Is this model the wave of the future? We think so. And that’s why we were excited to see that Merrill Lynch had launched its own robo advisor platform. We gave it a test drive. Here’s what we found.
What Is MEGI?
Merrill Lynch Guided Investing — MEGI for short — is the robo advisor platform for Merrill Edge. It’s a relative newcomer in this space, having been launched in January 2017.
Merrill Edge itself was launched in 2010 as part of the Merrill Lynch family, which traces its founding back to 1914. (Merrill Lynch was acquired by Bank of America in 2009.) That makes the company one of the oldest and most widely respected investment brokerages in the country.
As is typical with robo advisors, your portfolio is professionally managed. This includes everything from initial portfolio allocation through regular rebalancing. Once you sign up for the service, your only requirement is to regularly fund your account.
MEGI can be used for both retirement and general investment accounts. You can even set up several accounts for each investment goal that you have. MEGI uses many of the commonly recognized robo advisor strategies. But there are a few departures that make this service stand out from the crowd.
|Tax Loss Harvesting|
Daily, Weekly, Biweekly and Monthly
|Customer Service||Phone: 24/7; Live Chat: 24/7; Email|
Portfolio Rebalancing — Rebalancing is done on an as-needed basis and is based on market conditions.
Tax-Loss Harvesting — On the negative side, MEGI does not offer this service. Tax-loss harvesting is becoming an increasingly popular feature among robo advisors. This might make MEGI less competitive than other platforms when it comes to taxable accounts.
Merrill Edge Mobile App — There is no mobile app specific to MEGI, but you can track account balances on the Merrill Edge mobile app. The app also lets you track accounts that you hold with Bank of America. The app is available for iPhone and Android devices and offers Touch ID for faster access.
Uninvested Cash — Cash is held in an interest-bearing account with Merrill Lynch Direct Deposit.
How MEGI Works
MEGI is similar to other robo advisors when it comes to the basics. When you sign up for the service, you complete an application that establishes your investment goals, your time horizon, and your risk tolerance. You complete a short questionnaire (five questions) designed to measure that tolerance.
Your entire portfolio is invested in low-cost, index-based ETFs. Those ETFs are primarily from the Vanguard and iShares families. There is no use of in-house funds from either Merrill Lynch or Bank of America.
There are several areas where MEGI departs from the robo advisor norm.
MEGI is not algorithm based. Instead, it uses a combination of proprietary software and human investment strategies. Those strategies are developed by the Global Wealth & Investment Management Chief Investment Officer but actually managed by Merrill Lynch affiliate, Managed Account Advisors, LLC.
MEGI is not a passively managed portfolio. The ETFs used in portfolio construction are index-based and therefore passive. But which ETFs are used is actively managed by the management team. We can think of it as active management of passive investments.
MEGI bases changes in the ETF portfolio on tactical strategic shifts. Management invests in specific asset allocations but will make changes in those allocations based on changes in the market. For example, if management believes that European stocks will outperform U.S. stocks, it will shift the portfolio in favor of European stocks.
Unlike typical robo advisors, MEGI provides an opportunity for the investor to outperform the market, not merely match it as other platforms attempt to do.
And since it is Merrill Lynch, a company well known for customer service, investors will have access to the Merrill Lynch Specialty Team. This provides an important human touch to an otherwise automated investment service.
|Minimum to Open Account||$0||$0||$5,000|
|Advice Options||Automated, Human Assisted||Automated||Automated|
|Socially Responsible Investing|
MEGI Pricing and Fees
The annual advisory fee for your account is 0.45% on all balances. The fee is charged monthly and in advance. In addition, sales trades are subject to a transaction fee of between $0.01 and $0.03 per $1,000 principal. There are also fees charged within the ETFs themselves. However, there are no trading fees.
MEGI is currently offering a sign-up bonus for new accounts. The bonus is based on a sliding scale, as follows:
- Open an account with $20,000, get a $100 bonus.
- $50,000, $150 bonus.
- $100,000, $250 bonus.
- $200,000, $600 bonus.
The bonus will be paid on brokerage accounts, as well as traditional, Roth and rollover IRAs and sole proprietor SEP IRAs. You must fund your account within 45 days of opening it. The minimum qualifying balance must also remain in your account for 90 days after opening. The bonus will be paid two weeks after the 90-day limit has been reached.
The Merrill Edge and Bank of America Connections
One of the built-in advantages of investing with MEGI is that it gives you access to services from both Merrill Edge and Bank of America.
Merrill Edge is one of the better-known full-service investment brokerage platforms. It can provide an opportunity for you to participate in self-directed investing, along with automated investing through MEGI. Fees are in the middle range, at $6.95 per trade for stocks and ETFs. But this includes access to the very extensive Merrill Lynch library of investment research and investor education.
Bank of America (BofA) is a full-service bank. It offers checking and savings accounts, certificates of deposit, auto loans, home mortgages, credit cards, student banking, small business banking and Health Savings Accounts (HSAs).
As one of the nation’s largest banks, BofA has bank branches in most states. This means you have easy access to ATMs and other services. But even more important, there are more than 2,000 financial centers around the country. Each one is staffed with a Merrill Edge Financial Solutions Advisor who can provide you with face-to-face contact for your investment activities.
If you have accounts with MEGI, Merrill Edge and Bank of America, you will be able to view your balances for all three accounts from the same interface. It will also give you the ability to move money effortlessly and immediately between the three platforms and without the need to log into each one individually.
How to Open an Account With MEGI
You can create a portfolio allocation with MEGI before you even open an account. This will give you an opportunity to see what MEGI can do for you before becoming a customer and committing funds.
This signup is a four-part process:
- Establish your investment goals (retirement or general investing).
- Determine your risk tolerance, which will require answering five questions.
- Review the investment strategy provided for you.
- Open your account, if you’re satisfied with the results.
If you already have an account with either Bank of America or Merrill Edge, you can simply transfer funds from that account into your MEGI account. If not, you can set up a wire transfer or ACH from an outside account.
Some of the input screens have sliders that let you adjust the numbers that you input. For example, you’ll be asked:
- How much do you want to invest? (The minimum is $5,000.)
- How much do you want to contribute each month toward your goal(s)?
- When is the earliest you’ll want to withdraw money from your MEGI account?
Based on your risk tolerance, goals and investment horizon, the investment strategy will generate a tailor-made asset allocation.
MEGI Pros & Cons[table “proscons” not found /]
The biggest disadvantage with MEGI is the advisory fee. At 0.45%, this is well above standalone robo advisors Betterment and Wealthfront, each of which has a fee of 0.25%. Wealthfront even manages the first $10,000 free.
But even among other brokerage firm-sponsored robo advisors, MEGI is a bit on the high end of the fee scale. For example, Fidelity Go charges 0.35% on retirement accounts and no more than 0.40% on taxable accounts. Meanwhile, Charles Schwab Intelligent Portfolios charges no management fee at all.
On the surface, the fee structure does look high. However, MEGI involves active management of your portfolio. So management can reduce riskier asset allocations during a general market downturn. This minimizes losses compared with the platforms that are strictly passive. This advantage could become more pronounced in a prolonged bear market and more than offset the higher fee.
The lack of tax-loss harvesting could be another issue. It has become a common feature with many robo advisor services, including Betterment and Wealthfront. This won’t be an issue with retirement plans or for smaller investors. But it may cause larger investors to shy away.
MEGI may work best for people who already have accounts with Bank of America and/or Merrill Edge. It will allow them to invest where they bank or to add an automated investment component to their other investment activities.