TD Ameritrade, rated No. 1 online stock broker in 2017, has its own registered investment management firm, TD Ameritrade Investment Management LLC.
Eager to join the robo arena, TD Ameritrade created a new digital-only solution, Essential Portfolios, which launched in November 2016. TD Ameritrade is one of a growing number of online brokers offering robo-advisor services.
A notable feature of Essential Portfolios is that it has entrusted fund recommendation and oversight to a third party – Morningstar Investment Management, which is a unit of Morningstar Inc., an established and respected researcher and rater of funds.
Once you have decided to sign up with TD Ameritrade’s Essential Portfolios, like all robo-advisors, you will take a risk-assessment questionnaire to assess your overall financial situation and risk tolerance. You will then be assigned a risk level and portfolio based on that information.
When we completed our questionnaire, we were placed into an aggressive portfolio comprising five Exchange Traded Funds (ETFs) from iShares and Vanguard. It is clear TD Ameritrade is on par with its peers because both of these firms’ funds are considered industry standard in the robo arena, thanks to their long-term investment philosophy and low costs.
In addition to holding iShares and Vanguard funds, 1% of our assets were invested in cash. Several of TD Ameritrade’s competitors use a larger percentage of cash, including Charles Schwab’s Intelligent Portfolios, which maintains a minimum of 6% in cash in each portfolio. The merit of holding large swaths of cash in an investment portfolio is the subject of debate among academics due to the potentially low returns over the long haul.
Investors need a minimum investment of $5,000 to get started with Essential Portfolios. There are two factors to consider when calculating the full fee for having your money managed. First, you will pay an annual advisory fee of 0.30% to TD Ameritrade Essential Portfolios. Second, you will pay an expense ratio for each ETF holding, which is customary among all robo-advisors.
Essential Portfolios’ ETF expense ratios are low, ranging from 0.06% to 0.08%. The ETFs you are placed in will depend on the portfolio you were allocated during registration.
|View All Fees||TD Ameritrade Essential Portfolios||Betterment||Wealthfront||Fidelity Go||Schwab Intelligent Portfolios|
|Total AuM||$16.6 Billion||$11.8 Billion||$10 Billion||NA||$30.6 Billion|
|Annual Fee - $5,000||0.30%||0.25%||0.25%||0.35%||0.00%|
|Annual Fee - $25,000||0.30%||0.25%||0.25%||0.35%||0.00%|
|Annual Fee - $50,000||0.30%||0.25%||0.25%||0.35%||0.00%|
|Annual Fee - $100,000||0.30%||0.25%||0.25%||0.35%||0.00%|
|Annual Fee - $1,000,000||0.30%||0.25%||0.25%||0.35%||0.00%|
*Total AuM is reported by TD Ameritrade Investment Management Services, which includes both Essential Portfolios and Selective Portfolios.
As far as goal trackers go, the Essential Portfolios experience is one of the best in the industry.
Signing up for Essential Portfolios was seamless. It was also easy to connect our personal TD Ameritrade brokerage account with my Essential Portfolios account and toggle back and forth between the two accounts.
However, I was surprised we could not use an existing bank account from our existing TD Ameritrade account to complete the initial deposit. Instead, we had to set up a new ACH link, complete the required verification of deposits after two business days, then proceed with the initial deposit. Nearly every other robo-advisor makes this step far more simple.
Funding aside, one of the website’s most attractive features was its presentation of my account’s holdings. You can break down holdings by assets classes, geography, sectors, and types. For instance, in just a second, I could see that 54.79% of my holdings were in domestic equities. Likewise, from a geographic standpoint, I realized 68.45% of my holdings were in the Americas, 17.16% in Greater Asia and 14.40% in Greater Europe. A nice touch.
This section further breaks down the assets, and shows how much is in certain sectors such as financials, information technology, consumer discretionary, industrials, and healthcare. I could even further assess my holdings and discover which were categorized as classic growth, high yield, etc.
Another helpful feature for investors is a section named “portfolio breakdown definitions,” which spells out all of the definitions for investors. Both tools are extras TD Ameritrade provides to help educate investors so they can understand the investment process.
Essential Portfolios also differentiates itself with its ongoing market updates and personalized monthly portfolio video updates.
Speaking of extras, Essential Portfolios also differentiates itself with its ongoing market updates and personalized monthly portfolio video updates. Both are found on the “Portfolio Commentary” page.
