financial advice

How you can benefit from the robo-advisor price war

July 9, 2015 By Liz Weston

Digital investment advisor Wealthfront snagged some headlines this week by dropping its minimum investment from $5,000 to $500 and calling out its competitors, particularly Betterment, for charging too much.

Which is kind of unfortunate, because it could leave people with the impression that Betterment is gouging people, when it (like most of the other robo-advisors) charges a fraction of what other advisors do, and Betterment has no minimum investment requirement.

Betterment’s charge ranges from .15% to .35%. On accounts under $10,000, Betterment charges a minimum monthly fee of $3 unless investors set up auto-deposit. Wealthfront manages the first $10,000 you invest for free, and charges one-quarter of one percent (.25%) above that.

By contrast, many human advisors charge 1%, or even more, to manage investments. If you’re not familiar with robo-advisors, you can read about them here and here.

Roboadvisors, in other words, are providing the cheap, conflict-free investment management that many people, especially those without big portfolios, have been waiting for. They’re even a possible lower-cost solution for those with big portfolios, now that Vanguard is offering a robo-advisor service paired with access to human financial advisors for a .3% annual charge.

If you’re intrigued by the idea of low-cost investment management, don’t let a little dust-up between competitors dissuade you. Check out your options and make up your own mind.

Your financial advisor: just a car salesman?

June 24, 2015 By Liz Weston

Retro Car Salesman C — Is this your financial advisor?

Wall Street is trying to prevent new rules that would require financial advisors to put your interests ahead of their own. Big brokerage firms have said they simply won’t serve the middle class if they can’t offer conflicted advice to them. Even more telling, MetLife Inc. CEO Steven Kandarin recently used a car salesman analogy that compares financial advisors to Ford and Chevy dealerships. Car salesman aren’t required to point out the better deal across the street, Kandarin asked, so why should financial advisors?

If you think the people advising you about your life savings should only be held to the standards of car salesmen, then do nothing. If you think they should be held to a higher standard, contact your Congressional representatives now:

http://www.usa.gov/Contact/US-Congress.shtml

Q&A: Financial advice and family

February 23, 2015 By Liz Weston

Dear Liz: Regarding the brother who has the financially irresponsible sisters, in general I agree with you about not pestering people who don’t want advice. But with family, it’s different. It is quite obvious to me and other readers that this man is concerned about his sisters coming to him later in life even if he didn’t state that in his letter. Telling them he won’t help when they come to him later in life (and they will) isn’t realistic. Maybe his continual pestering will finally make them come to their senses.

Answer: If you’ve had any problems in your own life — you needed to lose a few pounds, say, or stop smoking — think about how you would have received the “continual pestering” of a sibling on the issue.

Announcing to his sisters that he won’t help them financially before they ask may have an unintended side effect. If Mom has any money left when she dies, she may well allocate more of it to the sisters under the assumption that they’ll “need” it more because their mean old brother won’t help them.

Q&A: Unsolicited financial advice

February 9, 2015 By Liz Weston

Dear Liz: Your answer to the financially savvy brother whose advice is lost on his sisters was a bit harsh and shortsighted, so my guess is that you may not know anyone who has siblings who will continue for the next few decades to need help. It is hard to deny a sibling help while enjoying the benefits of prudent saving. It is harder to watch a sibling suffer, even if they should have avoided it. Seems to me completely different from giving advice about child rearing, which I might add is sometimes simply a statement of the obvious and one that should not even have to be mentioned, like don’t let your kids scream in public. This young man is almost certainly going to live with either guilt over not supporting his sisters when the mother dies or the frustration of having to give up hard-earned funds to avoid the guilt. You should have said he needs to write them a letter citing the guidance given and making it clear not to come to him when they get in trouble.

Answer: Thank you for providing a perfect example of why people find unsolicited advice so annoying.

The brother asked what he could say to his sisters to make them more financially responsible and to his mother to make her realize she should stop supporting them. The answer, of course, is nothing. There are no words that can make other people change unless they want to change. Since his family has made clear they’re not interested in his advice, continuing to offer it would be pointless.

The brother didn’t express concern that he would wind up supporting either his mother or his sisters. Even if he has such concerns, writing such a letter would be churlish, at best. If he’s asked for help, he can make his position known then.

Vanguard–the new robo-advisor?

December 12, 2014 By Liz Weston

I‘ve written a lot recently about digital advisors (including the piece I wrote for AARP, “Do-it-yourself made easy“). Wealthfront, one of the leaders in this space, now has $1.7 billion under management.

That seemed pretty impressive, until I saw a recent piece in InvestmentNews about Vanguard’s Personal Advisor Services. Although still basically a pilot program, the “human-augmented online advice platform,” as IN termed it, now has $4.2 billion under management.

For all that’s been written about the start-ups who use powerful algorithms to manage your portfolio while you sleep, it’s the the Vanguard offering that may be the game changer. Vanguard can offer everything the start-ups do–asset allocation, automatic rebalancing, ultra-low-cost investment choices–in the mantle of a trusted firm known for its integrity and thrift. The cost? Three-tenths of one percentage point, or $300 a year for a $100,000 portfolio. That’s only slightly more than the .25 percent the newcomers typically charge.

Advisors charging more certainly will argue they’re adding value. But if you’re paying much more for financial management, you might want to at least take a look at what you can get for less.

Friday’s need-to-know money news

December 5, 2014 By Liz Weston

Today’s top story: How to decide which debts you should pay off first. Also in the news: Financial topics you should never discuss at work, a key tax move you need to check before the end of the year, and how to offer financial advice to your adult kids.