TradeKing has established itself as one of the best low-cost investment brokerage firms available. Now, that success has been carried over to an investment advisory service known as TradeKing Advisors. The service provides investment advice and management for those who don’t feel they are qualified to go down the do-it-yourself investment route.
What Is TradeKing Advisors?
TradeKing Advisors is TradeKing’s solution to investors who lack either the time, temperament, or know-how to manage their own investments. Opening in May 2014, TradeKing Advisors handles all of that for them by using the foundation of all that is strong with TradeKing in general. They offer professionally managed portfolios for the value-minded investor, bringing together automation and hands on professional expertise.
TradeKing Advisors actually handles the trading activity within your account based on the portfolio allocation that has been implemented. Since TradeKing Advisors manages the account, you are not able to make your own trades. In fact, you can’t even link a regular TradeKing brokerage account with your TradeKing Advisors account.
Even if you have a current TradeKing brokerage account, you’ll need to open up a brand-new account in order to take advantage of TradeKing Advisors. However, the company does allow you to view all of your TradeKing accounts through the same website.
Many of the services that are available through TradeKing Advisors have been provided by Ibbotson Associates, which was founded in 1977, but was acquired by MorningStar in 2006. Ibbotson has over $105 billion in assets under management and is one of the leading providers of asset allocation, manager selection, and portfolio construction services. Ibbotson is not the actual advisor with TradeKing Advisors, but it does provide many of the mechanics of how the firm works.
How Does TradeKing Advisors Work?
To begin, complete an online risk tolerance questionnaire that TradeKing Advisors uses to determine your risk tolerance. You can then choose one of the portfolios that TradeKing Advisors recommends based on your answers to the questionnaire. Based on that risk tolerance, TradeKing Advisors will create a portfolio allocation for you. And while you can’t make individual selections within your own portfolio, you have the option to change the risk level or the investment strategy that has been assigned to your account.
Available account types. You can have a variety of account types with TradeKing Advisors, including regular brokerage accounts, traditional or Roth IRAs, rollover IRAs, SEP IRAs, SIMPLE IRAs, Beneficiary IRAs, Beneficiary Roth IRAs, as well as custodial and Coverdell accounts. The accounts can be held individually or jointly, and are also available for trusts, corporations, LLC’s, partnerships and sole proprietorships.
All funds held in a TradeKing Advisors account are held through TradeKing Securities, LLC, and clears and settles trades through Apex Clearing, Inc.
Account protection. All accounts are insured by the Securities Investor Protection Corporation, better known as SIPC. This will protect up to $500,000 in cash and securities losses from your account resulting from broker failure. Apex Clearing maintains additional insurance through a group of London Underwriters that supplement that coverage. This affords protection of up to $37.5 million per customer, including cash of up to $900,000. But like SIPC, it pays only in the event of broker failure and never in the case of market-driven declines in asset values.
Adding and withdrawing funds from your account. You can fund your account from an existing TradeKing account, by linking to your bank accounts, or by writing a check or sending a wire. There is a minimum withdrawal amount of $500, and this can be raised by selling positions in the ETF’s in your brokerage account if desired.
Income Tax Reporting. Though all the information that you need to prepare your income taxes can be found on the website, you will be issued either form 1099B or 1099R (for tax deferred accounts) at year end. They also have a tool called the Maxit Tax Manager, that provides cost basis information for trades within your account. It can also generate a Schedule D and IRS Form 8949 to report your capital transactions on your income tax return. In fact, the 1099 data from your account can be directly imported into TurboTax.
TradeKing Advisors Investment Strategy
TradeKing Advisors uses two basic portfolios to fit your needs, the Core and Momentum portfolios.
Core Portfolios. There is a $500 minimum required initial investment. It is intended to build a solid foundation for the long-term and is adjusted as needed to keep you on the intended path. A Core Portfolio will have no more than 17 asset classes, represented by a mix of ETFs and ETNs (see below). The mix will include domestic foreign fixed income securities, equities, and real estate.
The Core Portfolio is comparable to robo advisors. It follows a low cost, diversified strategy of investment.
Momentum Portfolios. This plan requires a minimum investment of $5,000. The portfolio is reviewed on a monthly basis for potential new investments and is designed to respond to market ups and downs. The portfolio is rebalanced on a monthly basis to maintain allocations that are consistent with the original allocations. The portfolio includes up to 20 asset classes, and may shift quickly between those classes.
Unlike the Core Portfolio, the Momentum Portfolio uses an investment strategy known as tactical weighting. That is, this portfolio tends to invest more heavily in asset classes that are outperforming the market and less in those areas that are underperforming the market.
Both Core and Momentum portfolios are broken down into five general portfolio classes, that include conservative, moderate, moderate growth, growth, and aggressive growth models.
Risk Assist. This is an optional feature that can be added to Core Portfolios. The option seeks to protect investor principle during steep declines in the market, such as the market crashes in 2001 and 2008. This is accomplished by reducing exposure to equities-based ETF’s by moving the money into less volatile sectors such as fixed income ETFs.
Risk Assist accomplishes this by monitoring portfolio performance and making volatility forecasts both of the overall market and the specific underlying portfolio. Investors are informed when Risk Assist has been employed. After the market settles down, your portfolio is gradually brought back to the intended allocation.
All portfolios managed by TradeKing Advisors are comprised of exchange traded funds (ETFs) and exchange traded notes (ETNs). ETF’s are index based, which means that there is very low portfolio turnover, and that means lower investment fees within the fund.
Treatment of Dividends. For Core Portfolios, all dividends are automatically reinvested. With Momentum Portfolios, dividends are reinvested during the standard monthly rebalancing so that potential tax consequences are minimized.
TradeKing Advisors Pricing
Under the Core program, there is a $1 per month advisory fee if your balances below $5,000. If it is $5,000 or more, the annual advisory fee is 0.25% of the account balance. That means that you can have a $100,000 portfolio managed for just $250 per year. The fee is paid on a monthly basis and is based on the daily total equity balance in your account.
Under the Momentum plan, the annual advisory fee is 0.50%, which means that a $100,000 portfolio will be managed for just $500 per year.
Since you don’t actively trade in the account, there are no trading fees. Investments held are limited to a small number of ETFs. There also are no fees related to closing your account. However, there is a $50 IRA closure fee.
Can TradeKing Advisors Work for You?
TradeKing Advisors functions very much like a robo advisor except that it is part of the well-respected TradeKing organization. For investors who lack either the time, skill, or inclination to manage their own investments, TradeKing Advisors offers an opportunity for professional portfolio management at a low cost. If this describes you, check out all that TradeKing Advisors has to offer.