FutureAdvisor
FutureAdvisor offers automated investing and financial management at prices affordable to people with middle class incomes.
The Company
FutureAdvisor was founded in 2010 and since then has undergone several changes to its format. It began as a free web app (as opposed to a phone app) that simply gave you a snapshot of your financial world and offered advice for maximizing your returns and reaching your goals.
Now, more than five years later, they still offer free advice but there’s also a paid version that manages your accounts for you.
They’re backed by a wing of the financial powerhouse Fidelity, as well as Sequoia Capital and Canvas Venture Fund. As of August of 2015, the wheels were set in motion for FutureAdvisor to be acquired by BlackRock. I wrote about BlackRock recently, so check them out too.
They have around 45 employees and have over $600 million under their management. They are considered a pioneer in the fast-growing robo advisor industry. Currently they are ranked 5th out of 12 Robo Advisors ranked by a firm out of Boston called Aite Group LLC. Betterment and Wealthfront are at the top of that list. Vanguard’s new hybrid robo advising system is not part of that list.
What Does FutureAdvisor Offer?
Upgrading means FutureAdvisor will take that action for you, plus other actions on your behalf.
If you pay for the upgrade, you get automated rebalancing of your investments as well as tax-loss harvesting. These are two money-saving techniques heretofore only used by wealthy investors who could afford active, human-powered management of their assets.
- Rebalancing means adjusting your asset allocation according to your personal situation…your age and how strong your aversion to risk may be. The mix of equities, bonds and real estate investment trusts (REITs) varies according to those factors, and your “mix” gets altered as market fluctuations set the balance off kilter, so as to keep the right mix for your personal qualities.
- Tax loss harvesting means balancing wins with losses so you don’t get creamed at tax time with taxes on your gains.
Now the computers can do these things automatically. To get in on these services, you’ll have to pay a fee, of course. FutureAdvisor charges 0.5% of your managed assets.
FutureAdvisor also does college investment management (529s, Coverdell ESAs, and others). There is no fee for managing these types of accounts. FutureAdvisor helps clients choose the right accounts. Then they set up monthly automatic contributions for their clients and helps with the disbursement to the educational institutions once the child starts college.
The Verdict
BlackRock’s acquisition of FutureAdvisor shouldn’t affect current or even future customers of FutureAdvisor very much.
BlackRock has stated that they’re simply interested in selling FutureAdvisor services at the enterprise level to banks, insurance companies and security firms. They’ll call it “FutureAdvisor Powered by BlackRock Solutions”.
As far as the competition goes, FutureAdvisor might have a tough time competing with their fee structure as it stands right now. As mentioned above, they charge 0.5%, which is more than 50% higher than what other similar companies are charging (0.3%).
There’s also the fact that if you decide to opt for their Premium Plan, your assets will be converted to Ameritrade or Fidelity products. When trading with those companies, there is a fee per trade. Your FutureAdvisor management fee does not cover the fees on those trades. You’ll have to pay Ameritrade or Fidelity yourself, above and beyond what you’re paying FutureAdvisor. These fees can really add up (we’re talking like $40 per mutual fund trade at Fidelity).
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