Fidelity joins the ranks of other online advisors
One more traditional broker is throwing its hat into the robo-advisor ring: Fidelity has announced the launch of Fidelity Go, a new digital advice offering. The company has been quietly testing the service for the last six months with a group of 1,000 investors.
The service uses Fidelity index funds to build portfolios that are managed by a team of investment managers, not computers. The digital component comes in when investors are matched with portfolios: Similar to other online advisors, Fidelity Go makes recommendations based on investors’ answers to a series of questions designed to take the pulse of their risk tolerance, financial situation and goals.
“This is not an algorithm,” says John Danahy, Fidelity’s head of digital managed account solutions. “Our size and our scale enables this to be managed by a portfolio manager.” That manager is Geode Capital Management, which also serves as the sub-advisor for 33 Fidelity index funds.
Investors will be able to review their suggested portfolios — and make adjustments — before opening an account.
The company says Fidelity Go is aimed at younger, digitally savvy investors, as is typical of robo-advisors. Danahy says Fidelity worked to “co-develop” the service with that demographic, inviting users into the company’s lab.
Fidelity Go’s single all-in fee came out of these conversations. Most robo-advisors charge a management fee plus fund expenses. Investors will pay between 0.35% and 0.40% of assets under management, Danahy says. The portfolios require a minimum balance of $5,000.
The service includes portfolio rebalancing and will automatically invest new contributions and dividends without a commission, but it doesn’t offer tax-loss harvesting. Taxable accounts incorporate BlackRock iShares ETFs and tax-advantaged municipal bond funds to minimize taxes.
Fidelity no doubt hopes to mimic the success of other incumbent brokers that have gone the way of the robo-advisor, namely Vanguard. Investors have flocked to its Vanguard Personal Advisor Services, which pairs robo-advisor algorithms with dedicated financial advisors and currently has $41 billion in assets under management. It charges a 0.30% management fee on top of fund expenses, and it requires a $50,000 minimum.
Other brokers that have added digital advice to their menus include Charles Schwab, with Schwab Intelligent Portfolios, and E-Trade, with E-Trade Adaptive Portfolio. Schwab’s service doesn’t charge management fees, but uses Schwab funds to build portfolios with weighted average expense ratios between 0.12% and 0.25%. It currently has $8.2 billion in assets under management. The E-Trade advisor launched in June 2016.
Danahy says he expects Fidelity Go to attract both current Fidelity clients — the company has 2 million in the 25-to-45 age group — and new customers who aren’t currently receiving advice. Existing Fidelity customers can roll their accounts into Fidelity Go, though the service will not extend to 401(k) management.
Fidelity Go compared to other online advisors
| Advisor | Management fee | Investment expenses | Account minimum |
|---|---|---|---|
| Fidelity Go | All-in fee of 0.35% to 0.40% | Included in all-in fee | $5,000 |
| Betterment | 0.15% to 0.35%, depending on account balance | 0.09% to 0.17% | $0 |
| Wealthfront | First $10,000 is managed free, then 0.25% | Average 0.12% | $500 |
| Personal Capital | 0.49% to 0.89%, depending on account balance | Average 0.10% | $25,000 |
| Vanguard Personal Advisor Services | 0.30% | 0.05% to 0.19% | $50,000 |
| Schwab Intelligent Portfolios | None | 0.04% to 0.48% | $5,000 |
| E-Trade Adaptive Portfolio | 0.30% | 0.20% to 0.45% for hybrid mutual fund/ETF portfolio; all-ETF portfolio averages 0.20% | $10,000 |
Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email:aoshea@nerdwallet.com. Twitter: @arioshea.
This article first appeared at NerdWallet.
