DIY investing gets more sophisticated

June 8, 2011

A number of relatively new websites are offering self-directed investors some pretty high-end portfolio management for small amounts of money, and that’s good for do-it-yourself investors.

But, as I report in my Stern Advice column today, they aren’t all created alike. Some offer advice and others don’t. Some cost more than others. You won’t know the players without a scorecard.

Here’s an overview of some of the newish companies operating in that space.

Started by former Securities and Exchange commissioner Steve Wallman, this is an online brokerage that specializes in pre-mixed portfolios of individual stocks. That distinguishes it from most other sites that focus on exchange traded funds. It means that investors are able to trade individual stocks in and out of their so-called “folios” to capture tax losses and manage their gains.

The portfolios are based on investment themes, fundamental screens, newsletter recommendations and strategies. For example, there are target date folios for one-stop shoppers. Investors can create their own folios or choose among the 150 or so featured on the website. Unlimited trading costs $29 a month, or $290 a year.

Aimed at value-conscious retirement investors who believe in modern portfolio theory, Marketriders creates diversified portfolios of exchange traded funds for investors who answer three questions: How old are you? How experienced are you? When will you need the money?

The site recommends an asset allocation and suggests very low cost index-based ETFs, and leaves it to you to make the trades with your own discount broker.  It costs $149.95 a year.

This brokerage won “Best of Show” at a prestigious financial technology conference last fall. It uses ETFs to create a stock basket and a Treasury bond basket, and then allocates your money between the baskets based on your risk profile.

It doesn’t include foreign investments or corporate bonds, though they may be added later. It charges 0.3 percent to 0.9 percent of your assets invested in fees annually. The more you have invested, the cheaper it is, with amounts over $500,000 to get the 0.3 percent rate.

Flat Fee Portfolios
This is actually the extension of one financial adviser’s business. Mark Cortazzo is a Parsippany, New Jersey, financial adviser with very high net worth clients who’s using this site to extend his financial advice to folks with smaller portfolios. He recommends a mix of low-cost exchange traded funds. Clients can choose whether they want a passive or more active investment strategy, or if they want to follow a tactical asset allocation that moves their money around depending on market and economic conditions.

This service comes with a six-month review, and costs a flat fee of $199 a month.  smaller accounts can pay $129 a month for active or passive investment strategies.

This site aims to offer institutional money management to investors with smaller portfolios. It offers a list of professional money managers who usually handle only big accounts and lets individual investors piggyback on them. Users fill out a questionaire to get a risk and tax profile, and then Wealthfront suggests managers to follow. Investors can choose the managers they want and open a linked brokerage account. Their account will trade in tandem with the big boy managers.

The costs vary per manager but typically run about one percent a year.


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[…] bound or low cost. (For comparison sum about these companies,see my square on a Reuters Wealth blog,here)“The thought is unequivocally good,”says Sophie Schmitt,an researcher with investigate […]

Posted by Stern Advice: The latest in cheap, automated investment advice « | Report as abusive

These services have quite a wide range of fees. MarketRiders and FolioInvesting both look like good low-cost tools to help DIY investors, but Flat Fee Portfolios in particular isn’t exactly a low-cost option for the average investor. For a person with a $200,000 retirement account, they are charging 1.2% of assets annually ($199/mo * 12 months). Seems more like a typical advisor’s fee. Wealthfront provides good access for smaller account minimums, but again, I certainly wouldn’t consider their fees low-cost at 1% (and more for many of the strategies).

Thanks for the posting.

Posted by InvestSimply | Report as abusive

At Flat Fee Portfolios accounts under $250,000 are only $129 a month, so the percentage of that size account is actually closer to .75% and it isn’t for do it yourselfers, you have a dedicated advisor that is a CFP practitioner that guides you and does proactive reviews, as well as provides performance reports for your specific account not what a model did.

Posted by BetterInvesting | Report as abusive