By Jason Van Steenwyk | April 18, 2018
Folio Investing is a niche online-only broker service with a limited but very reasonably priced menu.
Folio Investing, the web brokerage arm of FOLIOfn, differentiates itself from other brokerages that focus on the execution of individual trades and securities with its "folio" concept. Its platform is set up to encourage customers to invest in diversified (but customizable) portfolios of securities, each with different investment strategies and objectives.
These so-called folios consist of up to 100 securities apiece, which clients can invest in with the click of a button. The brokerage's off-the-shelf "Ready-to-Go" folios (RTGs) include a series of target-date funds (aggressive through conservative) and funds that focus on asset allocation, bond/income, sector/industry, geographic location, and many more. Several of these RTGs have some impressive trailing track records, though past is not necessarily prelude.
The result is a sort of customizable "mutual fund" approach to investing, though it's actively managed almost by definition. With a decent-sized portfolio, in theory, an investor can save a good deal of money compared with an actively managed mutual fund, which may have an expense ratio of 1 percent or so. Folio Investing lets users run an unlimited number of folios for $29 per month or $290 per year, so their break-even point compared to a fund with a 1 percent expense ratio is about $29,000, depending on how many other miscellaneous expenses they rack up along the way.
The centerpiece of the FolioInvesting.com concept is the easily customized folio, coupled with 2,000 trades per month for $29 per month or $290 per year. The system makes it easy for newsletter subscribers to adopt the portfolio recommendations of their favorite newsletter authors, while still maintaining the advantages of tax customization.
*There are two sperate plans and some of these features are exclusive to one or the other. The Folio Unlimited Plan, which features up to 2,000 commission-free trades per month, in twice-daily trading windows, unlimited folios with up to 100 stocks, ETFs, and mutual funds per folio. Unlimited access to 160+ free "Ready-to-Go" folios, Unlimited personal and retirement accounts and one fee covers all accounts, including personal, joint and retirement accounts, and custodial and revocable trusts.
The other plan is the Folio Basic Plan which features Unlimited folios, and unlimited access to Ready-to-Go folios, unlimited personal and retirement accounts. On fee covers all accounts, including personal, joint and retirement accounts and custodial and recoverable trusts.
Folio Investing is a member of SIPC (Securities Investor Protection Corporation), which helps protect investors against the loss of securities or broker insolvency. The company's "enhanced yield" savings account and sweep accounts are eligible for up to $4.5 million in FDIC protection ($9 million for joint accounts).
In addition to its standard cash sweep accounts, Folio Investing provides an "enhanced yield deposit program" that qualifies for FDIC insurance up to $250,000 per account. To move money in and out of this account, key in FDIC.PLUS as the ticker symbol and trade normally. The aggregate $50 million coverage is low, compared to the total amount of assets under management and overall exposure. In the unlikely event of a Mt. Gox-style meltdown, that $50 million in coverage could be exhausted quickly. Folio Investing uses Secure Sockets Layer security for all web transactions, but unlike some other brokers, it does not explicitly guarantee that it will protect investors against unauthorized activity.
Folio Investing's advantages are mostly in its innovative folio system, its patented Tax Football tool, and its "window" system, in which trades for all customers are submitted in batch requests at 11 a.m. and 2 p.m. Eastern time each day. Investors give up intraday trading flexibility and execution speed, but this system reduces costs and enables investors to buy fractional shares of higher-priced stocks.
While Folio Investing occupies a useful niche, there are some important omissions. The platform doesn't support conditional offers; users can't trade in forex, futures, commodities, or penny stocks; there is no bond or mutual fund screener; and the stock screener is available only when you're creating a new portfolio. The absence of modern stock, bond, and fund screeners is a major drawback.
That said, the folio system makes it a snap to adopt the investment recommendations of financial advisers or newsletter publishers - or even to copy the holdings of your favorite mutual funds - but to do so in a way that lets you customize your portfolio and manage your tax exposure. You gain some of the advantages of professional money management from fund companies with deep research benches, while also maintaining one important benefit of a separate account: the ability to match gains against losses to reduce your capital gains tax bill.
