FutureAdvisor is a web-based investment platform that automatically manages your portfolio.
The site offers comprehensive investment management and does so with one of the lowest fee structures in the industry.
Read on as we review FutureAdvisor and you’ll see whether they are a great investing platform for you.
FutureAdvisor – Get Professional-Grade Investment Management at a Low Price
Who Is FutureAdvisor?
Based in San Francisco, FutureAdvisor began in 2012. The founders and management team of the platform are made up of finance gurus, data scientists and software engineers, who are backed by the same venture capital team that started PayPal and Google.
The service is available for the management of traditional taxable investment accounts, as well as both traditional and Roth IRAs, Roth rollover accounts, and SEP IRAs.
Though the service does not directly manage an employer-sponsored retirement plan, such as a 401(k) plan, it does incorporate the plan in your portfolio, and makes investment recommendations based on your portfolio that will reflect the make up employer plans, as well as making investment choices for the employer plan (which you then execute).
The platform offers direct investment management of all other accounts, both taxable and tax-deferred. When you begin a paid account with FutureAdvisor, you grant them the authority to provide management of your investments, which includes trading in your accounts on your behalf.
Like many online investment platforms, FutureAdvisor doesn’t actually hold your assets for you, but rather holds them with either Fidelity Investments or TD Ameritrade.
FutureAdvisor Methodology
FutureAdvisor manages your investments using modern portfolio theory, or MPT. According to InvestorWords.com, MPT is:
Over investment strategy that seeks to construct an optimal portfolio by considering the relationship between risk and return, especially as measured by alpha, beta, and R-squared. This theory recommends that the risk of a particular stock should not be looked at on a standalone basis, but rather in relation to how that particular stock’s price varies in relation to the variation in price of the market portfolio. The theory goes on to state that given an investor’s preferred level of risk, a particular portfolio can be constructed that maximizes expected return for that level of risk.
Some of the services you’ll like from FutureAdvisor include:
Creates a portfolio based on your risk profile.
Common to most online investment platforms, FutureAdvisor makes investment recommendations for your portfolio based on your age, risk tolerance, and investment time horizon. They use industry-standard benchmarks like Morningstar’s Lifetime Allocation Indexes in order to do this.
Favors low-fee index funds.
These not only have lower fees, but they also tend to be more tax efficient. Since they are based on common indexes, there is less trading, and that tends to minimize capital gains taxes.
For example, funds are typically invested in low-fee Vanguard and IShares funds that have expense ratios well below 1.00%.
Maximizes return through select fund categories.
Their portfolio recommendations favor small-cap funds and value funds, for both domestic and international holdings. The platform even publishes age-based investment returns for investors in their 30s, 40s, 50s, and 60s.
Automatic rebalancing.
The platform continuously monitors your portfolio, and re-balances only when you’re asset allocations drift outside their target levels, or when a change in your life requires readjustment of your investment strategy. The portfolio is rebalanced six times per year, but that’s just the average.
Tax harvesting.
FutureAdvisor continually monitors each of your holdings, looking for positions with at least $1,000 in harvestable losses given current market prices. They’ll swap tax lots with losses with a pre-selected similar index fund of the same asset class, which enables them to bank losses for tax purposes without changing the portfolio. At the end of the year they use that loss to offset your gains for the year and/or ordinary income.
If you subscribe to the Premium (paid) service, FutureAdvisor will manage your investments automatically. You can subscribe to their free service if you prefer the do-it-yourself route.
Start Your FutureAdvisor Account
FutureAdvisor Fees – Free and Paid
Fees are a real strong suite with FutureAdvisor (especially if you use the free platform).
FutureAdvisor Free Account
As noted above, if you prefer the investment do-it-yourself route, you can choose a free account, and while the platform will make investment recommendations based on your overall portfolio, you’re free to invest as you like. This is great to have an overall look at your investments and get suggestions based on your entire portfolio.
One difficult aspect to having many accounts is keeping track of all of your allocations across accounts. FutureAdvisor helps with that.
FutureAdvisor Paid Account
If you prefer to have comprehensive portfolio management, you can choose the Premium service, which is a real bargain compared to other investment platforms.
