FutureAdvisor is an online investment advisor that automatically manages your investments. It helps you to do this in an advantageous way by using modern portfolio theory (or MPT), to build and maintain a portfolio to maximize your return based on certain levels of risk indicated by your investor profile.
FutureAdvisor competes with similar online investment advisory services, such as: Personal Capital, Jemstep and Betterment.
How does it stack up against them? It depends on what services you’re looking for.
What is FutureAdvisor?
The company launched operations in March 2012. It’s led by a team of finance professionals, data scientists, and software engineers backed by the same venture capital team that backed PayPal and Google.
With direct management, you grant the service the authority to trade in your accounts on your behalf.
How Does FutureAdvisor Work?
FutureAdvisor works with Fidelity and TD Ameritrade accounts. These firms charge their usual transaction fees for trades within the account, in addition to any fees you may pay to FutureAdvisor.
Management includes the following services — depending upon the plan selected:
- Index fund investing that favors low fee index funds, primarily with Vanguard or iShares.
- Personalized diversification through a specific portfolio based on your age, risk tolerance and investment horizon.
- Low fees, by making portfolio fees transparent to help you pick lower fee options.
- Re-balancing recommendations –- typically 2 to 4 times per year -– based on significant changes in your portfolio.
- Emphasis on value and small-cap funds for greater long-term returns, includes U.S. and internationally centered funds.
- Tax harvesting, by monitoring your holdings and looking for positions with at least $1,000 in harvestable losses at current market prices.
How Does FutureAdvisor Compare?
Out of the other services we’ve reviewed it’s most similar to Jemstep. Both services sync up financial data via Yodlee, and gives automated financial advise no matter where your assets are located. No financial advisor is involved.
If you are looking for a financial advisor, then FutureAdvisor isn’t your choice. Personal Capital does offer a financial advisor if you signup for their paid advisor service.
Unfortunately with Jemstep you must perform all trades manually. With FutureAdvisor they will perform the trades for you within supported brokerage accounts. So in this respect they are more like Personal Capital or Betterment.
Though FutureAdvisor uses what it refers to as indirect management of employer sponsored retirement plans by balancing them using the assets of directly managed accounts, such as IRAs and taxable accounts.
Simply put, it manages diversification through the directly managed accounts, in order to balance the holdings in the employer-sponsored plans.
Like many of the other automated financial services we’ve reviewed, it cannot be used for daily personal finance use like Mint.com, or what we recommend Personal Capital. FutureAdvisor was designed only for investment guidance.
If adequate diversification and balance is not achieved through the directly managed accounts, FutureAdvisor will make recommendations as to investment moves to make within the employer-sponsored plans.
The asset allocation questions asked are a little simplistic, and doesn’t have much flexibility like say Betterment’s asset allocation wheel.
How Much Does FutureAdvisor Cost?
You have the choice of the DIY option which is free, or the premium option
FutureAdvisor recently simplified their pricing model. The paid service is just a flat fee of 0.5% of assets managed. Assets that cannot be managed by FutureAdvisor but monitored (ie 401(k) plan) are not included in billing. The management fee is billed in quarterly installments of 0.125% of assets directly managed.
The free service -– the DIY Advice plan -– doesn’t actually handle activity within your accounts, it does provide you with the information, and analysis you need at zero cost. This allows a small investor, and particularly an upstart, the ability to get portfolio guidance for free.
What investor doesn’t need automated advice for no or very little cost?
If you are a DIY investor, FutureAdvisor is one of the services to check out.
Have you used FutureAdvisor? If so, what are your recommendations?