Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > Portfolio Construction

Are Portfolios-to-Go Threatening Full-Service Brokerage and Advisory Firms?

Your article was successfully shared with the contacts you provided.


A growing number of consumers are opting for pre-packaged, low-cost portfolio managers like Market Riders and Folio Investing, according to a recent Bloomberg article. Portfolio-to-go companies can, at least nominally, provide many of the same services as full-service brokerage firms, since the companies are registered as either investment advisors or broker-dealers. And minimal overhead and services allow them to offer those services without the “high” price tag at brick-and-mortar institutions.

Portfolios-to-go have exploded in popularity recently, bringing in over $3 billion in assets over the past three years. In a world where post-recession fears have almost everyone bargain shopping, are online portfolios-to-go the Walmart of investing, set to dominate the market and phase out traditional wealth managers? Or are these pre-packaged portfolios an opportunity in disguise?

Defining a ‘Portfolio-to-Go’

Companies offering pre-packaged investment portfolios claim to help individual investors diversify their portfolios without incurring high costs. Certain sites even allow investments of amounts as low as $10,000 and allocation of investments among one or more registered investment advisors who have a $1 million+ account minimum. Many portfolio-to-go sites provide regular e-mails that recommend rebalancing strategies.

As an example, Market Riders claims to help individual investors “build and manage a globally diversified low-cost retirement portfolio.” Steve Wallman, the CEO of Folio Investing, argues that “Individual investors have started to realize they can actually do some things as self-directed investors reasonably well, if they’re given a platform that allows them to invest more intelligently.”

Folio Investing offers a wide range of over 100 ready-to-go investment portfolios of individual stocks, mutual funds and exchange trade funds (ETFs) that consumers can buy, sell and customize.

The Downsides of Portfolios-to-Go

There are some notable downsides to portfolios-to-go. First, the sites are popping up on a daily basis. Where most brick-and-mortar institutions


have a connection to the communities they serve, portfolios-to-go can be fly-by-night operations without the stability and accountability of traditional firms.

One big problem with portfolios-to-go is getting access to their performance histories. Many are too new to have a detailed performance history, while others are unable to track the actual performance of their customers’ accounts because they do not have custody over those assets.

Another obvious downside to portfolios-to-go is the loss of face time with clients. The ease of doing everything online strips consumers of face-to-face meetings with their dedicated wealth managers. Despite the higher costs associated with dedicated wealth managers, clients get more and better service from traditional firms. In fact, not all pre-packaged portfolio sites offer personalized investment advice.

Are Portfolios-to-Go a Threat to Full-Service Brokerage and Advisory Firms?

The short answer to the question is probably not.  Bloomberg quotes a spokesman for Morgan Stanley Smith Barney who puts the matter succinctly. “People don’t come to Morgan Stanley Smith Barney for discount trading,” he said. “They come for professional money management and to access some of the products and services that are only available through a global investment bank.”

Portfolios-to-go are a niche product and aren’t competition for full-service brokerage and advisory firms. In fact, they may offer you an opportunity to streamline your practice, and use your time more efficiently. Many advisors could benefit from reducing the size of their client list, but firing clients isn’t easy, especially when they have no one else to go to for financial advice.

The portfolios-to-go model may offer these clients an affordable—and probably adequate—substitute for in-person advice. The clients may benefit because fees for financial advice and products will be reduced. You might even benefit by paring down your client list, giving you more time to focus on growing your business and focusing on higher-net-worth clients who will benefit the most from your personalized advice.

To conclude, we believe that professional advisors will always be in demand. Although portfolios-to-go can benefit some lower-net-worth investors, the ‘cookie-cutter approach’ isn’t suitable for everyone. There’s also the possibility of scams, which will undoubtedly be exposed as the market for prepackaged investment advice continues to expand.


For additional coverage of this issue and similar ones, we invite you to sign up with AdvisorOne’s partner, AdvisorFX, for a free trial.

See also The Law Professor's blog at AdvisorFYI.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.