The Premium service is just 0.50% on the total value of your portfolio under management (not including indirectly managed accounts, like employer-sponsored 401(k) plans). So if you had $100,000 under direct management with the platform, you would pay an annual fee of $500. This would be billed in quarters, at $125 each quarter. In the case of directly managed retirement plans, like IRAs, the fees will be deducted from your taxable accounts.
There are trading fees associated with the custodial broker. For example, TD Ameritrade charges $9.99 per trade for stocks and ETFs, and a maximum of $24 for a mutual fund trade. Fidelity Investments charges $7.95 for stock and ETF trades, and a maximum of $50 per mutual fund trades. These fees tend to occur when your account is initially balanced and moved. Portfolio balancing that follows tends to have free trades since FutureAdvisor tries to use commission-free ETF’s. You may see commissions show up when FutureAdvisor trades for tax harvesting purposes, but that’s to your benefit.
Is FutureAdvisor a Good Service to Have?
There’s probably no single investment platform available that will work for everyone. But FutureAdvisor has definite advantages for certain investors, or for those looking for certain benefits.
These FutureAdvisor benefits include:
- It provides small investors with the level of investment advice and management that historically is only been available to large investors.
- Low fees – FutureAdvisors fees are at the lower end of the industry spectrum
- Indirect management of employer sponsored plans – Not nearly every investment web platform offers management in this area, but FutureAdvisor will provide you with investment advice to reflect a conference approach to your entire portfolio, even though they will not directly manage these accounts
- Worry-free investing – Not everyone wants to pick their own investments, and that describes you, then FutureAdvisor will do it all for you
- Tax harvesting – The platform will minimize your income tax bite, and that is very important to your overall long-term investment portfolio return.
If you’d like to give FutureAdvisor a try, check out their website and sign up. You can try the free version before signing up for the Premium package, and by then you will know if it will work for you. If you’re a DIY kind of person that wants a bird’s-eye-view of your investments and some recommendations to keep you on track then the free version sounds like a great deal.
Start Your FutureAdvisor Account
Have you worked with FutureAdvisor? If you have, what are your recommendations?
I love the competition between all the robo-advisors.. It’s a horse race!
Seems like Future Advisor is twice as expensive as betterment. Which is bad for your returns, but could be a good thing if they stick around for the long term. I’m always wary of startups that have unsustainable business models.
I do like that Futureadvisor has a free version that gives you all the advice of the paid version. I really should check that out.
Thanks for the review!
I didn’t say that FutureAdvisor is the least expensive, only that it’s at the lower end of the industry spectrum on fees. There will always be someone cheaper! We also shouldn’t assume that the platform with the lowest fees is always the best. That’s like applying the WalMart model to our investments.
Why do you think that the business model might be unsustainable? I have a suspicion that most investors know little about what they’re doing and are welcoming this type of service. The growth of the industry is providing evidence. This could be the future of investing for the small investor who can’t afford to pay for individual portfolio management. I think they’re on to something!
Ah, I was actually (though in-artfully) saying that I appreciate that Future Advisor is more expensive because they are probably more sustainable than their cheaper competitors. Sorry for being unclear!
Yes. A good service like Future Advisor can never be the cheapest. Price certainly indicates the level of a service. Interestingly it promises to help the small investors like the way big investors does. 🙂
That’s a good point Jennifer. Cheapest could mean just that and little else. It’s like a person who goes to WalMart to shop – based on the cheapest prices – then complains about the lack of service. There are always trade-offs, and cheapest isn’t always the best deal all around.
Given the frequency of large scale reported data breaches, I wonder how secure it is to link my accounts to a robo adviser?
DO NOT…I REPEAT DO NOT USE THIS WEBSITE. I went on their website to see what they offered…started filling out some forms to get their advice on allocating my funds…I noticed that they would be able to move my money around without my permission so i immediately emailed them to cancel my enrollment…i quickly received an email saying it was cancelled…..NEXT DAY, I get on my TD Ameritrade account and see i am restricted from trading…i call TD and they tell me that FUTUREADVISOR tried to access my account which now has my account frozen while TD tries to fix the problem….So now i am just watching my stock drop without anything i can do about it….STAY AWAY
I really enjoyed the article and found it to be very interesting. I didn’t realize there was so much competition among advisers. I’m currently using an awesome program to learn more about investing, http://deltatradinggroup.com, this has been very helpful.
