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TD Ameritrade's Personalized Portfolios: More Financial Guidance From a Historically Trader-Oriented Firm

TD Ameritrade launched a third tier in its client advice offering, giving investors access to a large array of model portfolios, advisors, and portfolio consultants to help construct investments that meet their goals. The new offering is called Personalized Portfolios and will give clients immediate access to a portfolio consultant who can construct highly tailored individual investments from more than 160 model portfolios. It appears that advisors can also substitute underlying investments or add individual securities to the portfolios to meet highly tailored client needs. This approaches the same type of investment construct as a separately managed account or SMA. At 90 bps, this puts TD Ameritrade in the same ballpark as Personal Capital, which has a US$100,000 advisory minimum and charges 89 bps for the first million invested. However, the TD Ameritrade offer includes portfolio design flexibility that enables investors to adjust the individual asset class weights. Betterment recently announced that this is available in the Betterment Portfolio Strategy, which also has a US$100,000 minimum.

I think TD Ameritrade Personalized Portfolios fills an advice gap for investors who have at least US$250,000 in assets and who want to be more involved in the investment process. This is the “in-between” wealth segment comprising investors that have significant savings and desire a more hands-on approach leveraging technology (e.g., the platform offers account aggregation), but do not want the full service of a registered investment advisor (RIA). I believe this positions the firm to capture a growing segment of wealth that will be increasingly concentrated among middle-aged investors who are tech-savvy, want to retain some control over the investment process, and feel comfortable with a financial advisor in the mix.

I don’t believe the new offering will conflict with TD Ameritrade’s AdvisorDirect RIA program. TD Ameritrade is one of the largest custodians for RIAs and offers them a comprehensive technology platform with practice management support. The AdvisorDirect program is targeting investors with US$500,000 or more in assets who want to receive on-demand advice from an RIA face-to-face. Many of the RIAs have specialized practices that address complex needs, such as small-business management and legacy planning. I would also suspect these RIAs generate most of their own client referrals.

It does not appear the new offering will be a robo-advisor in the traditional sense. Clients will have to either call TD Ameritrade to initiate the process or visit a TD Ameritrade branch. The branch advisors will quarterback the process while TD Ameritrade’s in-house team of portfolio consultants will handle portfolio construction and perform investment reviews as needed. The portfolio consultants are RIAs and have additional certificate designations such as Chartered Financial Analyst or Certified Financial Planner. The investment technology platform will provide a view of investors’ portfolio allocation and aggregate held-away accounts once they are signed up.

Personalized Portfolios is priced slightly lower, on average, than TD Ameritrade’s Selective Portfolios offering, which can range from about 75 bps to 125 bps depending on the final asset allocation. The lowest-tier investment product, Essential Portfolios, is priced as low as 30 bps. Both Selective Portfolios and Essential Portfolios are more aligned with a robo-type offering and have much lower investment minimums.

The new TD Ameritrade program differs slightly from Schwab Intelligent Advisory and Vanguard PAS in that there is no online portal to start the investment process. Clients have to reach out to a TD Ameritrade advisor in a branch or by phone. Strictly speaking, the TD Ameritrade offer starts with an advisor, gives the investor an online platform that includes account aggregation, and combines quarterly or semiannual reviews with a portfolio consultant. The investment allocation is rebalanced for drift and can be dynamically changed as the client’s needs and goals change. The solution will offer tax-efficient strategies; environmental, social, and governance investing; and goals-based investment solutions (e.g., income distribution, savings, travel, education).

Utilizing this three-tiered approach positions TD Ameritrade to cover the spectrum of needs for self-directed investors seeking different levels of guidance. It illustrates the continued evolution of the hybrid advisor/digital value proposition. For investors with more than US$500,000 who want an RIA, the AdvisorDirect program will give clients that access.