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personal finance

Sites to manage personal wealth

AFP/Getty Images /File 2014

NEW YORK —Like many other financial activities, wealth management has become increasingly automated, although it is inherently more complicated than a “bot” that searches the Internet or simply stores portfolios.

That could explain why online investing has not caught on in a big way. But Web-based sites and applications that allow you to manage a portfolio, get help with financial planning, and more are growing in popularity. Each year, software-based companies up the ante by offering more low-cost ways to build a disciplined portfolio.

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For those who do most of their activity online or through smartphone or tablet applications, there is obvious appeal in access and ease of use. If you are halfway between an adventurous do-it-yourself investor and someone who needs in-depth guidance, these sites are worth a look:

Betterment.com

For those who want to get up and running quickly but do not have sophisticated needs, Betterment is a good entry-level service. With the theme “Investing savvy without the hassle,” the site can place investors in “goal-based” exchange-traded fund (ETF) portfolios focused on saving for retirement, college, or buying a home.

The cost advantage of ETFs is the linchpin of Betterment and similar online investing services. They can cost as little as a fifth of what actively managed mutual funds cost and cover nearly every asset class. Individual ETF fees are assessed through a reduction in dividends.

Betterment charges three annual management fees: 0.35 percent for less than $10,000 in assets, 0.25 percent for $10,000 to $100,000, and 0.15 percent for $100,000 or more. It has no transaction or rebalancing fees or minimum balance, but deposits must be at least $10.

On the portfolio side, investors can choose from among 12 global asset classes represented in portfolios that hew to Modern Portfolio Theory, the classic but flawed model for diversification. The models are guided by a “team of experts.”

A Betterment blog provides useful advice on measuring returns, avoiding behavioral errors, and general investment advice, but this site seems best suited to those who are just starting and don’t want to think about portfolio allocation or financial planning too deeply.

Marketriders.com

The next level up is MarketRiders, which also offers online portfolio creation and management. An inexpensive subscription service, it offers predesigned portfolios or customized “you can build it” portfolios that let investors select from about 1,000 mutual funds in 10 asset classes. As with Betterment, there is a 30-day free trial.

Although the pitch is a little hyperbolic — “learn how wealthy families and institutions like Yale, Stanford and Vanguard outperform Wall Street” — investors can keep their own brokerage accounts. The site has no investment minimum, but customer service representatives recommend that investors with portfolios under $25,000 select their own mutual fund company, target date, or broker.

Unlike some other services, MarketRiders charges separately for rebalancing, an essential piece of online portfolio management because it will help you stay on target with your preferred portfolio returns, reduce market risk, and improve performance. No customized advice from a fiduciary adviser is available. It is a do-it-yourself management tool, but the site does not have custody of your funds.

MarketRiders charges a flat $14.95 monthly fee for up to 10 portfolios and from $160 to $480 for rebalancing. There are also individual management fees for each ETF, which range from $45 to $1,800 annually, averaging 0.17 percent per fund. The more investors have on deposit, the less they will pay in total charges.

While the site provides mostly automated advice, that could be worthwhile for a low-to mid-level investor. It is too expensive for investors who want only a preselected portfolio.

Personalcapital.com

This site, featuring direct personal advice, is an interactive suite of tools tailored to more sophisticated investors. It includes features like a mutual fund cost analyzer and a big-picture net-worth tracking tool.

If you enjoy monitoring and tweaking more than your investment profile, Personal Capital takes you more in the direction of financial planning, tax management, and customized portfolio creation. Want to reduce your tax bill? The service provides “tax optimization.” Checking and brokerage accounts can also be viewed.

The investment minimum is $100,000, which includes a complimentary analysis with an adviser, but the online “dashboard” is free.

Although the explanation of the investment strategy is not as well defined — the service calls it “smart indexing” through “tactical weighting” of ETFs and “even-weighted sectors” — it relies on an “investment committee” to do this. The service also says it can outperform the Standard & Poor’s 500 index by 1.5 percent annually. Because the service is relatively new, this claim is based mostly on a model, not actual performance.

Personal Capital advisers are salaried fiduciaries, such as certified financial planners, which is a step in the right direction. They are not allowed to have a direct incentive to sell you anything and must put your financial interests first.

Pricing for Personal Capital, though, puts it nearly on par with other private money managers. It charges 0.95 percent for the first $250,000 and scales down to 0.75 percent for $4 million and more. This hybrid service might work best for someone who wants access to an adviser but does not have extensive financial planning needs or the need for face-to-face meetings.

Wealthfront.com

With a Silicon Valley attitude, Wealthfront hits investors hard with its pitch on its home page. It is one of the largest online investment companies, with half a billion dollars under management and plenty of endorsements from tech types. The investment minimum is $5,000.

With Burton Malkiel, Princeton University emeritus professor and investing guru, as its chief investment officer, Wealthfront has many bona fides. It wants to do for prudent online portfolio management what Google did for Internet searches.

Focusing on low-cost funds, the service offers Vanguard ETFs for its portfolios, covering eight asset classes. After asking an investor six questions about risk preference, Wealthfront will create a portfolio based on the investor’s “risk score.”

It will also perform useful services like tax-loss harvesting to reduce an investor’s tax bill.

Wealthfront’s fee structure is the simplest: 0.25 percent annually on balances over $10,000. No transaction fees are charged, but investors are charged for individual ETF expenses, averaging 0.17 percent annually. No advisers are available. Wealthfront is not as sophisticated as Personal Capital but may be useful for middle-of-the-road investors who don’t need custom counseling.

Although investors can receive some hand-holding through these services, do not mistake them for full-service wealth managers or financial planners. For the most part, investors cannot do complex tax, insurance, cash-flow analysis, or estate planning with them. And how well the programs gauge risk tolerance is an open question.

“I don’t like the way they market themselves as ‘advisers’ when their services are more narrow,” said Michael Kitces, Pinnacle Advisory Group’s research director. “The biggest challenge for these services will be the next bear market. Will their investors bail without anyone to talk to, blowing up their business model?”

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