Interesting. However, I see one statement that states FutureAdvisorFavors low-fee index funds.
These not only have lower fees, but they also tend to be more tax efficient. Since they are based on common indexes, there is less trading, and that tends to minimize capital gains taxes.
For example, funds are typically invested in low-fee Vanguard and IShares funds that have expense ratios well below 1.00%.
Why would I use Vanguard funds outside Vanguard? I can trade in these funds (buy and sell) with no trade fees. However, if they are located in Fidelity or TD Ameritrade, there are fees charged for every trade (buy or sell).
Also, Fidelity and TD Ameritrade both have loads of No Transaction Fee (NTF) mutual funds that I can buy, add to and sell from, with no transaction fees.
As far as harvesting for tax purposes, anyone can do that by selling some or all of a stock or mutual; fund underperforming and the loss will be available to go against gains on your tax return for that tax year, or if the loss exceeds the gains, it can be carried over to the following year (s).
I also have had the opportunity to work with an individual advisor who works through Lincoln Private Ledger (LPL). He charges 3/4 of 1% for your money he is managing each year. Also included in that fee is any trades of stocks, mutual funds and ETFs. Depending on how many trades are executed during the year that 1/4% might pay for itself. Also, you have a personal advisor available to talk to any time you wish concerning your investments and discuss strategies.
So, what I am saying here is, while this may be a really good service for some people, I would recommend you compare it to others available and have your eyes fully open when you sign up. Be sure you know exactly how it will work for you. Once other accounts are closed and everything is moved to Fidelity or TD Ameritrade, it would take some time (usually about ten business days) and money to move things back if it does not work out for you and you want to go back to what you had before.
7 July 2016
I have been using Future Advisor for about a month, a decision I was happy to make at it’s origination. I’d been trying to decide on whether or not to have my account professionally managed or not for quite some time. Now, I’m regretting such a decision and not sure I want to continue… at least not with them.
I know folks make the comment that it takes time to see the performance, but I’m at a point where I think I’ve seen enough. To give a bit of background on my reasoning is I have not received clear and concise answers to questions. I’m told that I have and advisor, I see his picture, and I’ve tried to get in touch with him. Thing is that you are provided a place to submit a question and you get an email response in return. Then you begin your email communications back and forth. Each email I’ve sent is returned with the name of someone different each time. None of them being ‘My Advisor.’
To go into more detail about occurrences with my account I have a 401k with Fidelity, and that account has the option for a BrokerageLink account under the same umbrella. My company was making many changes with the 401k and going to sell our shares anyway to move them into new mutual funds that they’ve decided we could newly purchase. I decided to take that opportunity to sell all the shares and move them into the BrokerageLink account so that I could make my own decisions in the future. Those funds went into Fidelity Cash Reserves under the BrokerageLink account. At that point I decided to give Future Advisor a shot.
I also had a small portion of funds in a Roth IRA with bi-monthly contributions. Most of the funds in this account too were in Fidelity Cash Reserves as I’d started “hitting it hard” to try and rebuild it.
The process took a couple weeks. In that time there was no financial movement in my accounts except for my constant increase in contributions. The few days that Financial Advisor began initiating purchases my investments fell many thousands of dollars. I sent an email requesting an answer to this and the response I received was that it was the activity of the accounts held previous to FA taking over the handling of my accounts. Those investments fell and that FA did not take full control until a certain day. Granted, if you’ll remember I had the funds in Fidelity Cash Reserves… which do not fall. I have not received response from my returned email to them and this little fact as of yet.
In the time following I’ve had contributions from work, personal, and dividends that have continued going into the accounts. Such funds drop drastically the day funds are purchased. I’m trying to get answers from them as to why they are on this trend of ‘Buy High’ and hold as they drop. I thought the intent was to buy low and eventually sell high.
I also contacted them about their notifications of Tax-loss savings drive on my 401k umbrella BrokerageLink account and Roth IRA. I asked if they knew what it types of accounts they were handling and they responded that they did. I requested why they felt the need to worry Tax-loss on such accounts and have yet to get a response.
To make matters worse as my funds were on their downward fall I was receiving emails congratulating me on attaining certain levels of investment achievement. These achievements were far lower than where the funds had started. Adding salt to the wound.
I suggest you be cautious in your decisions to invite FA as your investment handler.