There is no special computer-based platform that you can store on your hard drive. All of Folio Investing's functionality occurs on the web-based platform, which is simple and easy to use, if clunky (as most web platforms are). Currently, Folio Investing's web trading platform is compatible with Internet Explorer, Chrome, Mozilla Firefox, Apple Safari, and Opera. You can also trade on the site using Linux with Chrome and Firefox.
If you're new to investing, Folio can help you make some big decisions about what kind of investor you are from your answers to six well-designed questions about your risk tolerance. If you're not content with mutual funds but you're also not up to picking individual securities, this is a valuable feature. The web presentation is well designed, and the company makes it easy to "graduate" from mutual fund investing to more self-directed approaches, without throwing a user to the wolves. Once you have your initial folios created, you can easily trade entire portfolios in just a few clicks, making rebalancing and adjusting between entire strategies very simple.
There are no dedicated software platforms to download. That means performance is only as good as your browser and your connection speed. Folio doesn't offer much in the way of interactive charts. There's no real drawing capability and no built-in indicators. Quotes are delayed, which is not a problem for long-term investors, but Folio is not the platform for anyone who wants to do a lot of trading on short-term market moves, especially in volatile markets.
Telephone support is available from 7 a.m. to 9 p.m. Eastern time on weekdays and 8 a.m. to 4 p.m. Eastern on weekends. Folio Investing is closed on market holidays.
In July 2017, Folio Investing took on more than 200,000 customers, migrated over from the now-defunct Loyal3 brokerage, and had to staff up very quickly. There were some teething problems as the broker brought on a lot of new customer service representatives. Fortunately, most of those problems have been ironed out.
Basic research is available to clients via the web-based app. Enter a ticker symbol and you get a basic price and volume chart. By clicking various tabs, you can look up news on a specific security, view an options chain, see financials and earnings, and get a summary of analyst ratings. Unlike other brokerage firms, such as Fidelity and Schwab, which provide access to longer-form analyst reports from independent research firms, Folio Investing provides only summaries of analyst recommendations. Die-hard fundamentals-based investors who rely on analyst research would be better served elsewhere.
The Folio tool is intuitive to use and helps customers remain diversified within an investment style or focus. By combining folios, it's also easy for customers to maintain exposure to a diverse set of strategies. Additionally, the option to choose between LIFO and FIFO approaches and otherwise customize your portfolio's tax exposure is a potentially valuable feature for investors outside of retirement accounts. The Tax Football tool is an innovative and effective way to help investors visualize their potential tax exposure and address it. The result is more money in the customer's pocket.
Traders who are not interested in the folio concept will find limited tools on the website. There is no real fund, bond, or ETF screener; no options analysis tool; and no analyst discussions or insights. In addition, sentiment products and meaningful technical analysis tools, beyond the very basic price and volume chart, are lacking.
This brokerage makes no attempt to be a one-stop shop for all your investment education needs. The strong point is the Folio Investing blog, which contains hundreds of articles with good information and advice on a wide variety of investment-related topics.
Folio Investing's blog is well written and offers solid advice for relatively novice investors on a variety of topics, including diversification, avoiding investment "bubbles," using tax-advantaged accounts, and more. However, you won't find much in the way of advanced or pro-level trading topics. Furthermore, the blog suffers from a lack of organization. Although it is searchable, there are no verticals, tags, or topic headings to aid in the search for information. Outside of the blog, there is little attempt at education.
Banking services are limited. Unlike more robust service brokerages, like Fidelity, or companies with a long history of banking, like Wells Fargo, Folio Investing limits its banking activities to a cash sweep program (with checking privileges), and a separate "enhanced-yield cash savings account" for unused cash.
Schwab makes banking easy. You can manage your accounts and access a variety of banking serviceOrdinarily, an individual bank can provide insurance of only $250,000 for non-retirement and retirement accounts. Folio Investing is able to arrange for extended FDIC insurance by placing your cash in multiple banks when it exceeds the insured limits of any single bank. As a result, the $250,000 limit is multiplied by the number of institutions participating in the cash management program. This makes for a higher level of overall FDIC insurance on cash accounts than most brokerages provide.