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, Wealthfront and Betterment.
How does it stack up against them? It depends on what services you’re looking for.
What is FutureAdvisor?
The service offers direct management of taxable investment accounts –- both individual and joint. It also offers direct management of IRAs, including traditional, Roth, rollover and SEP IRAs.
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 SigFig. Both services sync up financial data via Yodlee, and gives automated financial advice 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 sign up for their paid advisor service.
With FutureAdvisor they will perform the trades for you within supported brokerage accounts (currently only with TD Ameritrade and Fidelity). 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.
- No Fee DIY Option – You can try out the service at no cost.
- Ability to Link Up Brokerage Account – You can link up and have FutureAdvisor automatically perform the trades to get your account into their recommend asset allocation. Though currently only custodian with TD Ameritrade and Fidelity.
- More Flexibility – Unlike Betterment or Wealthfront in which you must transfer assets to their firms. FutureAdvisor gives recommendations based upon your existing portfolio.
- Review Trades before adjusting – FutureAdvisor will review your existing investments before making recommendations, taking into account tax implications of selling what you already have.
- Easy to Use Interface – Better user interface when compared to Wealthfront, but not as good as Betterment’s
- Tax Loss Harvesting – Decrease your taxes by taking investment losses and pair up with your gains. Though retirement accounts don’t have to be concerned about this issue.
- Slightly Higher Fees Than Competition – When compared to the other robo-advisors FutureAdvisor is slightly on the expensive side.
- Limited Asset Allocation – Asset allocation isn’t as flexible when compared to Betterment’s service.
- Retirement Planning Only – FutureAdvisors is currently for retirement planning only
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.
If you are a DIY investor, FutureAdvisor is one of the services to check out.
Have you used FutureAdvisor? If so, do you recommend it?