Retail Investment is Changing

I don’t know if any one else has noticed the trend in retail investment advances that have been taking a crack at Wall St. lately – but I think we can forget what value the Occupy Wall St. movement will provide and start looking at what people with productive skills and a desire to change the world are trying to do. Over the last year I have seen a number of great products come out that are focused on reducing the cost and increasing the efficiency of middle class investors. Of course all while taking some of the money (the fees at least) out of Wall St. I am not talking about peer to peer lending (I have been playing with those groups for a while and am not sure managing default rates on LendingClub is the way I want to spend my saturdays).

I am really talking about investment advisors, the people that the middle class have been paying 2-5% for years to “advise” which funds they should buy with their retirement and investment money. This is a huge market with thousands of advisors who work for large Wall St. firms who focus on retail investors. There are loads of them out there – Ameriprise, Morgan Stanley, Edward Jones, Fidelity, etc. – they all take your money and recommend an investment in the funds that they are getting discounts to purchase or the funds that they manage. Seems a little backward that they give you a stock form that is a risk analysis and recommend a few specific investments out of a group of 20 funds that they are allowed to “sell” you. So why haven’t we fixed this yet with technology?

Introducing Betterment, Wealthfront, and FutureAdvisor – all three of these are focused on just that, cut out the middle man selling you a group of funds at a huge markup and give you, the 99% a recommendation for the lowest cost most diverse funds that meet your risk and life stage profile. Each has some pros and cons and each has a better fit for different investors, I have taken a brief look at all three and found that they all operate in a fairly similar fashion. Great looking front pages that entice a quick sign-up in a matter of minutes. Each walks through a similar set of questions

• How old are you and how much money do you want to retire with at what age
• How much risk in portfolio value fluctuation can you stand
• How would you like to get started

Wealthfront is focused on all investments, and after a quick profile makes recommendations to specific low cost funds that match your profile. Then offer a sign-up that will provide portfolio rebalancing based on changing conditions. Their recomendations are based on an algorithm (not too different than the algorithm that your existing advisor is using). They also allow you to modify your investment goals and tollerances with a projection into how those changes may affect your portfolio.

FutureAdvisor is uniquely positioned to look at your 401k and make investment recommendations based on the 401k options and tax situation. That’s right, you connect FutureAdvisor to your company provided 401k plan and let them look at the options, look at your profile, and specifically recommend how to allocate the contributions to your retirement. Of course they don’t stop there, they also recommend other areas of tax advantage when it comes to retirement (recommending IRAs where appropriate, etc.)

Betterment takes a different approach and actually manages the money for you. Taking the difficulty of having both an online investment account and an online investment advisor down to a single account. You setup a deposit to the account, your profile, goals, savings vs investment needs, and let Betterment do the work for you. This is definitely a great hands off approach for managing that money that is between the checking and 401k accounts that you just don’t know what to do with.