- Review: FutureAdvisor
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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 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 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.
After signing up for a free FutureAdvisor account, you get started by linking your investing accounts or manually reporting your holdings. The service will then analyze everything via the dashboard and then provide analysis and recommendations tailored to your portfolio and specific goals.
Your recommended retirement plan will be broken down into 9 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 are 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.
- 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.
|Account Fees||0.5% Annually for Premium Accounts|
|Accounts Available||Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, Individual, Joint, 529, Coverdell, UTMAs and UGMAs, and 401(k) accounts held at Fidelity with BrokerageLink enabled|
|Mobile App||Yes — Apple iOS|
|Customer Service||Email — 24/7|
- 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.
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.
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.
FutureAdvisor Bought Out by BlackRock
With the buyout of FutureAdvisor by BlackRock Solutions, it proves that this robo-advisor is here to stay. Currently, FutureAdvisor manages over $600 million in assets and will continue to serve both existing and new individual investors 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. Which makes the buyout with FutureAdvisor a good match for both companies. This combined service will be branded as “FutureAdvisor Powered by BlackRock Solutions”.
- 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 — Unique to FutureAdvisor's service, they will manage your 529 college savings plan and even help with distributions, all for fees you pay for low-cost ETFs within the plan.
- 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.
- Not for Overall Financial Planning — Unlike Mint.com or Personal Capital, FutureAdvisor can not be used for daily finance and budgeting.
Should You Use FutureAdvisor?
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 reallly 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 of any ETFs that are owned inside the plan.
FutureAdvisor doesn’t actually handle activity within your accounts, including your 529. It simply helps track, manage, 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?