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E*Trade Adaptive Portfolio Review 2017

Etrade-Adaptive-Portfolio

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E*Trade Adaptive Portfolio Review 2017

Expectations were high when the pioneer in online trading, E*TRADE, marched into the robo-advisor market as a latecomer in 2016. But how would the leader in low-cost trading convince its active investors to let a robot manage a passive investment portfolio for them? For investors who want a mix of passive funds and the higher risk-return potential of active funds, the E*Trade Adaptive Portfolio is an innovative hybrid product comprised of passive ETFs and active mutual funds.

Active investors can take a back seat and let the robo-advisor do all the work. E*Trade’s automated self-adjusting portfolio adjusts to market conditions and your risk tolerance.

E*TRADE Adaptive Portfolio does not charge trading fees. The annual advisory fee of 0.30% is currently waived for the first six months.

Founded: 2016

Assets Under Management: $240 million (December 2016)

Client Profile: Millennials, Baby Boomers, Self-directed Traders

E*Trade Adaptive Portfolio
8.75 Reviewer
Pros
  • Competitive 0.30% annual advisory fee
  • No fee for the first six months
  • No trading commission
  • Automatic Rebalancing
  • Cons
  • Need $5,000 to open an account
  • No access to human Advisors below $25,000
  • Fund fees scale up into the high range for the hybrid mutual fund index/ETF portfolios
  • No daily tax-loss harvesting
  • Account Fees7
    Platform Features9
    Asset Allocation10
    Customer Support9

    Getting Started

    What do you need to start? 

    E*Trade asks a few more and tougher questions than the average robo-advisor before getting your portfolio up and running. Ready to help you with your retirement planning and beyond, the E*Trade Adaptive Portfolio asks you upfront to choose a retirement, education, major purchase, long-term growth or ‘other’ investment goal.

    What questions do they ask?

    To compare apples and apples with our other reviews, let’s choose retirement savings. You will first be asked to confirm if you are investing for an IRA account. You will be asked the following questions: When will you need the money and how long for? (Consider longevity risk. We are living longer and spending more money in our retirement.)

    Are you more concerned with capital preservation or long-term returns?

    To assess your risk-return appetite, given an investment of $100,000, two questions E*Trade will ask you to choose among five hypothetical portfolios based on: best case, average, and worst case scenarios.

    The next set of questions on inflation may even confuse an economist. Keep in mind that your investment returns must outpace inflation in order to make you money. The next question you may recognize. What would you do if the market plunged, in this case 20%, 10 years before your retirement?Remember a good passive investor will buy and hold his investments long term, but answer the question honestly.

    Platform Features

    E*Traders are used to having access to a lot of bells and whistles, including advanced portfolio analytics and technical trading indicators. With the robo-advisor in charge, they will not need the latter. The interface looks more like an online trader than the more minimalistic design of a robo-advisor. Some investors will accept a busier interface in exchange for the added value features. E*Trade, for example, excels at financial education, integrating lessons into your daily investment activities. Spoiled E*Traders will expect a few more portfolio management and analysis tools than the typical robo-advisor offers.

    Desktop and mobile app versions are available.

    E-Trade Adaptive Portfolio Features

    Account Minimums  The minimum deposit is: Taxable Accounts: $10,000, Non-taxable $5,000
    Accounts Supported  Taxable, Non-taxable
    Account Management Fees 0.30% – No fee for the first six months, No trading commission
    Investment Expense Fees 0.20% ETFs, 0.20-0.45% hybrid ETF/mutual fund
    Asset Allocation ETFs from asset classes.
    Tax Harvesting  No
    Auto Re-balancing  Yes. Free.
    Mobile App Yes –  You can download the iOS app here and  Android app here.
    Customer Support Registered Financial Consultants by phone/live chat M–F 8:30-8:30

     

    Digital-Human Advisor Hybrid Portfolios

    E*Trade has introduced three additional robo-advisor products with human guidance. The belief that millennials only want the lowest cost is a myth, says E*Trade. Millennials will pay more for a digital-human advisor hybrid, according to E*Trade’s recent survey.[1].

    Adaptive Portfolio – Limit: $10,000

    Choose from an ETF or hybrid ETF/mutual fund account chosen from a non-proprietary pool of funds. Includes automated portfolio rebalancing.

    Managed Investment Portfolio – Limit: $25,000

    Financial consultants will guide you in the development of a diversified investment portfolio for your risk profile.

    Unified Managed Account – Limit: $150,000   Advisory Fee: Up to 0.65% – 0.90%

    A professional investment fund manager from E*Trade Capital Management will develop and manage a diversified portfolio of stocks, mutual funds and/or ETFs.

    Fixed Income Separately Managed Account – Limit: $250,000 Advisory Fee: 0.35-0.75%

    A financial consultant will help you assemble an actively managed fixed income portfolio, with a choice of taxable and municipal bond portfolios. This option includes bond ladders, a retirement portfolio approach that scatters maturities so your cash flow meets your needs in retirement.

