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 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.
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.
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.
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.