E-Trade Adaptive Portfolio Review

Advisors, Investing

Respected online broker E-Trade has launched its answer to the growing robo-advisor market: E-Trade Adaptive Portfolio.

Announced in June 2016, the broker’s new robo arm sets itself apart by offering customers the opportunity to include actively managed mutual funds in their portfolios, a departure from the standard robo-advisor portfolio, which generally relies on a straight slate of index-tracking exchange-traded funds. E-Trade’s service also allows investors access to a dedicated team of registered financial consultants.



ETRADE Adaptive Portfolios

Arielle O’Shea
June 10, 2016
4.0


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Quick Facts

  • Management fee: 0.30%
  • Account minimum: $10,000; $5,000 for IRAs

E-Trade Adaptive Portfolio is best for:

  • Current E-Trade customers
  • Mutual fund investors
  • Hands-off investors
  • Automatic rebalancing

E-Trade Adaptive Portfolio at a glance

Overall

Account management fee0.30%
Investment expense ratiosHybrid mutual fund/ETF portfolio average ranges from 0.20% to 0.45%; all-ETF portfolio averages 0.20%. Star rating based on ETF portfolio.
PortfolioClients can choose from a hybrid actively managed mutual fund and ETF portfolio or an all-ETF portfolio.
Account minimum$10,000; $5,000 for IRA accounts
Account fees (annual, transfer, closing)$60 transfer out fee
Accounts supported• Individual and joint non-retirement accounts
• Roth, traditional and rollover IRAs
• Custodial accounts
Tax strategyNot offered
Automatic rebalancingFree on all accounts
Customer supportRegistered Financial Consultants available for Adaptive Portfolio clients by phone Monday - Friday, 8:30 a.m. to 8:30 p.m. Eastern; live chat support 24/7.

Where E-Trade Adaptive Portfolio shines

Investor risk profile: Each customer — or potential customer, because the profile questionnaire is available without a login — is taken through a series of nine questions designed to assess risk tolerance. The questionnaire is one of the most thorough we’ve seen. E-Trade poses queries from multiple angles to try to figure out how the investor will tolerate various levels of risk and market fluctuations.

Users can click at the bottom of each question to read why E-Trade asks it and how it will help the company build a suitable portfolio.

E-Trade questionnaire

Investments: Once the questionnaire is complete, the service then assigns the investor one of six risk profiles. Without creating an account, you can loosely see how your portfolio would be allocated. Risk Profile 5, for example, is the second-most aggressive and allocates 80% to equities, specifically large-cap blend funds, small-cap blend funds, international funds and emerging market funds. The rest of the portfolio is allocated to fixed-income funds. All portfolios maintain a 1% cash allocation.

E-trade portfolio

E-Trade strays from the robo-advisor norm to offer investors a choice of two types of portfolios at all levels of risk tolerance — a hybrid, which uses both ETFs and actively managed mutual funds, and an all-ETF portfolio.

An investor in the all-ETF portfolio also will pay an average fund expense ratio of 0.20%; the mutual fund-ETF hybrid portfolio ranges from 0.20% to 0.45%. The company says the hybrid option uses mutual funds in areas where active management can add value, noting that “the ability to seek out opportunities for higher returns or reduced risk may help more than offset the added expense” of that management.

After an account has the minimum required balance, investors can see the specific funds used, along with the expense ratios that each charges. E-Trade declined to share a list of funds used or how many asset classes are covered, but none of the funds is proprietary. As at other robo-advisors, the ETFs at E-Trade come from iShares, Vanguard and State Street; mutual funds come from a longer list of companies, including BlackRock, T. Rowe Price and USAA.

The various risk profiles reveal exposure to large-cap funds, small-cap funds, international and emerging markets equity funds, defensive equity, real estate investment trusts, Treasury inflation protected securities, intermediate- and short-term bond funds, and opportunistic, high-yield, emerging market and international bond funds.

Customer support: E-Trade’s service doesn’t come with dedicated advisors like similar robo-advisor services offered by Vanguard Personal Advisor Services or Personal Capital, but Adaptive Portfolio investors do have access to a team of registered financial consultants. E-Trade has long excelled in customer support, as we noted in our full review of the company’s brokerage services, with impressive educational resources.

That commitment to investor education shows here as well. As users look at the various risk-level portfolios, they can toggle between all-ETF or hybrid, with thorough explanations of the benefits of each. Each portfolio component — say, an emerging markets equity fund — includes information about the kind of investment and its relevance to the portfolio. Investors can also look at past and projected performances of the portfolio with which they’ve been matched.

Automatic rebalancing: The service automatically rebalances all accounts based on drift, or when the portfolio shifts out of its target allocation. E-Trade’s method compares client portfolio allocations against target-allocation drift parameters each day and submits trade orders as necessary to bring the allocation back in line. This daily check-in is noteworthy because some robo-advisors may rebalance only once a quarter.

Integration with E-Trade brokerage accounts: The $10,000 minimum applies specifically to an E-Trade Adaptive Portfolio account — other accounts held at the brokerage won’t count toward it. But existing E-Trade clients can easily convert their brokerage accounts to managed accounts by simply enrolling in the program. You don’t need to sell any securities before doing so — the robo-advisor will do that for you by liquidating holdings that aren’t in your recommended portfolio, commission-free. (You may, however, have capital gains or losses in the process.)

Management fee: The advisory fee for E-Trade’s service is 0.30%. As with other robo-advisors, that fee is charged in addition to the fund expense ratios, making the total cost about 0.50% for the ETF portfolio and 0.50% to 0.75% for the hybrid.

It’s a management fee that falls about even with or slightly higher than most other robo-advisors, but E-Trade is running a promotion that waives management fees completely through the rest of 2016. That makes it easy to give the service a try, especially if you’re already an E-Trade customer and signing up doesn’t involve transferring accounts from another brokerage.

Where E-Trade Adaptive Portfolio falls short

Account minimum: A $10,000 account minimum is high in today’s robo-advisor landscape, which has moved toward lower minimums in the last year and a half. E-Trade does soften the blow for IRA customers, who are subject to a lower minimum of $5,000.

Vanguard and Schwab have proven that they can easily shift client assets in-house; both were able to attract plenty of existing customers to their new robo-advisory services. E-Trade likely will see a similar shift, but its high minimum will make it harder to attract new assets. The company says $10,000 is needed to create a diversified portfolio, likely in part due to its use of managed mutual funds.

Tax strategy: The company doesn’t offer tax-loss harvesting, a service that can significantly reduce capital gains taxes: In taxable accounts, the practice involves selling losing investments to offset the gains from winners. It’s widely available among robo-advisors, often for free, though some advisors do impose an additional balance requirement before the service takes effect.

Is E-Trade Adaptive Portfolio right for you?

If you’re after a robo-advisor portfolio with actively managed mutual funds that may be able to beat the market — with “may” being the operative word — E-Trade is a strong option. It’s also worthy of a look from current E-Trade customers who are itching to test out a robo-advisor. Such investors can easily shift some funds into the Adaptive Portfolio branch, gaining the ability to be hands-off for a portion of their portfolio in exchange for a relatively low management fee — and better still, no fee through the end of 2016 with the company’s launch promotion.

Otherwise, you may be able to get more for less from a competitor, particularly if you hold a high balance in a taxable account. Wealthfront charges 0.25%, manages the first $10,000 for free and offers even better tax efficiency — through direct indexing — on balances above $100,000.

Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter: @arioshea.

Updated Feb. 1, 2017