Fidelity targets Millenials with robo-advisory service

Fidelity is joining a growing number of robo-advisors, and as is usually the case, when Fidelity steps in, the are very aggressive offering low fees and low account minimums. The company expects to charge annual fees of either 0.35% or 0.39% depending on whether the accounts is an IRA or a regular, retail account for its Fidelity Go service.

Robo-advisors provide portfolio management services for those who don’t want to manage their money themselves. These advisors, as the name implies, are typically fully automated investment service providers. They invest for you, they automatically rebalance your investments for you, based upon your desired asset allocation, and many offer tax-harvesting services as well; selling investments which have resulting in a loss to offset gains.

Fidelity started offering its services to select employees, essentially beta testers, back in November.  This week, the company began reaching out to individual investors who already have accounts with Fidelity. The company’s goal is to sign up 500 existing customers, aged 25 to 45 to test their services before they launch the product nationwide.

The robo-adviser, pioneered by Betterment and Wealthfront is dominated by Vanguard and Schwab. Vanguard has $31 billion in assets under its Personal Advisor Services, while Schwab has more than $5 billion in its Intelligent Portfolios service

Fidelity’s automated investment program, which requires a minimum investment of just $5,000, will charge an annual fee of up to 0.35% in tax-deferred individual retirement accounts and up to 0.39% in retail accounts. That’s the total amount that investors will spend inclusive of any fees charged by the mutual funds selected by the robo-advisers. The mutual funds will mainly be index funds from Fidelity’s Spartan index mutual funds. These fees charged by these funds are among the lowest priced anywhere. The service will also us ETFs from BlackRock.

Thanks to the WSJ, here’s the price structure from other providers:

  • Vanguard Group, whose Personal Advisor Services is a hybrid of online and human assistance, charges an advisory fee of 0.3%, plus underlying fund fees. The company says the fund expenses average 0.20%, for an all-in cost of about 0.5%. At $50,000, its account minimum is substantially higher than Fidelity’s.
  • Charles Schwab levies no advisory fees for its Intelligent Portfolios. But the company keeps a portion of the assets—typically from 6% to 10% or more—in Charles Schwab Bank deposit accounts and makes money on the difference between the interest paid to investors and what it earns on those dollars. The company also earns revenue on Schwab ETFs when used in the portfolios. Expenses on the underlying funds in the portfolios range from 0.04% to 0.48%, Schwab says.
  • Wealthfront charges an advisory fee of 0.25%, but the service is free for the first $10,000. Expenses on the underlying ETFs average about 0.12%, the company says.
  • Betterment charges an advisory fee of 0.15% to 0.35%, depending on the amount invested. It uses ETFs with fees ranging from 0.09% to 0.17%.

Fidelity Go service is not available to the public yet, but it will be available start in the second half of the year.


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