Future Advisor Review — A Tool to Automate Your Investments

Over the past few years several new companies have built tools to help automate investments.  Called robo-advisors, these companies take several different approaches to help simplify investing.  One of these companies is called Future Advisor.  In this review, we’ll look at how Future Advisor works, how much it costs, and how it can help you become a better investor.

Note:  At the end of this article I’ll also share how Veterans and Active Duty can use Future Advisor for free.

What is Future Advisor

Headquartered in San Francisco, Future Advisor is a registered investment advisory firm.  With a team of Chartered Investment Advisors and math PhDs, they use software to manage clients’ IRA, Roth and taxable investment accounts.

The companies investment philosophy can be summarized with four guiding principles:

  • Long-term portfolios should be based on unbiased advice, diversification, tax efficiency, and low-fee index funds. Research shows trying to ‘beat’ the market does not work for everyday investors.
  • Investors shouldn’t have to actively manage their investment accounts: the right things should happen automatically.
  • All investors – not just those with million-dollar account balances – deserve top tier investment management for their portfolios.
  • Automatic portfolio management should cost a fraction of what a traditional investment advisor charges.

How does Future Advisor Work

Note:  I’ve used Future Advisor so that I could write a review based on my personal experience.  The screenshots below come from my account set up with Future Advisor.

Step 1:  Import Your Investment Data

After you signup with Future Advisor (which is free), the first step is to connect your investment accounts.  There are two ways to do this.  First, you can enter your username and password for each of your investment accounts and let Future Advisor automatically import all of your investment data.  This is the fastest and easiest way to get your data in to Future Advisor.  It’s also the process I followed.

Initially I had problems connecting my Vanguard account.  It turned out to be an issue with Yodlee, the company that manages connections between tools like Future Advisor and investment companies and banks.  The folks at Future Advisor were able to get it fixed quickly (literally within minutes) and my Vanguard account was imported without further issue.

If you prefer, you can also enter your investment accounts manually.

Step 2:  Review Your Asset Allocation

Based on your age and expected data of retirement, Future Advisor constructs a model asset allocation plan for you.  You can then modify the plan based on your risk tolerance:  conservative, moderate, or aggressive.  I selected aggressive portfolio, which produced the following:

Future Advisors Asset Allocation

A few things to note here.  First, it is an aggressive allocation with 84% stocks and 16% bonds.  That’s actually more aggressive than my current allocation of 75% stocks.  Of course, I could have selected the moderate allocation if I had wanted to.  Second, like many investment advisors, Future Advisor tilts its portfolio to value stocks and small caps.  Finally, they give you a healthy dose of emerging markets and REITs, two asset classes that I believe are an important component to most portfolios.

Step 3:  Review Your Action Plan

This is where the fun really begins.  Future Advisor then looks at your portfolio and offers specific buy and sell recommendations to get your current portfolio into their recommended portfolio.  They take you by the hand and walk you step-by-step through each investment you have.

Let me show you what it looks like, then we’ll look at some really important details.  First, the action plans grades your current portfolio based on four criteria.  Here are my grades:

Future Advisor Portfolio Score

Each of my grades is excellent except diversification.  What’s going on here?  Actually, it was no surprise.  I knew my fee and tax grades would be high as I closely monitor both.  But diversification is low because I have a significant part of my investments in individual stocks.  If you click on each of your grades, Future Advisor will give you more details.  In the case of my ‘C’ for diversification, they identify more than just individual stocks as the problem:

Future Advisor Diversification Grade

Once you’ve reviewed each of your grades, you can then move on to the step-by-step buy and sell recommendations.  Here’s a screen capture of a portion of the action plan Future Advisor built for me:

Future Advisor Action Plan

This screen shot comes from the brokerage portion of my SEP IRA.  There are several important things to note:

  1. Notice the lock symbol next to my Wells Fargo and GM stock?  I can click that lock to close it.  That tells Future Advisor that I don’t want to sell that position.  They will then recalibrate my action plan based on that decision.
  2. While you can’t see it here, in each action plan you can hover over each recommendation and Future Advisor will provide more details as to why it is making the recommendation.
  3. For taxable accounts, they consider the tax consequences of selling a position.  In some cases, they will recommend keeping an investment based on tax considerations.
  4. The recommendations include 401k accounts.  Many robo-advisors provide no recommendations or guidance on workplace retirement accounts.

At this point you have a choice.  You can implement these recommendations on your own or have Future Advisor manage these recommendations for you.  If you do it yourself, there is no charge for Future Advisor.  You get their action plan for free.

