Mutual fund company T. Rowe Price just launched its own digital advisory platform, but unlike other robos it will include only actively managed funds.
T. Rowe Price ActivePlus Portfolios is a discretionary investment management program available initially for only IRA investors, with a minimum $50,000 in investable assets. After answering a “short questionnaire to assess risk tolerance, time horizon and investment goals,” they will receive a model portfolio recommendation consisting of eight to 13 T. Rowe Price actively managed funds chosen from a roster of 14. They include the firm's Mid-Cap Growth Fund and High Yield Fund, which are both currently closed to new investors but are accessible through ActivePlus Portfolios.
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Investors will pay only the expense ratio of the underlying funds in the portfolio, for a weighted average of between 61 and 82 basis points – no advisory fee, according to Scott David, head of individual and retirement plan services.
In addition to asset allocation, the service will provide rebalancing as needed and annual checkups of portfolios. Investors will have phone access to “licensed client managers” (registered reps) who are dedicated to the new robo offering.
This is the firm’s “first step” in offering discretionary managed accounts, said David. “We’re acting as the advisor … we do all the fund selection and rebalancing … and there’s no advisory fee.”
Asked whether ActivePlus Portfolios puts T. Rowe Price in competition with advisors who use its funds, David said, “Advisors are doing more complicated financial planning. We believe there is a place for this type of service, a more complete financial service.” He added that the firm is “committed to financial advisors and distributing products to advisors.”
Asked whether T. Rowe Price ActivePlus Portfolios is a response to declining cash flows into actively managed funds, David said its purpose is not to “stem flows from actively managed funds but to meet a very specific customer need.” More specifically, he said the new offering is "geared for customers who are generally rolling over assets from 401(k) plans … They are asking for advice.”
According to its latest earnings report, net cash flows after client transfers fell $2.8 billion for the year and $5 billion in the fourth quarter. In the earnings release, CEO William Stromberg said the outflows were “largely as a result of clients reallocating from active U.S. equity strategies to passive products … Over the long term though, we expect well-executed active management to play an important ongoing role for investors.” He highlighted the ActivePlus Portfolios service, which was in beta testing at the time.
In a recent analysis, Morningstar noted that T. Rowe Price is "well-positioned" to serve investors who are not only seeking passive investments but also "active asset managers that have greater scale, established brands, solid long-term performance, and reasonable fees." It also noted that "the baby boomer rollover phenomenon opens the door for the firm to get far more aggressive, with a cadre of solid-performing actively managed funds in its stable."
David said the firm is currently working on expanding the reach of ActivePlus Portfolios to accounts other than tax-deferred, which is the focus of the current launch. A future offering could be focused on taxable accounts or specific lower balance accounts, said David, adding that the timing will “depend on market reaction to this product.”
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