FutureAdvisor Review – Automatically Manage Investments

FutureAdvisor
Review of: FutureAdvisor
Reviewed by:
Rating:
4
On August 4, 2014
Last modified: November 11, 2014

Summary:

FutureAdvisor is an online investment advisor that can automatically manage your investments, with a low fee.

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.

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.

FutureAdvisor - Performance Analysis

Grading scale to gauge investment performance (click to enlarge)

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 (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.

FutureAdvisor’s Asset Allocation Recommendation (click to enlarge)

FutureAdvisor’s Asset Allocation Recommendation (click to enlarge)

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.

The Good

  • 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.

The Bad

  • 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
FutureAdvisor - Improve Your Returns

Gives buy/sell recommendations to improve returns (click to enlarge)

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 annual fee is cheaper than any advisor based service like Personal Capital, but still more costly than fully automated services like Betterment.

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?

Comments

  1. David says:

    Wouldn’t it be better to do balancing In tax free accounts? By relegating the balancing to taxable accounts would have a higher tax impact.

    • Kevin Mercadante says:

      Hi David – I think that’s the objective, but FutureAdvisors doesn’t directly manage 401(k) plans, and that’s where most people have most of their investment capital. That leaves rebalancing primarily in taxable accounts or IRA accounts. They have to use those accounts to make adustments to a portfolio dominated by 401(k) funds. Of course, they will make recommendations as to how you can make changes within your 401(k).

      • David says:

        I may have misread the article… It does seem to favor the accounts it can trade direct? Anyway… I must be doing pretty good with my investments, it’s recommending I sell everything in my retirement accounts and move it somewhere else.

  2. Bo says:

    Thanks for reviewing us, Kevin.

    David – good question. We actually automatically focus our rebalancing efforts in the tax-free accounts as much as possible. We calculate the tax impact of every trade using lot by lot cost basis information, and have a stringent capital gains and tax policy that we follow during rebalancing or any other trades (you can read more about it in our FAQ[1]). This way, we calculate on a case-by-case basis whether the long-term gain (in diversification, lowering portfolio fees, etc.) is worth the one-time tax trade off.

    Good question though. Thanks for pointing out something most people don’t think about enough.

  3. Dan Larson says:

    Here’s my 2 cents. FutureAdvisor has managed my accounts since October, 2013. Very good execution with thoughtful, personal and professional communication, everything I hoped for but did not get from my traditional money manager or previous use of my brokerage firm’s Asset Allocation services. Your money manager has model portfolios and based on you age and risk tolerance, they pull one off the shelf and move your money in, charging 1% or more. FutureAdvisor includes my employer’s 401K investment options in the portfolio strategy and makes recommendations that I have to execute since they cannot control my 401K.

    I cannot say enough good about FutureAdvisor. They have been vigilant on not selling my pre-existing high appreciation investments and have taken a measured approach minimizing capital gains. FutureAdvisor build a portfolio across 5 of my accounts, including 401K, IRA and post-tax accounts. I have not had better service or execution, even when I have paid much more.

  4. Marty McFly says:

    No, of course you don’t need a human financial advisor. Until you do. You have unfettered access to a wide range of investments, and opinions and models, and you have had all of that for at least 2 decades. So why now the bravado to go it alone? 5 straight positive years for equities.

    The financial advisor’s role is to remove the human element, emotion, from the investment decisions for something as emotional and personal as your wealth. Emotion drives the retail investor to sell low (Fear) and buy high (greed). There is a reason why the average equity returns for retail investors is less than half of the S&Ps returns. No, of course you don’t need a human financial advisor. Until you do. And when you do, it may be too late.

    • Lol says:

      -said the professional financial advisor with a personal interest in maintaining the status quo

      • John Hopkins says:

        -said the investor who most likely averages half the returns over the long term of that with a financial advisor

        Everyone thinks they’re investment pros when the markets are doing well. FA’s earn their worth during times of crisis. Thankfully I had one looking out for me during 08-09.

  5. James says:

    No good for me (or you) if entries are done manually. I don’t trust very quickly so I entered some data manually. It labeled the Federal Thrift Savings Plan as unknown and it was unclear how to enter the dollar amount. But worse, I entered a Vanguard Fund manually which it accepted. But it was again hard to find a place to enter the dollar amount. After stumbling upon a way to enter the dollars I entered $25500 for the fund. This website showed my total assets as Total Assets: $520,710.00. How do they get that? I would not trust their math.

  6. Joe Bacarella says:

    Future Advisor has their place for passive investors, however, an excellent question that deserves to be answered if you have a premium account like I did was “What is the gain on the account YTD?” It is not included for a reason…it is abysmal. I can go to any other firm and find out immediately what the gain on the account was…not so Future Advisor. They WILL tell you how much the account has increased / decreased in the past week but not how the account is doing in comparison with other guideposts such as the S&P 500 or the Russell 2000 or you name it. In this case ignorance is not bliss, the opportunity cost of such passive investing far, far exceeds any and / all fees you may have saved investing with Future Advisor and their tax efficient methods. In my case the gains on my Premium Accounts are not worth the lost opportunity cost. Goodbye Future Advisor our relationship may have been fun but not very profitable.

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