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Discount Brokerage Gets Into the Online Advice Game

Discount Brokerage Gets Into the Online Advice Game

Online broker TradeKing is launching an online advice platform called TradeKing Advisors. The platform will offer 10 different investment portfolios that will be managed by Ibbotson Associates, which is part of Morningstar’s investment management group.

“Something we’ve seen with the TradeKing Group self-directed account base, in particular, is they need help maintaining discipline and focus during market fluctuations,” said Richard Hagen, president and CEO of the new division and one of the founders of TradeKing. “When the markets are up and down, it’s hard to take your emotions out of investing when you’re self-directing your assets.”

Since the financial crisis, a number of companies, from Silicon Valley startups to established financial firms, have made big bets that individual users will increasingly get financial advice, portfolio strategies and clear performance metrics directly from online platforms. For some, this heralds the demise of the flesh-and-blood financial advisor, an unjustified fear we wrote about in June, 2012.

But Hagen does not see the so-called “robo-advisors,” such as Betterment, Wealthfront and Personal Capital, as his competition.

“When I think about who I’m going after as a target, it’s the Amerivests of the world,” which is TD Ameritrade’s packaged products platform, Hagen said.  

“Personal Capital, Wealthfront, Betterment—they’re affordable and they’re convenient. I still would put them kind of in the startup bucket. We’ve been servicing and running a brokerage firm for over eight years now.

“So we feel that we have an opportunity here to blend the technology approach that those startup guys are taking with more of the traditional online advisory approaches that Ameritrade and Vanguard have taken.”

Unlike the startup online advice platforms, TradeKing Advisors will not seek venture capital; the initiative will be self-funded.

This time next year, Hagen expects to roll out a platform for independent advisors, where TradeKing will custody the assets and add a customized technology layer on top for those who need it.

In the next few weeks, TradeKing will introduce the platform to its existing clients in the self-directed business, and then go live to the public in September. The firm has about $1 billion of its $4 billion total online brokerage assets sitting in cash. Hagen believes the new advice platform provides an opportunity for investors to put that money to work.

Investors will have 10 portfolios to choose from: five core portfolios covering various risk tolerances—conservative, moderate, moderate growth, aggressive and aggressive growth; and five momentum portfolios, which are actively managed. The platform charges 75 basis points on assets for the core portfolios with a minimum $10,000 investment, and 100 basis points for the momentum portfolios with a minimum $25,000 investment. Clients with over $250,000 will get a 25 basis point discount.

Hagen doesn’t believe platforms like TradeKing Advisors will replace the flesh-and-blood advisor.  

“But I do think we help to transform the space,” he said. “Somebody who has $10,000, $15,000, $20,000, $25,000—there are people that have that amount of money who need help and need advice.

“I do think if the traditional advisors are going to kick those people to curb, we’re here to help them.”

TAGS: Technology
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