It's tax season, and if you're like me, you're gathering your forms together for your tax accountant. And, I bet some of you are saying, "Doh! I wish I'd done X to be more tax efficient." Of course, in order for you to do that for next year, you either have to read up on the typically convoluted tax laws, or get a financial advisor or tax accountant. But maybe another way to make sure you're being prudent with your finances is to start using FutureAdvisor.
Seattle-based FutureAdvisor, which launches officially Tuesday, is essentially an online financial advisor that consolidates your investment holdings, savings, 401Ks or other investments and helps you make decisions about them. Helping you to make tax-efficient decisions is just one of the many recommendations the service offers.
The company was founded by Bo Lu and Jon Xu in 2010 and is a Y Combinator-funded company. While the start-up won't reveal how much money it's raised, it has Sequoia Capital behind it, as well as angel investors Keith Rabois, a prolific angel investor and Chief Operating Officer at Square and Jeremy Stoppelman, founder and CEO of Yelp.
"We were founded to deliver high-quality unbiased financial advice," said Lu, in an interview with me, who explained that the idea came to him and co-founder Jon Xu when they were trying to find financial advisors themselves, and realized they needed about $500,000 in the bank to hire the best ones or get stuck with those trying to sell life insurance. "The product we're launching offers individualized and actionable recommendations across your portfolio so you can be more tax efficient, or to help you minimize mutual fund fees or to help you better diversify."
The kind of advice FutureAdvisor offers is to pretty simple. Firstly, they don't offer stock picks. So for all of you salivating over Apple's shares, don't think FutureAdvisor would be touting any individual stock. The team at FutureAdvisor leans toward index investing, meaning they prefer to buy baskets of stocks and as such that's the type of recommendations their system will recommend. "We're built on the ethos of low-fee index investing," said Lu. "Our system will look for the lowest-fee or commission-free funds that your brokerage is offering." Once that is found, FutureAdvisor will recommend that a person consider moving their holdings to that particular fund.
The system will also check out the track records of various funds with broad diversification and those with solid track records that are broadly diversified will likely be recommended. Additionally, FutureAdvisor uses surveys to help them understand a person's risk-reward profile. It also takes into account age and time horizon. The more information a person can provide, the better a portfolio recommendation FutureAdvisor hopes to be able to provide.
As a way to easily onboard users, FutureAdvisor has partnered with Yodlee, which is also used by Mint, to access a person's account information across thousands of brokerages, such as Fidelity, Ameritrade, and E-Ttrade, to name a few. So all a person has to do is to sign up to FutureAdvisor and provide his or her account number. FutureAdvisor will then populate the user information into their system.
The service is also free, mainly because the system is not using financial advisors to make recommendations. Rather it's an algorithm that is combing through a person's holdings and comparing those holdings with other options that have a combination of diversification, low or no fees and tax efficiency. In time, Lu and his partner hope users will start paying for premium services, such as a $49 a year or $195 a year subscription service to get access to financial advisors. Those who pay for subscriptions may want to ask specific questions about their finances that aren't automated into the system, such as "How can I be more tax efficient if I have to make alimony payments?"
At the moment, FutureAdvisor has two financial advisors on staff.
So why would someone want to start using FutureAdvisor and upload their financial information? Besides the fact that a person only has to provide his/her account and the information is transferred over, FutureAdvisor can save them abotu $800 a year in fees, said Lu.
In fact, Americans spent about $17 billion in 2011 just for financial advise, said Lu. Much of those fees come from fees to financial advisors or mutual funds that often tout their own products.
"We think just like Orbitz and Kayak changed the way that travel is sold, that financial advice can also be managed this way," said Lu. "We see a seachange coming to the financial industry… Financial advistors are going to be intermediated."