by Jack Waymire
This segment of the market is already getting confusing. The online investment sites are being called robo-advisors and online financial advisors. The reality is they are neither one.
Robo may sound like a derogatory term – robots investing your assets. But, that is not true. Computer programs invest your assets. Robo is more accurate when there is no human contact at the online investment site.
Online Financial Advisors is also a misleading description. The service is online, but most of the investment sites do not provide contact with live advisors. Learnvest is the exception.
What the online investment sites have done is automated the investment process. You select an objective (Moderate Growth) based on your performance objective and tolerance for risk. The site automatically invests in a pre-selected allocation for a group of funds that are usually Exchange Traded Funds or Index Funds.
We believe the best description of the online investment sites is Automated Investment Managers (AIMs). They have automated the investment process.
Following are brief descriptions of the four best online investment sites known. By the way, the four are funded with $200 million of venture capital. The VCs are betting big money that investors will embrace this form of investing.
Wealthfront claims to be the biggest, fastest growing AIM with $800 million of assets under management. It is definitely one of the pioneers for this type of investment service. This firm has an impressive array of professionals and a clever algorithm that determines your need for performance, liquidity, and tolerance for risk. You sign-up if you like what you see. The minimum account size is $5,000 and the investment service is free for the first $10,000 of assets and 25 basis points (100 basis points equals 1%) thereafter. Plus, and this is true for all of the AIMs, there is the additional cost of the investments, which Wealthfront says averages 17 basis points.
Betterment does not claim to be the biggest or the fastest growing online investment site, but it has one of the cleanest websites. Some of the content on the website is aimed at Rollover IRAs and retirees. This flies in the face of conventional wisdom that says these websites will be used by younger, more tech-savvy, investors. Fees are designed to appeal to different types of investors. They are 35 basis points if you deposit $100 per month or more (the savings account). The fee for small accounts is 25 basis points ($10,000 minimum). The fee for larger accounts is 15 basis points ($100,000 minimum).
This website started as a data aggregation service and has morphed into an automated investment manager. But, it still has aggregation services that can be used to view all of your assets in one report. You can view your 401k, IRA, personal, and trust assets. Like the other AIMs SigFig technology will plug you into an investment objective that is based on risk and reward. The minimum asset requirement is $2,000 and the service fees are a fixed $10 per month.
Learnvest is the exception. They say, “We’ll help turn you into an informed, savvy manager of your own portfolio.” They do not provide an online investment process. They are focused on the financial planning process. You get to talk to a live Certified Financial Planner ™ (CFP) for a one-time service initiation fee of $89 to $399 and $19 per month (ongoing advice and services).
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