Robo-Advisors & Robo-Advising

Everyone in the finance world has heard of it, but how do they compare? I personally use 2 Robo-Advising platforms to track and try to understand how they work. There are many out there, however, the 2 I use are Acorns and Betterment. Disclosure: for both these accounts my risk tolerance is very aggressive (as aggressive as they would let me be). If you do invest in these platforms, please invest with your own risk tolerance and do not compare your portfolio return to mine. All investments can lose money, including all your principal. For tax questions, please consult a professional. I am not paid by these companies for this review/blog post. The thoughts and beliefs are mine and mine alone. Also, please review my disclosure on my Home Page. 

First, for those who are not too familiar with them, Robo-Advisors are online platforms (they are also apps) that are automated portfolio management services. They ask the investor several questions that they need to determine the investor’s time horizon for the investment and their risk tolerance. After, they use computer algorithms to determine where that investor lies on their scale from the answers to the questions asked to the investor. The Robo-Advisor then allocates the funds it receives into several select mutual funds or open-ended ETFs. The biggest perk of Robo-Advisors is said to be the low-cost management fee. Few even offer tax harvesting and automatic portfolio rebalancing features.

 

I PLAN TO DO A SEPARATE BLOG WITH THE PROS AND CONS OF ROBO-ADVISORS & ROBO VS TRADITIONAL ADVISING, SO I WILL NOT LIST ALL THOSE HERE. 

 

Acorns: 

This was my first taste to the new robo-advisors. It is a very low-cost beginning financial platform. I believe it was first catered towards college students. College students with a working “.edu” email gets Acorn’s management fee waived for the first 4 years. If you don’t have one, you pay a flat rate of $1 a month for management fees up to an account balance of $5K. After that you pay .25% (.0025) of your account balance per year for management. It is a great beginner platform because it has a $0 minimum balance. A cool feature about it is that you link a card (either debit or credit) to it and it will automatically invest the “loose change” by rounding the purchase up to the nearest dollar and investing it. Think of it as an automatic saver/investor for you. In addition, you can also invest whatever other amount you wish at any given time.

I truly believe this is a great platform for a beginner investor or a regular college student. As you just live your life and make everyday purchases, the balance in the account can add up quite quickly. However, I believe the platform is quite limited in the investing options it provides for you. As you become a more sophisticated investor, you will notice its limitations as well. The return is also decent. In the past year, my account had a market return of 17.90% and a total return of 12.14%. The difference is from the management fee. In comparison, the S&P 500 (For those who do not know, the S&P 500 is the standard benchmark for returns) had a return of 23.74%.

 

Betterment: 

Betterment is a more advanced and sophisticated platform than Acorns. It is meant for the average investor. You can create general investing accounts, 401Ks, IRAs, and Rollover accounts on the platform. It is a leader in the robo-advising industry with $10 billion AUM (Assets Under Management). This is also one of the robo-advisors that have features like tax harvesting and automatic portfolio rebalancing. There are 2 ways to pay the management fee for Betterment. One is .25% AUM. The other is .40% AUM. The second option comes with unlimited phone access to a financial advisor. The best feature about this platform is that it too has a $0 minimum balance.

This robo-advising platform is great for the average investor. It can keep you investing and give you peace-of-mind. This can come through monthly auto-deposit. Once again, more sophisticated investors may find it limiting. In my portfolio, it uses 10 different open-ended ETFs. They are diversified and they are all Vanguard or iShares ETFs. That is not a bad thing! Vanguard and iShares have some of the best ETFs and mutual funds in the world. The return was good! From September of 2017 until today (January 30, 2018) the return on my account is 11.8%. In comparison, the S&P 500 return for about the same time frame is about 10%.

 

There are many other robo-advising platforms out there. Please do your own due diligence and your own research before investing. What I may like, you may not.

Have you tried robo-advising? What are your thoughts on it? Do you prefer it to traditional advising?

Please share your thoughts below!

 

New Year Commandments

Regardless of your religion. These Commandments reign true for your business, your dreams, your goals, and your hustle. Read them, understand them, and let them change the way you do business and your thought process….Make it happen in 2018. Take that leap of faith. Destroy your goals. Prove everyone wrong.

• You’re not here to fall, you’re here to rise.
• You’re not here to eat, you’re here to devour.
• You’re not here for pride, you’re here for honor.
• You’re not here to win, you’re here to fucking conquer.

 

What leaps of faith are you going to take this year?

What goals are you going to destroy?

 

Original Investing Quote

Intro to the Wealth Management Financial Advisor

As of 9/25/2017, I have become a fully licensed Wealth Management Financial Advisor. The Series 7 and Series 66 were two of the hardest exams I have ever had to take. In addition, I am not even close to being done with studying, exams, and licensing. I still have to obtain my Insurance License, go through corporate training, and obtain several CFP certifications. It is still a long road ahead.

A little advice for those going through, or about to start, the same path. Do not take it lightly. Most wealth management firms want you doing almost nothing besides studying for these 2 licenses for the first 3-4 months of your employment. Understand, there are reasons for that! The first time pass rate on these exams are about 65% and 55% respectively. Among those who were studying with me included a JD Lawyer, a CPA, and a Private Banker who were all in their respective fields for over 10 years. All agreed that these were some of the hardest tests they have had to study for.

Making it as a new Wealth Management Financial Advisor is NOT easy. How many 25 year olds know people to become their clients with at least $250K to invest? Not only that, the Managing Director advises only going for clients with $1M+ to invest. It’s not going to be an easy road. However, there is light at the end of the tunnel. IF you make it, you are almost set for the rest of your life. There is an enormous mountain to cross, but after that you will be living the dream (unless you totally f*ck everything up somehow).

Do not take offense if senior advisors do not take any interest in you or barely talk to you. It is just that they have seen their fair share of trainees come and go. I have been told that out of the last trainee group they had (~10 people) only 2 are here today with only one succeeding as a financial advisor. You have to prove to the seniors that you are different. You have to prove you are here to stay, have what it takes to stay, and that you can succeed. That means coming into work early, leaving late, not always being on your phone, passing the exams while sticking to the strict schedule that they give you, having prospects, understanding the industry, understanding the firm’s products, and being up-to-date with what’s happening in the markets and in the world.

This career path is NOT for those who will not take it 100% seriously. In addition, the firm will not hesitate to drop you. You will go to work one day and just notice someone’s desk is cleaned off. The next day or week another trainee will be put there. It’s sink or swim, and if you sink, no one will care.

Because of all the above, I recommend going to the seniors instead. Make efforts to talk to them and find commonalities. Most of them are extremely nice. They are just extremely busy people that don’t have time to go out of their ways for trainees. One way that I have been able to get closer to some seniors and fellow trainees is that I found out some liked football and I created a Fantasy Football League. This kept us all competitive and constantly talking to each other. This is just an example. Find something that resonates with you.

Whatever you do, find a mentor that is a senior. This will help you in so many ways. They can teach you tips, bring you into client meetings to show you how they deal with clients, create a pool with you, and maybe even take you onto their team. The two last points are the best outcomes.

When a senior creates a pool with you, they generally help you with whatever business you can bring in. You bring the clients in while leveraging a senior advisor’s name and expertise, they help you create a plan for that client, and you both receive a split.

The best outcome you can have with a senior advisor is that they bring you on their team. There are many ways to do this and the splits will be different from different advisors and the roles you would play on the team.