When it comes to ongoing market reports, Schwab Intelligent Portfolios is the undisputed leader; however, even it does not offer a monthly video that incorporates your actual portfolio metrics.
Stepping away from holdings, TD Ameritrade also has a useful tool with its goal tracker, which tells you if you’re on target for your goal. Other firms have goal trackers but TD Ameritrade’s Essential Portfolio’s Goal Tracker shines because it is clean, easy to read, and features right on your account dashboard.
When you view your goal details, you are shown a unique performance chart that provides a crystal-clear perspective on how your portfolio is performing relative to statistical expectations. Clear recommendations are then made to improve portfolio performance and increase the probability of reaching your goal. For example, one of ours was to, “raise your monthly investment from $350 to $787.”
As far as goal trackers go, the Essential Portfolios experience is one of the best in the industry.
Needless to say, the website experience is very strong and it is clear TD Ameritrade took its time crafting the client experience. The only advantage industry leaders Wealthfront and Betterment have over Essential Portfolios is the ability to import third-party investment account data to calculate retirement readiness more accurately.
The last point to note here is that the majority of the web experience is available on the TD Ameritrade Portfolios mobile app for iOS and Android.
The mobile app launched in April 2017, and while it trails industry leaders such as Wealthfront and Betterment, it is a winner in my books, especially compared to other online broker robos such as Fidelity Go, E*TRADE, and Merrill Edge Guided Investing. All three competitors provide no standalone app; instead, they only allow you to view your portfolio overview via the main brokerage app.
Essential Portfolios added tax-loss harvesting in October 2017, which is a feature only half of the robo-advisors in our review provide. Tax-loss harvesting means a losing position is sold to “harvest” the tax deduction to offset capital gains for gains and dividends, reducing the investors’ tax bill. Tax-loss harvesting is currently also available at Betterment, Wealthfront, and Schwab Intelligent Portfolios.
Tax-loss harvesting aside, fractional shares are not supported. Fractional shares are helpful for investors who may want to make monthly deposits of less than say $50. If the money is insufficient to purchase full shares, then it sits in cash until there is enough money to purchase full shares. While very minor over time, it is something to keep in mind for small accounts.
Lastly, TD Ameritrade was one of the first online brokers to launch full electronic external account transfers. Traditionally, external account transfers can be time consuming as they require printing forms, calling customer service, etc. With TD Ameritrade, including Essential Portfolios, transferring assets from accounts in your name from other large firms is painless (the system doesn’t work with small niche names with outdated infrastructure).
It is clear TD Ameritrade has invested the time and capital necessary to make Essential Portfolios great.
TD Ameritade Essential Portfolios brings Morningstar expertise, low costs, and compelling tools together to help investors better understand their portfolios and track their long-term goals.
It is clear TD Ameritrade has invested the time and capital necessary to make Essential Portfolios great. For current TD Ameritrade customers, it’s an easy win. Similarly, for investors who have not yet found a home for their long-term investment portfolio, Essential Portfolios is a viable contender competing with the best in the industry.
To find the best robo-advisors we assessed, rated, and ranked eight different firms. Instead of relying on website information and marketing materials as most editorials do, we opened and funded an account with each robo-advisor to acquire a true client experience.
Reink Media Group (RMG) remains committed to providing transparent and unbiased reviews of various financial services and segments, including Robo-Investment Advisors (“RIA’s”). Although exempt from registration as an investment advisor under the Investment Advisors Act of 1940, 15 U.S.C. §80b-1, et seq, RMG works tirelessly to ensure compliance with all applicable Security and Exchange Commission rules and regulations for entities which perform reviews and/or receive payments for advertising and solicitation. Please be advised that for purposes to this Review, RMG utilized a live account with actual funding which was later closed once the Review’s test period was complete.
Reviewed by Blain Reinkensmeyer Blain heads research at StockBrokers.com and has been involved in the markets since placing his first stock trade back in 2001. He developed StockBrokers.com's annual review format seven years ago, a format broker executives consider the most thorough in the industry. Blain currently maintains funded accounts with more than a dozen different US-regulated online brokers and has executed thousands of trades throughout his career. He enjoys sharing his experiences through his personal blog, StockTrader.com.
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*TD Ameritrade Essential Portfolios was not included in the latest annual review, as a result this data may not be up to date.