During the Super Bowl I watched E*Trade Financial’s commercials deriding the 2% (of assets under management) fees they claim are charged by many financial advisors and portraying their advice services as the white knight answer to this problem.
Are these commercials informative?
I say yes in that they focus on the issue of fees for financial advice. Fees for investment vehicles such as mutual funds as well as for financial advice have come under scrutiny of late which I think is a good thing. Any advisor who is charging 2% is charging too much. That said I am not aware of any advisors who actually charge this much, but I’ll give E*Trade the benefit of the doubt on this.
Are these commercials misleading?
Again the answer, in my opinion, is yes. There are many questions that I have such as:
- How many advisors actually charge 2%?
- What types of services are we talking about? Investment advice only? Wealth management?
- What is included in the 2%? I’m assuming this is only the actual fee charged by the advisor and not the expense ratios of mutual funds or other investment vehicles.
In any event I feel that E*Trade was conveniently vague here.
What does E*Trade’s Financial Advice Cost?
Here’s what I found looking around their site:
Managed Investment Portfolios $25,000 minimum
Managed Investment Portfolios are actively managed discretionary portfolios of leading mutual funds or ETFs, rigorously researched, selected, and optimized by a team of experienced investment professionals. We’ll help you choose the portfolio that’s right for you.
To me this sounded a lot like what the brokerage firms call a wrap account, which in fact I found that this was when I read the fine print on the site. Some portfolio manager (who E*Trade describes as “E*TRADE Capital Management, LLC, a registered investment advisor, manages the Managed Investment Portfolios program. Our investment committee and a team of analysts develop investment portfolio models and evaluate individual investments in accordance with various macroeconomic factors, fund and security data, and proprietary and third-party institutional research.”) manages your assets based upon several model portfolios. So far this sounds like you are getting a “prefab” portfolio managed by some unknown person(s).
For these services you will be charged a percentage of the assets that you have invested in the program:
|Investment assets||Percentage of assets fee|
|$100,000 or less||0.90%|
|$100,001 – $250,000||0.80%|
|$250,001 – $500,000||0.75%|
|$500,001 – $1 million||0.70%|
|Over $1 million||0.65%|
These fees seem reasonable, but not cheap by any stretch of the imagination. Remember there is no financial planning advice, just strictly portfolio management.
Note these fees do not include the expense ratios of the underlying investments. The program description mentions that either an all mutual fund or all ETF portfolio will be used, it doesn’t sound like there is any mixing and matching of the two. If I were a betting man I’d bet that all of the underlying investments are on some sort of E*Trade platform for which they pay for inclusion.
Unified Managed Accounts -$250,000 minimum
Complex financial needs require flexible investment solutions. Unified Managed Accounts offers broad diversification across several asset classes, tax management features, and access to experienced money managers—all in one professionally managed account.
This option is actually managed by E*Trade advisors and an outside investment firm called Lockwood Advisors. Investors in this service do receive more custom services such as tax-efficient investments and a portfolio that can include a combination of investment vehicles such as mutual funds, ETFs, and individual stocks.
The fees are of course a bit higher for these services, and frankly seem a bit on the high side to me:
|Investment assets||Percentage of assets fee|
|First $1 million ($250,000 minimum)||1.25%|
|Over $1 million up to $2 million||1.15%|
|Over $2 million to $5 million||1.10%|
|Over $5 million||0.95%|
Questions to ask if considering E*Trade’s advice services
- Who exactly will be managing my money?
- Who is my point of contact?
- How much experience do these people have?
- How much turnover has there been among the investment management and the Financial Consultant group?
- Does E*Trade Financial receive compensation from the mutual fund and ETF providers they recommend?
- What types of real (not back-tested) results has E*Trade achieved?
Note these are the types of questions that you should ask of any money manager. And make no mistake you are hiring a money manager and not a financial advisor when you go with one of these services from E*Trade. Note that mutual fund, ETF, and separate account managers are also considered money managers.
This is differs from a financial advisor who is also a financial planner and/or a wealth manager in addition to being an investment advisor.
Am I knocking E*Trade’s advice solutions, absolutely not. What I am knocking is the lack of transparency and clarity in their commercials. I would say to anyone considering these services that the ambiguity of these commercials is disturbing and this should be taken into consideration when evaluating their offerings.
Please feel free to contact me with your financial planning and investing questions.
For you do-it-yourselfers, check out Morningstar.com to analyze your investments and to get a free trial for their premium services. Please check out our Resources page for links to some additional tools and services that might be beneficial to you.