Fidelity Investments entered the robo-advisor world with Fidelity Go, its very own robo-advisor. Fidelity Go competes with Charles Schwab's Intelligent Portfolios as well as Vanguard’s well-regarded Personal Advisor hybrid robo-platform. It also competes against two of the biggest robo-platform upstarts in terms of assets, Betterment and Wealthfront.
Fidelity partnered with Betterment to make its tech and platform available to financial advisors who used Fidelity Institutional to manage client assets. That relationship with Betterment is now over. But Fidelity presumably took much of what it learned from working with Betterment and incorporated it into Fidelity Go.
Here's a look at how it stacks up in the industry.
Getting Into the Market
Fidelity Go likely marked a long-term strategic move for the financial services giant into the robo-advisor market.
"We think there’s a real opportunity to help emerging or younger investors who have been primarily saving in cash," said Rich Compson, head of the retail managed accounts business for Fidelity, in Wealth Management. "It’s a great way for them to get started with Fidelity and grow with us over time."
As a robo-advisor, Fidelity Go allows investors to invest their money using an automated platform online. Utilizing algorithms, the service manages and tracks the client's portfolio and rebalances it to keep it on track.
Just like other robo-advisors, Fidelity Go was likely an attempt to capture the assets of Millennial and Gen X investors who, when combined, represent a massive number of potential clients poised to inherit even more from their parents and grandparents. This anticipated transfer of wealth is predicted to be unprecedented. This strategy differs from Vanguard’s whose service has attracted a large number of older, more established clients, many of whom are nearing retirement.
Fidelity Go supports several different account types:
- Taxable (both individual and joint)
- Traditional IRA
- Roth IRA
- Rollover IRA
In order to open an account, a client must be at least 18 years of age and a U.S. resident. There is no restriction on how many accounts a client can open under Fidelity Go.
BlackRock’s iShares ETFs are the primary investment vehicles in Fidelity Go's taxable accounts due to their general tax-efficiency. In IRAs and other retirement accounts, Fidelity uses its own Fidelity Spartan index mutual funds to cover similar asset classes.
Minimum Requirements and Investments
According to the website, Fidelity Go has no minimum requirement to open an account. But in order for the service to invest as per the client's strategy, there must be at least $10 in the account. Anything less is kept in short-term investments and will not incur any advisory fees until the balance reaches $10.
Fidelity Go offers investors a chance to invest in index-based ETF’s as well as actively managed mutual funds. Investing in index-based ETFs means higher risk than other robo-advisors, but combined with managed funds, it may lead to higher returns. But the service doesn't list the ETFs or funds that make up an investor's portfolio.
Unlike other services, there's only one fee for Fidelity Go. The service charges a gross advisory fee of 0.35% of the value of the account. Fees are charged on a quarterly basis and are deducted from the balance of the account. There are no additional investment expense ratios — instead, they are included in the advisory fee.
Rebalancing and Other Features
Fidelity Go rebalances client portfolios when they move outside the parameters of the asset allocation chosen for a client. This is free for all account types. This gives the investor a worry-free approach to investing, as the algorithms do the work.
Unlike others in the market like Betterment and Wealthfront, Fidelity Go does not offer a tax-loss harvesting service used to realize losses on taxable investments to offset gains elsewhere in the client portfolio. Fidelity uses municipal bonds and ETFs as tax-sensitive investments to help minimize the tax bite on clients using the service for their taxable accounts.
Comparing Fidelity Go to Others in the Market
In comparison, Vanguard’s Personal Advisor services have a minimum investment of $50,000 and carry an advisory fee of 30 basis points. This is in addition to the costs of the underlying investments which are generally Vanguard’s own, often low-cost products. The Vanguard service includes access to a human financial advisor in addition to its robo-platform.
It's also worth comparing Fidelity go to Charles Schwab's robo offering. Charles Schwab’s Intelligent Portfolios service charges no advisory fee. It makes money from the expense ratios of Schwab mutual funds or ETFs used in the portfolios. It also makes money from the cash component of the portfolios which ranges from 6% to 10% of the assets. This cash is kept in Schwab depository accounts and the firm benefits from the difference in the interest rate paid to clients versus what they earn from these investments.
Other services like Betterment and Wealthfront also offer services with competitive fees and perks. Betterment charges anywhere between 0.25% to 0.40% based on the amount in the account. There is no minimum to deposit, but higher balances — those over $2 million — have the lower 0.25% fee. It allows investors to open individual and joint investments accounts as well as IRAs.
Wealthfront, on the other hand, has a flat 0.25% but requires a minimum $500 account balance. This robo-advisor offers individual and joint investment accounts, IRAs and 529 college savings accounts. Both offer rebalancing features as well as tax harvesting strategies.
The Bottom Line
Fidelity Investments's Fidelity Go is a relatively low-cost brokerage with competitive advisory fees, so it's better suited to those who are conscious about paying fees. It's also a good choice for investors who take a passive, hands-off approach to their investing. But keep in mind, while it does rebalance your portfolio, it doesn't look out for you when it comes to your taxes.