Fidelity Investments recently entered the robo-advisor world with Fidelity Go, its very own robo-advisor. Fidelity Go competes with Charles Schwab and its Intelligent Portfolios service as well as Vanguard’s well-regarded Personal Advisor hybrid robo-platform. Fidelity Go also competes against Betterment and Wealthfront, two of the biggest robo-platform upstarts in terms of assets.

Previously, Fidelity had engaged in a partnership with Betterment to make its tech and platform available to financial advisors who use Fidelity Institutional to custody client assets. The relationship with Betterment is over; however, presumably, Fidelity has taken much of what it learned from working with Betterment and incorporated it into Fidelity Go. (For more, see: What's Next for the Robo-Advisor Space?)

Looking to the Future

Fidelity Go likely marks a long-term strategic move for the financial services giant. "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." 

Fidelity Go seems like 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.

How Pricing Shakes Out

Fidelity Go requires a minimum investment of $5,000. The cost to investors is an annual advisor fee of 0.35%. These fees include the advisory services provided as well as the expense ratios of the investment products used. 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. It has said that where its own funds are used, it would reduce the advisory fee component if needed to keep the total cost to the client at 35 basis points.

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. (For more, see: Vanguard Personal Advisor Services: A Quick Review.)

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.

Rebalancing and Other Features

Fidelity Go rebalances client portfolios when they move outside of the parameters of the asset allocation chosen for a client. Unlike robo-advisors Betterment and Wealthfront, Fidelity Go does not offer a tax-loss harvesting service that is 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.

The Bottom Line

Fidelity Investments's Fidelity Go is a relatively low-cost brokerage with competitive advisory fees. With Fidelity Go, the company is making a concerted effort to court Millennials and Gen X investors to conceivably cultivate this group as the firm’s future client base. If you are looking for additional wealth management service and advice for an investment professional Fidelity's other offerings may be preferable.  (For further reading, see: The 5 Best Robo-Advisors for Investors).

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