Fidelity
Fidelity GO has a $5,000 minimum. Unlike E*Trade, Fidelity currently accepts cash only to fund GO accounts. GO creates portfolios that can include both ETFs and mutual funds. The portfolios are built and monitored by Geode Capital Management, an institutional investment advisor. The advisors also rebalance portfolios as needed. This adds a human element to the process that may appeal to some. No tax-loss harvesting is currently offered.
The program advisory fee is 35 basis points annually, billed quarterly in arrears. The advisory fee may be reduced with a “variable fee credit.” According to the GO website: “The variable fee credit reduces your gross advisory fee by the amount of any investment management or other fees that we or our affiliates receive as a result of investments held in your account, and can help reduce the gross advisory fees of the service.
For Fidelity funds, the credit amount will equal the underlying investment management and any other fees or compensation paid to us or paid to our affiliates from the Fidelity fund. For non-Fidelity funds, the credit amount will equal the distribution or shareholder servicing fees and any other fees or compensation paid to us or our affiliates by the non-Fidelity funds as a result of your investments in those funds. The variable fee credit is intended to address any potential conflicts of interest that might arise from those fees.”
So, to the extent a portfolio is made up of Fidelity investment products, there is no fee other than the 35 basis points.
The Fidelity GO process begins by asking the year you were born. Next, it asks if the account will be for you only or if it’s a joint account. Next, it asks if the account is for retirement or for something else. I chose retirement. Next, it asks if the account is taxable or tax advantaged. I then specified the initial investment and the monthly additions. GO asked about my household’s gross annual income to estimate my potential tax situation. It then asked me to rank my risk tolerance on a scale of 1 to 10. After it does calculations, it places you into one of seven portfolios. I was placed into the sixth.
The portfolio had 70% equity, 25% bonds and 5% short-term fixed/cash. There was no dedicated emerging market equity exposure, although one of the holdings included some emerging market equities.
As with E*Trade, you can view all of the other portfolios. Unlike E*Trade, Fidelity actually displays the proposed mutual fund and ETF investments. After the variable fee credit, the fee for the portfolios, not including the underlying investment fee, ranged from 4 basis points to 23 basis points, with the lowest-risk, least equity-heavy portfolios having the lowest fees. It was also worth noting that the most conservative portfolio had a 20% allocation to equities, while the most aggressive included an 85% equity allocation. Clearly, the Fidelity approach to portfolio construction differs significantly from that of E*Trade.
While I judged the overall experience of both platforms to be very good, there were a few things about the Fidelity process that I preferred. First, it asks early on whether this is a taxable account so it can tailor the investment options accordingly. Second, by asking about monthly contributions, it raises the issue early and encourages monthly savings. Third, I felt more comfortable with the Fidelity approach to portfolio construction, although obviously that is a matter of personal preference.
There were also a few things I particularly liked about the E*Trade platform. These included the multiple risk questions (Fidelity had one), and the screen sharing. Although the overall cost of Fidelity GO is estimated to be less than that of E*Trade’s offering, the operation of the variable credit can be difficult to understand.
Lessons For Advisors
Examining some retail digital investment platforms should yield a number of lessons for advisors. Perhaps the first one is that these platforms are likely here to stay, and the advisory community needs to respond in order to stay competitive.
There are a number of ways to differentiate your digital offering should you choose to launch one. Clearly, the asset allocation across model portfolios and the underlying investments can be a differentiator if you have expertise in those areas. A human component incorporated in the investment process can be a differentiator as well. Tax management is another area where advisors can differentiate.
The client on-boarding process, including the initial questionnaire, is an area where advisors can further set themselves apart. You can also add unique elements—for instance, third-party software like Riskalyze or FinaMetrica—or add some proprietary process.
The user experience will need to be good, and both Adaptive Portfolio and GO are excellent examples. They are easy to navigate, provide extensive FAQs and offer other tools to make even the investment novice comfortable with the process.
Some advisors will come to the conclusion that these retail offerings are not a threat to their business, figuring that they offer more than just portfolio construction and asset allocation. I am in total agreement with that sentiment, yet there is still room to streamline your investment process, lower costs and automate so you can spend more time adding value. Before you deploy your own digital advice platform, perhaps it makes sense to understand what you are competing against.