Interactive Advisors review 2023
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Interactive Advisors: Best for
- Portfolio selection
- Low costs
- ESG investing
Interactive Advisors offers investing services for both do-it-for-me and do-it-yourself investors using one of the widest selections of investing options in the robo-advisor world. Even better, its funds remain mostly low-cost, and include socially responsible funds as well as so-called “smart beta” funds that are supposed to provide better risk-adjusted returns.
Interactive Advisors has upped its game, with the introduction of tax-loss harvesting on custom-built portfolios, though it’s missing other features of top robo-advisors such as a strong cash management account and useful planning tools. In total, Interactive Advisors comes in even stronger than in prior years, and it’s an even more attractive option for beginning and advanced investors.
Since Interactive Advisors doesn’t offer access to dedicated human advisors, you might want to check out Betterment or Personal Capital, if that feature is a “must” for you. If you want even a wider selection of funds than what’s on offer here, then see Wealthfront for hundreds of funds.
Interactive Advisors: In the details
Pros: Where Interactive Advisors stands out
Do-it-yourself or do-it-for-me plans
Interactive Advisors gives you two major choices when it comes to your portfolio:
- Manage it yourself: You get to pick and choose your thematic funds from those on offer, managing the portfolio as you see fit.
- Create an asset allocation portfolio: You can have Interactive Advisors create and manage a diversified portfolio for you, what it calls an “asset allocation” portfolio. These portfolios have a stock component, a bond component and an inflation hedging component, and they’re based on your financial needs and risk tolerance.
You can select the type of plan that works better for you, and even if you select the do-it-for-me option, you can add any funds available in the program to get extra exposure to a certain area. So this setup gives you a huge level of flexibility to choose what you need.
Investors looking to create their own portfolio might also want to investigate M1 Finance or even Wealthfront, which offers an enormous selection of funds and the ability to pick what you want.
Low management fees
Depending on which plan option you select, you’ll get either a low management fee or no management fee at all. Either way, you’re getting a cost-competitive service.
If you opt to manage the portfolio yourself, the robo-advisor charges no management fees. Yes, you’ll still have to pay the expense ratios on any investment funds that you select, as you would with any robo-advisor, of course.
This structure means that for all-in costs (management fee plus fund fees) Interactive Advisors is about as competitive on price as any robo-advisor can be. That puts it in stiff competition with Schwab Intelligent Portfolios and SoFi Automated Investing for lowest-cost robo-advisor. That said, Interactive Advisors does not offer the same level of features as other robos (more below).
If you opt to have Interactive Advisors create an asset allocation portfolio for you, the annualized fee is 0.12 percent, or $12 for every $10,000 invested. For comparison, that’s about half the industry standard cost of 0.25 percent, though there are other lower-cost options out there.
And again, you’ll need to add in the costs of any funds that are purchased for your account, as you would elsewhere, but the fees are quite low for what you’re getting.
As alluded to above, Interactive Advisors offers some very low-cost themed funds, with expense ratios starting at just 0.08 percent, or a cost of about $8 a year for every $10,000 invested. That low fee gets you access to Interactive Advisor’s home-grown thematic funds, though you can add other funds at slightly higher costs. In fact, you can get more than half of the funds here at a fee of 0.11 percent or less – solid value. If you don’t mind paying a bit more, you’ll be able to snag about two-thirds of the funds here for an expense ratio of 0.20 percent or less.
Then if you’re looking for something a little more custom, you could go higher – the robo-advisor has capped its fund expenses at 0.75 percent –, but you absolutely needn’t do that to enjoy a highly individualized portfolio.
If you have Interactive Advisors build you a custom fund, it uses low-cost Vanguard and iShares funds, some of the industry’s leaders. You get access to more than two dozen quality funds as part of that program.
Factor in the total costs of your funds (plus the management fee, if any), and you’re looking at an all-in cost that could easily be half – maybe even a third – of what you’d pay elsewhere.
Interactive Advisors also excels at the range of funds on offer. If you’re building your own portfolio, you’ll get 75 themed investible funds fitting almost any major portfolio style, and as noted, most of them are low cost. Here are some of the highlights:
- A mix of passive and active strategies. Investors can select funds that are only trying to replicate an index or those that are trying to beat the market, or they can mix the two.
- Low-cost smart beta funds. Some of the robo’s in-house funds use a “smart beta” strategy that tries to achieve higher risk-adjusted returns than the market as a whole. That is, they’re looking for a higher return for every unit of risk assumed. These funds are available in several themes, including quality, growth and dividend stocks.
