Fee arrangements also vary. Some provide almost no published details about how they are compensated. Those that disclose fee information typically publish annualized advisory fees of 1% to 2% of assets under management, depending on account size. At that level, third-party management fees may be more than five times the annual cost of the ETF itself.
The extra 100 to 200 basis points in subadvisory management fees might seem to conflict with the appearance of low costs that have long been the major selling point of ETFs. But there are firms that charge less, and as they try to attract assets in a bear market some may be willing to negotiate fees. "We're more inclined to negotiate when larger accounts are involved, but the possibility is always on the table," says Byron Green of Green Investment Management in Fort Worth, Texas. Fees at his firm start at 95 basis points for accounts of $100,000 and slide down to 50 basis points for accounts of $1 million or more. Carmichael says he pays 35 to 75 basis points for outside ETF portfolio management, which is significantly less than the 100 basis point tab that active stock managers he works with typically look for.
Most of the firms prefer to work as subadvisors rather than giving advisors model portfolios to implement themselves-and execute their own trades-since that arrangement is less lucrative for the managers. D'Amico says that his firm usually acts as a subadvisor by taking charge of a portion of client assets for a set fee based on assets under management. Occasionally he will provide the model portfolios to advisors, but he prefers a subadvisor role since "that's the only way we can be sure that our portfolio strategies are really being followed." Stein's firm doesn't provide models for advisors to implement themselves, but it does offer a subscription-based newsletter with information and data advisors can use to build their own ETF portfolios.
Other firms feature model portfolios prominently in the investment process, although they generally implement them in-house. Efficient Market Advisors segregates its different model portfolios with target dates based on the number of years until someone needs to begin drawing on the account. These portfolio time frames range from two years to 20 or more, and investors can choose from among conservative, moderate and aggressive investment tilts for each target date. Based on the investor's answers to a time and risk profile questionnaire, the advisor is assigned one of 15 investment models designed by the firm. The service includes quarterly reviews and automatic rebalancing when required. The minimum account size is $100,000, with a maximum charge of 50 basis points.
Braver Wealth Management takes a conservative approach with its strategic portfolio, which invests in a mix of stocks, bonds, cash and alternatives and has a maximum exposure to equities of 60%. The firm's tactical allocation models take a similar approach, but with more short-term shifting among investments.
Astor Asset Management uses a macroeconomic overlay in its strategies. During economic contractions, the portfolio takes a defensive position with either large cash positions or with ETFs that have inverse market exposure. The Preferred Growth Program has an actively managed portfolio allocation to large-, mid- and small-cap domestic equity and to international ETFs, along with specialty-sector ETFs such as short-term bonds, energy or utilities. The Preferred Stable Program emphasizes dividend and interest income.
Green Investment Management uses a few different approaches. Its Balanced Growth portfolio mixes stock and bond ETFs with an emphasis on stock. The Balanced Mosaic portfolio includes more alternative assets and sector rotation strategies. Guardian Country is an aggressive allocation strategy designed to participate in foreign country or region-specific ETFs with recent relative strength. It generally invests in funds from three to five different foreign countries.
Green works with 68 advisors who bring in accounts ranging from $100,000 to $25 million. Advisors typically start by handing over their smaller accounts and bringing over more assets once they feel comfortable with the advisory relationship.