Review of: FutureAdvisor
Reviewed by: Kevin Mercadante
Last modified: December 16, 2017
FutureAdvisor lets you test-drive its service for free and is one of the few robo advisors that can manage your 529 college savings plan. However, the bad news is the service's fees are higher than those of most of its competition.
FutureAdvisor is an online investment advisor that automatically manages your investments. It helps you 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 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. Since the last update, FutureAdvisor has revamped some of their services and now has new features and offerings to help you reach retirement, personal and other life goals.
How Does It 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.
After signing up for a free FutureAdvisor account, you get started by linking your investing accounts or manually reporting your holdings. The service will analyze everything via the dashboard and then provide you with analysis and recommendations tailored to your portfolio and specific goals.
Your recommended retirement plan will be broken down into nine simple steps. The software will then determine how well you’re doing and where there’s room for improvement. The recommendations will show you exactly why FutureAdvisor recommends these changes, and the updates will be made in real time.
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.
- Rebalancing recommendations –- typically two to four 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.
|Tax Loss Harvesting||— All Taxable Accounts|
|Automatic Deposits||— Daily, Weekly, Biweekly, Monthly, Bimonthly and Quarterly|
|Socially Responsible Investing|
|Access||Website, iOS App, Android App|
|Customer Service||Phone: M-F 8:30A-5P PT; Email|
- Retirement Planning — A completely free service that analyzes your funds, makes recommendations and offers tailored advice to better your portfolio and holdings.
- Investment Management — This service costs 0.50% annually and affects only the assets that you select for them to directly manage.
- Comparison of Advisors — One benefit to using FutureAdvisor’s Investment Management service is that you’ll get access to a chart that shows the difference of returns and fees when using FutureAdvisor versus a traditional financial advisor.
- College Savings — Free advice to help you create an optimized plan for your finances and children’s future education plans. FutureAdvisor can open and manage your 529 accounts, as well as handle disbursements to the school.
- Investing Library — On top of the free advice and tips to better manage your financial goals and investments, FutureAdvisor has an entire library of free articles and educational content to help you find the answers you’re looking for.
- Free services include retirement planning and investment advice, recommendations for your portfolio, college savings and management of your 529 accounts. In addition, 401(k) advice is completely free!
- Services you pay for include investment management which costs 0.50% annually, and any fees related to low-cost ETFs in 529 accounts.
|Fees||0.50%/year||Digital – 0.25%/year; Premium – 0.40%/year||First $10k managed free; 0.25%/year for $10k+|
|Promotions||None||Up To 1 Year Free||$15k Managed for Free|
|Review||—||Read the Review||Read the Review|
FutureAdvisor’s portfolios are comprised of varying positions in low-cost index-based ETFs. It’s a balance of stocks and bonds, depending on your age and risk temperament. See their allocation chart to determine where you might fit.
Following are some of the stocks and bonds FutureAdvisor uses:
|U.S.||Vanguard US Total Stock Market||VTI|
|U.S.||iShares S&P 500 Index ETF||IVV|
|Foreign||iShares MSCI EAFE Value Index||EFV|
|Foreign||Schwab Fundamental International Large Company Index||FNDF|
|Real Estate||Vanguard REIT Index Fund||VNQ|
|Real Estate||SPDR Dow Jones International RelEst ETF||RWX|
|U.S.||iShares Core U.S. Aggregate Bond||AGG|
|U.S.||Schwab US Aggregate Bond||SCHZ|
|Foreign Government||iShares International Treasury Bond||IGOV|
|Foreign||Vanguard Total International Bond||BNDX|
|Short-term U.S. Inflation-Protected Treasury Bonds||iShares 0-5 Year TIPS||STIP|
|Short-term U.S. Inflation-Protected Treasury Bonds||PIMCO 1-5 Year U.S. TIPS Index||STPZ|
The buyout of FutureAdvisor by BlackRock Solutions proved that this robo advisor is here to stay. Currently, FutureAdvisor manages over $950 million in assets and will continue to serve both existing and new individual investors from its home base in San Francisco.
So why is BlackRock interested in FutureAdvisor? They plan to sell the company’s automated advisory services to other banks, securities firms and insurance companies that are customers of BlackRock.
This new company sells a system that allows financial institutions to place trades and assess how those trades will affect their portfolios’ risk profiles, among other features. This makes the buyout with FutureAdvisor a good match for both companies.
Pros and Cons
- Free Advice — 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.
- Managed 529 Accounts — FutureAdvisor will manage your 529 college savings plan and even help with distributions, all for fees you pay for low-cost ETFs within the plan.
- 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.
- Not for Overall Financial Planning — Unlike Mint.com or Personal Capital, FutureAdvisor can not be used for daily finance and budgeting.
FutureAdvisor recently simplified their pricing model by dividing their offerings into three different tiers. The Investment Management is the only paid service which just a flat fee of 0.5% of assets managed.
However, what really sets them apart is the fact that they will help you manage your 529 college savings plan — even distributions. There’s no cost for this outside any ETFs that are owned inside the plan.
FutureAdvisor doesn’t actually handle activity within your accounts, including your 529. It simply helps track, manages, and offer the information and analysis you need to reach your financial goals. This allows a small investor, and particularly an upstart, the ability to get portfolio guidance for free.
Have you used FutureAdvisor? If so, do you recommend it?