ETRADE is officially entering the robo space and we have a clear understanding of the broker’s approach. Goal setting is in focus with a $10,000 minimum, .3% management fee, max 1% cash allocation, and a unique twist of two portfolio compositions: 100% ETFs or a hybrid of ETFs and actively managed mutual funds. Returns data suggests low cost indexing is hands down the way to go, but in an attempt to differentiate itself ETRADE is pushing its hybrid option as the default selection. Whether prospect clients will go down this path is to be seen. According to ETRADE, there are no hidden kickbacks or foul play here, just the broker taking a unique spin on the traditional low cost, passive indexing approach. Considering ETRADE’s late arrival to the party, differentiation is a must.

ETRADE (read our review) is entering the robo-advisor space with its own solution called ETRADE Adaptive Portfolio – A Managed Portfolio that Rebalances as Necessary.

While the service will appear extensively similar to the standard robo-advisors available today, ETRADE is focusing on life goals (not just retirement) and is differentiating itself by offering two portfolio options for clients to choose from: hybrid and ETF only.

ETF only is exactly what is found at Wealthfront, Betterment, etc today whereas hybrid is a combination of passive index ETFs and actively managed mutual funds.

The argument for allocating a pre-specified portion of a portfolio to actively managed strategies, higher performance can be achieved that offsets the greater risk and costs realized by that portion of the portfolio.

I won’t get into the active vs passive debate here (spoiler: I am a big proponent of passive over active), but there is little evidence that supports claims of higher returns with actively managed funds. In fact, especially after fees, the active management is a losing proposition. For a breakdown, see this 2015 Vanguard white paper.

To help push its unique twist, ETRADE is displaying hybrid portfolio options first during the registration and funding process. Selection can be changed later. See here and here.

While ETRADE itself does not charge a higher management fee for using a hybrid portfolio setup, actively managed funds themselves come with higher expense ratios and thus higher costs for the portfolio overall.

Speaking of management fees, Adaptive Portfolios will come with a net flat .3% annual management fee plus any annual expense ratios charged by the funds themselves. The pricing disclosures are confusing to say the least, but it seems the end result is in fact 0.3%.

adaptive portfolio costs

Minimum deposit is $10,000.

Several other miscellaneous notes:

  • ETRADE doesn’t offer its own funds, so there is no conflict of interest with fund selection. According to ETRADE, they are going to remain agnostic with provider selection.
  • Adaptive Portfolio will utilize a specially trained customer support team to provide client support. The end goal is a seamless customer service experience. All support reps are series 7 and 66 certified.
  • The new Adaptive Portfolios will be seen alongside other accounts throughout the site and accessible via the regular client area. This means no special login page to bookmark for ETRADE clients with current accounts.

With the launch of Adaptive Portfolios, ETRADE is providing current customers a way to allocate a portion of their current portfolio, or the whole portfolio, to a low cost, goals oriented solution.

This makes sense for certain customers, and is a natural step for ETRADE to take to balance out its offering.

That said, whether ETRADE can succeed in accumulating assets outside of its own internal umbrella remains to be seen. Looking at the offering as a whole, unless the hybrid option proves to be the difference maker, ETRADE may have a tough sell trying to convince new customers to select its offering over other already established robos such as Wealthfront or the discounted formal advisor service Vanguard Personal Advisor Services.

For more, see the press release then view the launch video and screenshots below.

06/08/16 UPDATES – This article was updated to note: 1. The default hybrid selection toggle is not the final selection during setup, the funding page includes a breakdown of both portfolio options (screenshot added), 2. The customer support team reps all have series 7 and series 66 certifications.

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