For the first time, an online adviser is expanding its footprint into fee-based portfolio management, heating up a battle among startup companies looking to corner the market on automated investment advice for the masses.
SigFig Wealth Management, a registered investment adviser that makes recommendations for how users can manage $100 billion in investments, Monday announced a new platform that will automatically implement their recommendations, co-founder and chief executive officer Michael Sha said.
SigFig's free service monitors the portfolios of roughly 1 million users, according to Mr. Sha, indicating specifically how much fees, fund choice and underperformance erode returns or are inconsistent with users' risk tolerance levels.
Now the independent adviser has inked deals with major custodians including Schwab Advisor Services, TD Ameritrade Institutional and Fidelity Institutional Wealth Services. That allows SigFig to automatically implement recommended changes to the portfolios of the 70% of its clients who currently have accounts with those custodians without having them move their money, according to Mr. Sha. The remaining 30% of users will be able to set up new accounts, a spokeswoman for the firm said.
While SigFig has a number of competitors in the fee-based online managed account space, including Betterment, Jemstep Inc., and Wealthfront Inc., SigFig will be undercutting almost all of them on price. SigFig's fee-based management costs $10 per month for all accounts over $10,000, and it will be free for those with less than that amount. (Many online advisers charge a percentage of assets under management.)
Grant Easterbrook, senior research associate at consulting firm Corporate Insight, said the product's reliance on a risk-tolerance questionnaire and lack of sophisticated financial planning capabilities may limit its appeal among the high-net-worth clients that traditional advisers target.
“They have more sophisticated needs than this,” Mr. Easterbrook said. “They want reassurance when they have so much money on the line.”
But SigFig explicitly targets the middle market. It has built a user base by signing partnership deals with popular websites such as CNN, Yahoo and USA Today and making apps for Apple, Android and Windows mobile phones. SigFig aspires to track more than $1 trillion in assets by 2015.
Mr. Sha, a veteran of Amazon.com Inc., said he learned about the pitfalls of investments by day-trading from his Harvard University dorm room during the late 1990s dot-com bubble. He said the service would be a benefit to many of its existing users, who need investment advice but do not have enough money to be considered a prospect for wealth advisers.
“If you were to create the investment advice industry from scratch, it would look nothing like this,” said Mr. Sha, who decried the industry's use of fees as poorly disclosed to investors.
SigFig's premium service will make changes for its users automatically, investing in low-fee exchange-traded funds. Those investment decisions will be based on asset allocation decisions shaped both by the user and by models developed by the firm's investment team.
According to the firm's data, traditional investors pay an average of $7,300 in management fees annually, take on incomprehensible levels of risk and are poorly diversified.