FutureAdvisor is an internet-based investment platform that automatically manages your portfolio for you. Though there are many investment platforms popping up all over the web, FutureAdvisor boasts one of the lowest fee structures available.
It’s low pricing and the comprehensive service package make it well worth serious consideration if you’re looking for professional investment management for your portfolio.
Founded in 2012, FutureAdvisor is one of the newer web-based investment platforms. It was founded by — and continues to be run by — finance experts, software engineers and data scientists, who combined their skills and knowledge to create one of the most advanced investment platforms available.
Your FutureAdvisor account provides you with direct management of your investment accounts. Unlike many other investment platforms, FutureAdvisor has the authority to trade in your accounts. They don’t actually act as a custodian for the accounts, however — that is done either through TD Ameritrade or Fidelity Investments. They can manage taxable accounts, and also traditional, Roth and SEP IRAs, as well as rollover accounts.
Another area where FutureAdvisor departs from the industry norm is that it does recognize your 401(k) plan holdings. Though it doesn’t provide direct management of the accounts, it does consider 401(k) holdings in portfolio allocations and makes investment recommendations accordingly. This is important because many investors have the largest share of their investment portfolios concentrated in their employer-sponsored plans.
Modern Portfolio Theory
FutureAdvisor is based on modern portfolio theory, better known as MPT. The theory attempts to create a portfolio that considers the relationship between return and risk. It holds that the risk of a particular stock should not be looked at on a standalone basis, but rather in relation to how that particular stock’s price varies in relation to the price variations of the market portfolio. One can construct a portfolio that maximizes expected returns for that level of risk, based on an individual's preferences and risk tolerances.
In keeping with MPT, FutureAdvsior makes investment recommendations for your portfolio based on your age, risk tolerance, and investment time horizon. They use industry-standard benchmarks like Morningstar’s Lifetime Allocation Indexes.
Nobel Winning Research which influenced Modern Portfolio Theory:
FutureAdvisor uses low-fee index funds in constructing your portfolio. Not only do these funds have lower investment expenses, but they’re also more tax efficient. Being based on common indices they involve less trading, which reduces capital gains taxes. For example, funds are typically invested in low-fee Vanguard and IShares funds with expense ratios that are well below 1.00%.
FutureAdvisor allocates investments between domestic and international stocks, bonds (domestic and international), real estate (domestic REITs and international real estate), and Treasury Inflation Protected Securities (TIPS).
FutureAdvisor Features and Benefits
FutureAdvisor offers both free and premium service levels. The free service provides you with assistance in managing your own portfolio, while the premium service actually manages your portfolio for you.
Under the premium service, you’ll get the following:
Automatic rebalancing. The platform automatically re-balances your portfolio when your asset allocations move outside their target levels, or when a change in your life requires readjustment of your investment strategy. The portfolio is rebalanced about six times per year, which is just an average — it can actually be more or less, depending on changes in asset valuations.
Automatic tax harvesting. FutureAdvisor continually monitors each of your holdings, looking for positions with at least $1,000 in harvestable losses at current market prices. They’ll swap tax lots with losses with a pre-selected similar index fund of the same asset class, which enables them to take losses for tax purposes without changing the portfolio allocation in a substantial way. At the end of the year, they use that loss to offset your gains for the year or to apply to ordinary income.
Maximizes return through select fund categories. Their portfolio recommendations favor small-cap funds and value funds, for both domestic and international holdings. The platform even provides age-based investment returns for investors in their 30s, 40s, 50s, and 60s.
You can always open a free account with FutureAdvisor if you prefer to manage your own investment portfolio. The platform will provide investment recommendations based on your preferences, risk tolerance, and portfolio makeup. But even if you choose the premium account, the fees are quite reasonable compared to the competition.
For a premium account, FutureAdvisor charges an annual fee of 0.50% of your assets under management, which does not include employer-sponsored retirement plans, like 401(k) plans. On an account worth $200,000, the fee would be $1,000. Since it is collected quarterly, the fee would be $250 per quarter.
Fees assessed on IRA accounts are deducted from non-tax sheltered plans to avoid causing pre-mature distributions.
Apart from management fees, there are also trading fees paid to the custodian. TD Ameritrade charges $9.99 per trade for both stocks and ETFs. They also charge a maximum of $24 per trade for mutual funds. Fidelity Investments is lower on stock and ETF trades, at $7.95 per trade, but higher on mutual funds at $50 per trade. Which custodian you would prefer would be based on your preference for either stocks, ETFs, or mutual funds.
Are you worried about fees?
No worries because a large percentage of the individuals who use the platform don't receive any fees for their trades. Fees are only accessed when it is in the best interest of the client's investment portfolio.
Will FutureAdvisor Work For You?
FutureAdvisor is one of the better web-based investment platforms you’ll find. They provide professional level investment management at a fraction of what traditional financial advisors charge. And unlike many of their competitors, they do include your 401(k) investments in your portfolio allocations.
The tax harvesting feature is something every investor will find to be beneficial at tax time. FutureAdvisor works to minimize your burden on investment tax, which will not only save you money on taxes, but also improve your long-term investment returns.
If you’d rather have your portfolio professionally managed — without paying high fees to have it done — then FutureAdvisor could be the investment platform for you.
If you’re interested in FutureAdvisor, go to the FutureAdvisor website and get signed up. You can test the platform using the free service, and if you like what you see, you can sign up for the Premium service, and enjoy all the benefits of full professional investment management that free you up to spend more time working on other areas of your life.