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Advisors Beware: Silicon Valley’s Jemstep Targets Underserved Mass Affluent

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In a move designed to replace personal advice with online technology, Silicon Valley-based investment advisor Jemstep is going after the woefully underserved mass-affluent market with its newly launched Portfolio Manager service for retail investors.

Jemstep Portfolio Manager, now available online for free in a beta version, lets users plug in their retirement goals and portfolio information, then link their brokerage accounts via data aggregation software. The online tool offers a free retirement income calculator as well as recommended asset-allocation pie charts.

While many software packages now offer aggregation of retirement accounts, what’s new with Jemstep is the one item that it offers for a price: buy/sell trade ideas for mutual funds and exchange-traded funds (ETFs) that the startup’s patented algorithms recommend for an individual’s specific 401(k), IRA and brokerage accounts.

Jemstep President Simon Roy“When you look at financial advisors and brokerage firms, there’s tremendous focus on the high-net-worth market,” said Jemstep President Simon Roy (right) during an interview and website demo on Monday. “But the minimum assets required have left a huge cadre of mass affluents without coverage. That’s who we’re looking to serve. We’re delivering an institutional level of wealth management but doing it online to make it available at a more reasonable cost.”

It’s All in the Algorithms

During the demo, Roy plugged in variables for a typical mass-affluent investor with an annual salary of $50,000 and investable assets of $200,000, and Jemstep Portfolio Manager recommended (among dozens of possible trades) a Buy on SPDR S&P Emerging Markets (GMM) and Vanguard FTSE All-World ex-US ETF (VEU) but a Sell on Calamos Value Fund (CVAAX) and Prudential Short-Term Corporate Bond Fund (PIFCX). The Jemstep algorithms consider more than 50 attributes that cover risk, return, risk-return tradeoff, fees, tax efficiency and income.

Jemstep’s trade recommendations include fund quotes, a rationale on why the trade is recommended and a link to the customer’s accounts at brokerages including Charles Schwab, Fidelity, Merrill Lynch, Morgan Stanley, TD Ameritrade, T. Rowe Price, Vanguard and Wells Fargo so the customer can make the trade.

Or, the customer can print Jemstep’s recommendation and email it to a spouse, advisor or friend for review. Roy said Jemstep can be leveraged by advisors for their clients, but noted that the online startup offers trade advice at one-tenth the cost that an advisor would charge an individual client.

“We’re getting calls from advisors asking how they can use Jemstep,” he said.

Fees as Low as $17.99 per Month

Jemstep bases its flat monthly fees on the value of an account owner’s retirement assets. Fees on accounts with a balance of $25,000 to $150,000 are $17.99 per month and graduate up to $69.99 per month for a balance of $600,000 and above. Accounts under $25,000 are free.

About 13% of Jemstep’s customers have started to make the startup’s recommended trades since it launched in late January, Roy said. As of mid-March, more than $1 billion has been tracked and managed on Jemstep, and more than 10,000 people have used the service.

Roy is a former McKinsey consultant and Wharton M.B.A. who served Wall Street firms in New York before he moved to Silicon Valley and became involved as an investor and chief executives in several firms, including the startup Accrue Software. (Another Wharton affiliate, Prof. Kent Smetters, sold his Veritat Advisors mass-affluent online platform to LPL Financial last year. LPL has branded the platform as NestWise and has formed a new subsidiary around it to reach an estimated 32 million underserved middle-class households.)

Algorithms are the key to Jemstep’s strategy, Roy concluded.

“No human is able to provide the personalized advice that the Jemstep patented ranking engine can provide,” he said. “We look at 20,000 mutual funds and ETFs, and we don’t have personal biases.”

Jemstep is an online investment advisor founded in 2008, with 30 employees and based in Los Altos, Calif., according to the CrunchBase database of technology companies. CrunchBase estimates Jemstep’s funding at $10.5 million, with $4.5 million of that total as startup capital from angel investors. The remaining $6 million came from a Series A financing with a group of private investors, according to the FinSMEs news blog about company financing.


Read Michael Kitces’ series on Financial Planning and Commoditization at AdvisorOne.