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Down to Essentials: Professional Investment Management at a Lower Cost

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October 27, 2016
Automatic financial portfolio management and investment planning.

Investors often hear they should spend more time on strategy and forge a relationship with a financial adviser who can provide input, albeit at a cost.

There’s nothing wrong with that, but between jobs, raising a family, and other responsibilities, not everyone has the time and resources to go full throttle. Those investors might consider turning to less costly and more technologically-focused options to help pursue short- and long-term goals with the benefits of professional management. In comes “robo” advice. 

These automated digital services allow investors to easily input their personal goals, basic financial information, risk tolerance, and time horizon, and receive a recommendation for a diversified portfolio. After opening and funding an account, investors are able to monitor progress electronically for easy transparency.

Additionally, investors can rely on automatic re-balancing of their portfolio as markets change, helping maintain appropriate asset allocation parameters over time.

“With Essential Portfolios, an investor can get a portfolio recommendation in 15 minutes or less,” said Tom Casey, Senior Manager, Guidance Product Management at TD Ameritrade. The advisory services are provided by TD Ameritrade Investment Management, LLC. After that, investors can open and fund a TD Ameritrade Investing Account, and have a well-diversified portfolio managed at a very affordable cost. Advisory fees for an Essential Portfolio are 0.30%, and the minimum investment is only $5,000.

That minimum is close to the $5,500 annual limit for contributions to Individual Retirement Accounts (IRAs) for those under age 50, so an automated solution could serve as a natural place for a young investor to start planning for future retirement needs.

Non-Proprietary Fund Selection Puts Investor Success Top of Mind

One element that sets Essential Portfolios apart from other “robo” advisor products is the Morningstar connection. Investment vehicles used include ETFs recommended by Morningstar Investment Management, grouped into five goal-oriented portfolios designed to fit a range of risk tolerances, ranging from conservative to more aggressive investment strategies. TD Ameritrade Investment Management, LLC. conducts due diligence on Morningstar’s recommendations and validates them, so there’s plenty of professional experience that goes into the components and allocations of the available portfolios.

“Our relationship with Morningstar means there’s no bias toward fund selection recommendations,” Casey said. “We’re looking to find the funds best suited for each portfolio.” 

Doing the research and monitoring investments is work for an investor, and a “robo” program can alleviate some of that burden. Easing this burden can provide some relief, and help free investors up to focus on the things in life that really matter to them, which, when it comes right down to it, are the reasons why they’re investing in the first place.

Getting Started with Essential Portfolio

FIGURE 1: START WITH THE GOAL.

Essential Portfolios starts with several investment goals and guides investors through questions that establish individual risk tolerance, target timing, and other relevant facts that help identify a recommended portfolio. Image Source: TD Ameritrade Investment Management, LLC.

Casey cautions that "robo” advisors may not be for every investor. Those with complicated estate or tax planning needs or who prefer more “hands-on” support from a personal financial adviser may want to check out other offerings.

But automated investing solutions like Essential Portfolios are there for the many investors with long-term goals who need a lower cost, but still want a portfolio that’s easily accessed digitally.

“Automated investing is a potential solution for those looking to get started with investing who still want professional advice,” Casey said.

Whatever sort of investor one may be, it always makes sense to set goals, stick to a plan, and revisit the plan every now and then. This could happen, for instance, when a new job begins or retirement is directly ahead and investment portfolio allocations may need adjustments to match changing life circumstances. Automated investing tools can help investors start good investing habits and adjust goals and investments to new circumstances.