    Asset Allocation

    Once you have answered the questions, your hypothetical portfolio is generated based on your risk tolerance and investment objectives.

    You will be able to view the asset allocation and choose between the ETF or hybrid account. E-Trade offers both ETF-only and hybrid ETF and mutual fund accounts chosen from a non-proprietary pool of funds.

    Clicking on Performance and viewing both the historical and forecasted performance for each portfolio can help you decide.  Most robo-advisors do not provide the historical performance option. While past performance is no guarantee of future results,  passive funds tend to deliver more consistent long-term performance whereas active funds are more volatile. You may also view recommended portfolios for other risk profiles on a scale of 1 to 6.

    Either investment option, ETF-only or a hybrid ETF and mutual fund account will invest in the following investment categories:

    • U.S Large Cap
    • U.S. Mid Cap and Small Cap
    • Developed International Markets
    • Emerging Markets
    • Defensive Equity
    • Real Estate Investment Trusts (REIT)
    • Treasury Inflation Protected Securities (TIPS)
    • Intermediate and Short-Term U.S. Bonds
    • International and Emerging Market Bonds

    ETF providers include: Vanguard, iShares, State Street

    Mutual fund providers include: BlackRock, T. Rowe Price, USAA

    Portfolio rebalancing is automated, meaning you do not have to wait for quarterly reviews of your account. If an asset allocation is no longer within its targeted range, the digital wealth manager will automatically rebalance the portfolio for you. You may also adjust the portfolio if your situation changes – for example, your income increases and you would like to increase your monthly contribution.  However, you will be asked to retake the risk tolerance test before adjusting your portfolio.

    Competitor Comparison 

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    Rating

    8.75

    9.8

    9.5

    7.8

    Features
    • Automatic Rebalancing
    • Invest in ETFs only or ETFs and Mutual Fund Hybrid Portfolio
    • Access to Financial Consultants
    • Plenty of Educational Tools and Videos
    • Automatic Investing
    • Free Portfolio Rebalancing
    • Access to Financial Advisor
    • Tax Loss Harvesting
    • Tax loss harvesting
    • Direct indexing
    • Advanced indexing
    • Share sales
    • Automatic Investing
    • Free Rebalancing
    • Planner tool helps create and clarify financial goals
    • Tax Protection Premium Package Available
    Fees
    • Zero trade commissions
    • Annual advisory fee of 0.30%
    • No advisory fees for the first six months
    • $5,000 minimum initial account balance
    • Annual fee starts at 0.25% of account balance
    • No trade fees
    • Additional fees for access to financial advisors
    • 0 <$100,000
    • .25 >$100,000
    • No Monthly Account Fees
    • No Trade Fees
    • Average Fund Fee is 0.03% to 0.15%
    • Optional Tax Protection Package costs 0.02% of account value or $20 monthly (0.24% annually)
    Asset Allocation Invests in domestic and international stock and bond ETFs and Mutual Funds  Invests in U.S. and International stock and bond ETFs  Invests in U.S. and International stock and bond ETFs Invests in U.S. and International stock and bond ETFs

    Summary

    E-trade has joined the passive investment revolution, but it still clearly has the pulse of the active trading market with its hybrid robo-advisor option. Like Fidelity, E*Trade is offering a mutual fund option, but with an important distinction: it is the first robo-advisor to provide active funds. In your favor, mutual fund indexes have lower expenses than ETFs and can help improve returns.

    At the time of this writing, to anyone opening an account for $10,000 or more, the leading online trader was offering $600 plus 60 days of commission-free stock and options trades. This offer is clearly luring its active traders over to the robo-advisor model. For traders who are not properly diversified, it could be a good opportunity to re-allocate some funds into safer investments.

    Pros of E-Trade Adaptive Portfolio

    You may like E*Trade for the following reasons:

    • Competitive 0.30% for passive ETFs, even better for active mutual fund indexes
    • No advisory fee for the first six months
    • No trading commission
    • Automatic Rebalancing

    Cons of E-Trade Adaptive Portfolio

    The reasons below might be why you won’t like E*Trade.

    • Need $5,000 to open a managed account
    • No access to Human Advisors with account balance below $25,000
    • Fund fees are more expensive for the hybrid mutual fund index/ETF portfolios
    • No daily tax-loss harvesting

    Is E-Trade Adaptive Portfolio Right for You?

    E*Trade asks the investor to do a little more work upfront but in exchange provides more portfolio options including a portfolio of passive ETFs, or the more diversified blend of both passive and active funds. Not all passive ETF investors will have a risk tolerance for E*Trade’s active mutual fund indexes. Financial advice is not available until you have a balance of $25,000 but you do have access to financial consultants by phone. Play with the different scenario building tools to find the portfolio that suits your risk profile. For millennials and other investors who can take on more risk, E*Trade provides the opportunity to increase returns, with a low-cost robo-advisor.

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