Methodology

How Does FutureAdvisor decide what to invest in?

FutureAdvisor has a methodology based on the following tenets:

1. Index Investing – Index investing outperforms 92% of managed mutual funds. Good luck finding the 8%. I’ll stick with indexing as well.

2. Diversification – Personalized diversification and personalized risk analysis. They want you to have the same service as the wealthy so they utilize Modern Portfolio Theory to create a risk adjusted portfolio that is sufficiently diversified to allow you to capture the returns across different markets. MPT is a great way to give yourself the best odds of success.

3. Low Fees – Fees erode your returns. It sounds like a no-brainer but time and again we get caught up in a great opportunity without studying the real cost. FutureAdvisor helps you find the low fee funds.

4. Rebalance – Quarterly rebalancing helps you smooth out your returns. You lock in your gains and get back to your risk-adjusted, optimized portfolio.

5. Value and small cap – Your portfolio will tilt toward value investing and small cap investing. It’s not clear to me how much they will tilt your portfolio or how they identify the best value funds but they cite studies that show this is the best way to go.

The idea behind FutureAdvisor is similar to Wealthfront, MarketRiders, and PersonalCapital in that the company uses technology to provide world class investment advice to an underserved majority that would not normally be able to afford that level of service. By leveraging algorithms based on Modern Portfolio Theory, these company’s can significantly lower the cost of service by creating economies of scale. Thus, the cost of the advice declines and the price charged to us drops significantly.

Where MarketRiders is focused on ETFs and provides recommendations only, FutureAdvisor gives you a recommended portfolio of ETFs and low-cost Mutual Funds to get to your ideal portfolio, then will also make those trades on your behalf. One of the really great features is that FutureAdvisor will help you find opportunities with your existing portfolio, advising you to move to funds with lower fees based on their analysis of your holdings. Fees erode long-term returns and it makes little sense to hold onto high cost funds when better alternatives are presented. They also have relationships with certain company’s so that you can have your 401(k) analyzed. It’s a nice feature if you are among the lucky few.

Is FutureAdvisor Safe?

FutureAdvisor utilizes bank level security to ensure that your money is safe. This means 256-bit encryption. Furthermore, FutureAdvisor utilizes the same account aggregation software as Mint.com. For their free plan, they make recommendations and count on you to enact those recommendations on your own.

For the premium plan, FutureAdvisor transfers your accounts to TD Ameritrade or Fidelity. This is done on your behalf. They will then modify your existing portfolio to match their recommendations. It is important to know that the monthly cost does not include standard trading commissions. At TD Ameritrade, this is $9.99 per stock/ETF trade and up to $24 per mutual fund trade depending on the fund. AT Fidelity Investments, this is $7.95 per stock/ETF trade and up to $40 per mutual fund trade depending on the fund.

Who should use FutureAdvisor?

Use FutureAdvisor if you are looking for ways to improve your portfolio without going to a professional asset manager. They have a plan for a do-it-yourself person willing to take their recommendations and adjust your portfolio on your own. For those looking for automation, FutureAdvisor is a great option as well, especially if you have accounts spread across a number of different brokerages because they’ll pull it all together on your behalf. If that idea scares you, consider MarketRiders.

More Reviews:

What’s New At MarketRiders for 2015?

Earlier this year I spoke with Mitch Tuchman about his company MarketRiders, which now helps individuals manage over $4 billion in assets. I wrote a detailed MarketRiders review a while back, but wanted to add more detail and find out what really sets MarketRiders apart so I called Mitch. Much of the success of MarketRiders is due to his leadership and foresight. In fact, MarketRiders was one of the early movers in the online personal finance space and has been helping people manage their money since 2007.