If you opt for the premium service, Future Advisor will execute the buy and sell recommendations for you and monitor and rebalance your investments going forward.  The cost is 0.50% a year.

Premium Service

For those considering the Premium Service, here are some things to know:

  1. Future Advisor uses both Fidelity and TD Ameritrade to hold its clients investments.  If your accounts are already at either of these brokers, no change is necessary.  If not, Future Advisor will help you move your accounts to one of them.  Investments in taxable accounts can be moved in-kinds to avoid triggering capital gains tax.
  2. Future investments are automatically invested by Future Advisor into the right investments to track your action plan.
  3. They use sophisticated tools to automate tax loss harvesting in taxable accounts.
  4. They automatically rebalance your investments to keep them in line with your action plan.
  5. If you have Fidelity’s Brokerage Link as part of your 401k, they can also manage that account. And they manage it for free.  If you don’t have Brokerage Link, they will factor in your workplace retirement account as part of your overall action plan.

Veterans and Service Members

Through December 31, 2014, Future Advisor is offering free premium service to Veterans and those in the military:

  • All U.S Veterans, Reservists, retirees, & National Guard get 6 months of premium investment management for FREE;
  • All U.S Active Duty get 12 months of premium investment management for FREE

With our son in boot camp at Parris Island, I particularly appreciate what Future Advisor is doing for the military.

Topics: Investing

16 Responses to “Future Advisor Review — A Tool to Automate Your Investments”

  1. Kimba

    I signed up for the Future Advisor premium. They transferred two of my three IRAs out of Vanguard to Fidelity. So far, the two transferred out and re-balanced by them have consistently lost money no matter what the market was doing overall. If the market is up, it loses money. If the market is down, it loses money. One day it gained a very small amount. Meanwhile my IRA in Vanguard has steadily gained. It’s only been a few weeks but so far I’m VERY unimpressed.

    • Rob Berger

      Kimba, are the funds similar? For example, are they all index funds? If so, they should perform similarly. Care to share the ticker symbols of the funds?

  2. Great. I got a recommended portfolio from futureadvisor. Now all I have to do is pay massive amounts of capital gains taxes on my current holdings so I can buy (a reduced value) of their recommendations. Do you know of any tools that will help me figure out which sales and how much would make sense?

    • Rob Berger

      Ron, capital gains are an issue any time you move a taxable account to a robo advisor. Wealth Front will transfer assets in kind and then sell them over time to minimize the hit. Future Advisor MAY do the same, I’m not sure. In terms of minimizing it on my own, I would look at my gains which are reported by Vanguard (where my taxable brokerage account is) and work with those assets that have the least amount of gains.

      • Ron & Ron,

        Unfortunately for our free service, we can’t see your cost basis information so it’s your responsibility to decide if the trades make sense for your tax situation. But for our premium service we evaluate every single tax lot to make sure that the recommended trade costs are worth the benefit gained in the portfolio based on your estimated tax rate.

        Best,

        Gary Hall
        FutureAdvisor Portfolio Manager

  3. This is yet another example of the wrong way to go. Put your money in a jar, give it to someone else, a person, or an automated machine and grant them the power to trade.

    It will be a cold day in hell before I give someone else the password to my TDAmeritrade account.

    There is no difference between a real Bernie Madoff and a computerized one.

    Never give the keys to your account to anyone. Get advice and pay for it if needed, then get a low cost brokerage account and implement the plan under your control.

    Never grant someone else the power to take you funds.

    When will people ever learn that there is no free lunch. Learn to handle your own investing affairs or give someone else, now a computer the power to take all you have.

    It’s your money, learn to manage it.

      • Larry,

        We actually agree with you, which is why we don’t take possession of your funds even for the premium accounts we manage directly. The investments are always in your own custodial account, at Fidelity or TD Ameritrade, and we simply have limited trading authority. This is actually a very big distinction between us and some of the other popular robo advisors, which frequently DO ask you to transfer your assets to them directly. But Ron is also correct, it sounds like our free product is the choice for you. Get our recommendations without any formal relationship with us other than your email address (which we never sell to anyone for any reason) and decide for yourself what to implement.

        Best,

        Gary Hall
        FutureAdvisor Portfolio Manager

    • Rob Berger

      They are really two very different tools. The Personal Capital Dashboard is the best way to keep track of your investments, in my opinion. Future Advisor helps you dive down deep into your asset allocation plan and answers two questions: (1) do you have the right plan, and (2) are you executing the plan with the best ETFs or funds.

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