- Industry funds. Want exposure to a specific industry? You can get targeted exposure to the major economic sectors.
- Custom strategies. Funds with higher expense ratios offer more active or advanced strategies, allowing you further choices.
- Clear performance and risk management. Interactive Advisors provides details on how each fund has performed over the last five years and also offers a measure of the risk-adjusted return, showing you how much risk you’re taking for your return.
- ESG funds. A strong offering here, but more on this in the next section.
The wide selection is arguably this robo-advisor’s strongest feature. In fact, probably only Wealthfront offers a wider selection of funds at a robo-advisor.
Interactive Advisors’ investment selections are so strong that it’s worth calling out one of the strongest in its own section: ESG investing. ESG investing – which stands for environmental, social and governance – offers the promise of investing in companies that are making the world a better place, and it’s become tremendously popular in the last few years.
This robo-advisor’s offering might be at the top of the heap, however. You can find ESG funds with investing themes (growth, value, dividends, etc.), or you can fine-tune your selection to specific ESG themes. For example, if you want to emphasize companies that focus on ocean sustainability, you could buy the Ocean Life fund, which invests in firms that have waste management and recycling processes in place to avoid disasters impacting sea life.
Similarly, “mindful business models,” “land health,” “clean air,” “racial equality” and others promise stock exposure reflecting their namesakes. It’s worth noting that these portfolios are all among the cheapest on offer here, too.
Interactive Advisors recently began offering a more premium feature, tax-loss harvesting, but only on its asset allocation portfolios. Tax-loss harvesting helps you sell a losing investment for a tax break or to offset a taxable gain, and it’s a feature of many top robo-advisors. It’s much easier for a robo-advisor to undertake this strategy than a human advisor, given its complexity. Interactive Advisors runs tax-loss harvesting on its asset allocation portfolios quarterly.
If you’re running your plan using the thematic funds, you won’t have access to this feature.
Interactive Advisors also allows you to get going with fractional shares, meaning you can deposit, say, $125, and have it all invested in the portfolio of your choice. That’s useful for investors who just want to deposit small amounts to get started here, and it’s a feature that’s not always available at other robo-advisors, even some highly regarded ones.
Interactive Advisors also reinvests any dividends or other distributions back into the portfolio using fractional shares, so you won’t have cash sitting in your account unless you want it there.
Linked to Interactive Brokers account
If you have an Interactive Brokers account, you can quickly link your Interactive Advisors account with it. Why is this useful? Among other reasons, it can actually allow you to borrow on margin from your brokerage account to fund your robo-advisor account, if you decide that’s in your interest. Interactive Brokers typically offers the lowest margin rates among online brokers, and margin loans are uncommon among robo-advisors, though Wealthfront offers one, too.
This connection is also valuable because it allows you to use Interactive Brokers as your cash management account. The broker routinely offers the best interest rates on cash balances (though only when rates are at “normal” levels) and offers a debit card, allowing you to spend straight from the account. You’ll also be able to pay bills from the brokerage account. This level of functionality might not be quite up to the level of the top robos, but does offer useful services.
Cons: Where Interactive Advisors could improve
Limited account types
The available types of accounts at Interactive Advisors are relatively limited: individual and joint taxable accounts, as well as traditional IRAs, Roth IRAs and rollover IRAs. Also available are trust accounts and advisor accounts for advisors building out a portfolio for clients. Beyond that, you’re out of luck. No 529 accounts, no custodial accounts, no SEP IRAs or others.
So Interactive Advisors will work for many clients, but those requiring more specialized accounts will not find what they’re looking for here.
Unlike many top rivals, Interactive Advisors offers relatively few robust tools for planning your portfolio. Its major feature here is a goal tracker that lets you know the probability of reaching your stated goal, given the information you input. That’s helpful, for sure, but the lack of a wider selection makes Interactive Brokers a less robust planning option than it could be.
No cash management account
Unlike other major robo-advisors, Interactive Advisors does not offer a dedicated cash management account, let alone the range of features offered at the best of rivals. Yes, as noted above, you can link your IA account to Interactive Brokers, if you have one, and access that account’s features. But you won’t get the range of services that cash accounts at Wealthfront and Betterment offer, for example, full checking account privileges, fee-free ATMs and more.
That may not be a deal-breaker for you, but if you’re looking to consolidate accounts with one provider, for example, you’ll definitely need a more robust cash management account.
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