Here’s his profile from their website:

“As co-founder and CEO of MarketRiders, Mitch conceived of and built a service for do-it-yourself investors to manage their own retirement portfolios. Those investors have saved over $40 million in yearly fees and have enjoyed less risk in the process, a testament to Mitch’s desire to help working Americans retire with more. Mitch Tuchman’s experience pioneering MarketRiders helped him define and codify the retirement needs of working Americans. Mitch has over 25 years of experience in venture capital, public finance, and technology. He was a subadvisor to Apex Capital, LLC, on its $200 million technology and special situations portfolio and managed its venture capital fund. A frequent guest on CNBC, CNN, and Fox Business News, Mitch is regularly featured in major financial publications, including The New York Times, Barron’s, and Forbes Magazine. He also is a regular columnist for Forbes and MarketWatch.com.”

What is MarketRiders?

MarketRiders is personal investment management software company that brings the philosophy used by professional managers to the ordinary investor. What does this mean exactly? It means that instead of chasing hot stock tips, you’ll be using the same investment philosophy that Harvard and Stanford use for the massive endowment funds. As Mitch said it, the institutional investors speak a totally different language than what we are fed by most media outlets. The team that manages the endowment for a major university isn’t discussing which stock is going to get hot. They are discussing the future performance of asset classes and whether or not they should adjust their holdings in that class. They may talk about certain money managers that have a good understanding of a specific market and whether they should give that manager some resources, but they definitely aren’t talking about Mad Money stock picks.

The MarketRiders team has a lot of experience in asset management. Besides Mitch, who has 25 years of experience in venture capital, public finance, and technology, MarketRiders has been heavily influenced by the work and writings of Burt Malkiel, Charley Ellis, and Jay Vivian. These men literally wrote the book on institutional investment management and spent years advising their clients on how to use low-cost, diversified index funds to create risk-adjusted portfolio.

How much does MarketRiders cost?

MarketRiders is still only $149/year. You can also opt for a monthly plan that costs $14.95. There are other costs related to your brokerage trading fees and the ETF fund fees. You’ll be investing in low cost funds so the fee will be only 0.17%.

MarketRiders Total Costs Including 3rd Party Fees

Portfolio Size	$25,000	$50,000	$150,000	$500,000	$1,000,000
ETF fund fees (0.17% average)	$45	$90	$270	$900	$1,800
Trading commissions	$160	$240	$480	$480	$480
$14.95 monthly subscription	$180	$180	$180	$180	$180
Total yearly fees	$385	$510	$930	$1,560	$2,460
Yearly fees as a % of portfolio	1.54%	1.02%	0.62%	0.31%	0.25%
Number of ETFs in portfolio	4	6	12	12	12

What has changed since MarketRiders began?

MarketRiders was the first into this space and has a lot of experience now. They have tweaked their advice and improved their software. Each version (Mitch says this is version 6) has fine-tuned the software and added additional features. The company now helps individual investors manage more than $4 billion.

Much of what made the company great has stayed the same though. You still do-it-yourself with MarketRiders. The first step is to go to their site and answer a few simple questions about your age, your risk tolerance, your investment experience, your time horizon, and how much you want to invest.

Based on that, MarketRiders constructs a portfolio of ETFs for you to invest in. You go to your discount stock brokerage account buy them yourself and then tell MarketRiders what you did. Finally, their software will track your investments and tell you when and how to rebalance your portfolio in order to keep you on track to achieving your goals.

What sets MarketRiders apart?

MarketRiders differentiates itself in a few subtle but important ways. First, they’ll tailor your portfolio of ETFs based upon the broker that you already have, meaning that if you have an account with Charles Schwab, they will give you a portfolio of Schwab ETFs. This is a great feature and can save you a lot in fees if you are with the right brokers. The MarketRiders software will also recommend the funds that best suit your needs and are also the lowest-cost.

Another unique feature of MarketRiders is the ability to alter the recommended portfolio. More advanced investors may want to take the results provided by MarketRiders and then alter it. Well, MarketRiders provides ETFs by asset class as additional options so you can go through and find a different ETF in the same asset class.