FutureAdvisor, based in San Francisco, offers an investment analysis service at no charge, which gives you a free peek at their asset allocation strategy. The firm was acquired by exchange-traded fund behemoth BlackRock Inc. in 2015, so it’s surprising to see how few BlackRock ETFs are in the recommended portfolios.
For prospective investors, the FutureAdvisor site offers information about their investing philosophy and gives you a feel for how your assets might be reallocated if you opened an account.
You can have FutureAdvisor analyze your current tax-deferred and taxable accounts, and propose a rebalancing plan intended to reduce the cost of investing. You enter your user IDs and passwords into FutureAdvisor’s secure platform, and the contents of your accounts are analyzed in total. The details of their recommendation are spelled out in detail, allowing you to take action on your own.
Alternately, you can sign up for a Premium account with FutureAdvisor, and they will directly manage your assets on your behalf for 0.5% per year. FutureAdvisor takes on a fiduciary role, which means they are required to put their clients’ best interests ahead of the firm’s.
The free services offered by FutureAdvisor can give you a good look at your current holdings, and let you know whether you are on track for your eventual retirement. It’s worth going through the evaluation process.
We tested FutureAdvisor’s recommendations with five different online brokerage accounts, and found that they frown on owning individual stocks or costly mutual funds. The action plans for every portfolio involved selling off any individual stocks, and closing option positions, in favor of buying a variety of exchange-traded funds. The other consistent recommendation was to invest most of the cash held, especially in tax-advantaged individual retirement accounts (IRAs). Though the firm’s philosophy is to keep the funds a customer already owns in order to minimize churn and the tax impact on transactions made in taxable accounts, in our testing their algorithm suggested we liquidate almost 90% of our existing positions.
If your assets are already held with Fidelity or TD Ameritrade, you can sign over control to FutureAdvisor with a few mouse clicks. Otherwise, you’re instructed to transfer your existing accounts into your choice of one of those two brokerages, naming FutureAdvisor as the custodian. Most of the ETFs that are recommended are low cost index funds, and few incur annual management fees of more than 0.15%. The most expensive ETFs used by FutureAdvisor are real estate investment trusts (REITs) and international assets.
You have two ways to see what is in your managed account, either by logging into FutureAdvisor’s website or mobile app, or by logging into the brokerage where your assets are held. When FutureAdvisor rebalances your portfolio on your behalf, you will also be charged transaction fees by Fidelity or TD Ameritrade. FutureAdvisor’s website displays some two-year-old information about those brokers’ charges; both have significantly reduced their commissions since that page was last updated.
At no additional charge, FutureAdvisor can take a look at your employer-sponsored 401(k) account, and offer advice to help you allocate your investments. If you want to set your 401(k) investment choices and let them ride, select “Basic” from the employer-sponsored information page. For those who want to be more active in manually re-allocating their 401(k) accounts, choose Intermediate or Advanced.
FutureAdvisor’s website has a great deal of built-in security. When you enter a user ID and password to an online brokerage account, the data is encrypted and transmitted securely. FutureAdvisor is an investment manager, and your assets under management are not held by them. The brokerages that hold the managed assets, Fidelity and TD Ameritrade, are both members of FINRA and SIPC.
Though many of the FutureAdvisor services and tools can be used at no charge, you will pay for any managed services. The fee is 0.5% of your managed assets per year.