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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:

Covestor Review

Covestor finds a portfolio manager suited to your investment philosophy and automatically follows the trades of that manager on your behalf. You can tailor the service to suit your investment needs. At its heart, Covestor is a company that pairs you up with active investment managers based upon how much you can afford to invest, your risk tolerance, and specific asset classes.

Maybe you are a very safe investor. Your money is in a low fee index fund and has been nicely allocated across a broad range of investments. Perhaps you’re using MarketRiders and faithfully reallocating your money every quarter when you get an email from them. Maybe you have been working with an advisor from Personal Capital who is helping you safely put your money into a diverse portfolio. But there’s a small part of you that thinks someone out there is smarter than the market and you’d like a piece of the action. If you have a little bit of money to put at risk and you haven’t found a Motif that you like, Covestor could be the place to put your money.

At Covestor, you get to follow the trades of active investment managers who have been screened by the company. These managers have various investment philosophies and portfolios. Covestor allows you to automatically make the same trades as these managers. It feels like GuruFocus without the Gurus.

Let’s look at the company’s investment philosophy as per their site:

Our investment philosophy
We believe you deserve a better way to invest:

1. Asset management should start with the individual needs of the investor. As investors’ needs are as varied as investors themselves, no single approach – or computer algorithm – satisfies everyone’s requirements.

HB Comments: This is true. I agree. We are all in different situations that require different allocations of money and liquidity. Identifying a good advisor is helpful, but Covestor seems rather impersonal. This statement advocates a personal touch, but Covestor is really using software to narrow down potential advisors who you won’t actually meet. Instead you will see if you agree with their philosophy and then have Covestor mirror their trades. If you want more personalized service but want a lower cost then you should consider Personal Capital.

2. Active portfolio management, including periodic rebalancing, plays an important role in risk management, which can significantly enhance investor performance over an entire market cycle.
HB Comment: In my book, rebalancing is not “active portfolio management.” It is a method to ensure that you get the maximum return based on your risk tolerance. Market changes cause your portfolio to become misaligned from your optimal risk profile. Therefore, it is imperative to rebalance. That’s not active portfolio management though.

3. Passive index funds, including index ETFs, enable individual investors to gain broadly diversified exposure to entire asset classes at very low cost. Most investors should use passive indexing strategies for their core equities and fixed income allocations and should consider active approaches to round out a strategy, in line with their investment goals.
HB Comment: Excellent. Totally agree. Here are a few places to find passive investment opportunities at a low price.

4. A financial adviser can help individuals make the right decisions for themselves, including selecting portfolio managers who can help them reach their financial goals.
HB Comment: What I get from this is that Covestor considers itself to be a financial adviser. That’s reasonable. They are trying to match you up with good investment opportunities for a fee.

5. Investors deserve fully transparent accounts, clear performance and risk reporting, understandable language, and no hidden fees. Securities should be held in investors’ own brokerage account as, after all, it is their money (we believe in separating advisery from custody services).
HB Comment: I like this a lot. The transparency provided by Covestor is far and away the best thing about the site. You get the full history of the active money managers along with straightforward information about minimum investment requirements and fees. I also like that they allow you to mirror an investment manager without actually giving the manager all of the money. This gets to the heart of their service and is their greatest strength.

6. Many investors have a viewpoint on economic trends at the macro or sector levels that they wish to express through their holdings. Active management via a portfolio manager who shares their particular viewpoints and convictions allows for such directed investing.
HB Comment: Right. It’s active management. You must hope that this person knows something that you don’t know and that the market hasn’t figured out yet.

7. Emerging fund managers with fewer assets under management tend to outperform their peers at larger, older funds, due to the greater opportunity set available to the emerging manager. We therefore seek to identify talented emerging managers and to offer our clients unprecedented access to their strategies.
HB Comment: This is where they differ from GuruFocus. Covestor is looking more at finding emerging talents. You might find a Guru before they become a Guru. I read this and thought, “Meh.”

8. Not all great portfolio managers work on Wall Street. The internet allows us to source, vet and grant access to compelling investment strategies from portfolio managers across the globe, including those with extraordinary domain expertise and local market intelligence.
HB Comment: So maybe you can find someone in India who will give you better information on India than Goldman Sachs. Plus, if you could afford Goldman Sachs, you probably wouldn’t be on this site reading about Covestor!

9. The recent, broad rush into index investing products creates additional opportunity for talented active managers to find market inefficiencies.
HB Comment: It also creates opportunities for those managers to fail.

10. Regular commentary from portfolio managers provides clients valuable insight and transparency on their portfolio status and changes.
HB Comment: No argument there. You want to hear frequently from your portfolio manager and understand their philosophy and where they are going.

I think if I were going to use Covestor, I would probably try to find someone who uses a Black Swan investment methodology to hedge against the catastrophic risks. I’d remember that this is probably not for all of my portfolio and I’d keep most of my money in the good old fashioned index funds.

Have you tried Covestor? I’d love to hear what you think.

Category: Reviews

FutureAdvisor Review

Covestor Review: Active Investment Management