TD Ameritrade’s robo advisor offering boasts almost $20 billion in assets under management. Essential Portfolios, the firm’s newest and most basic portfolio of only a handful of ETFs, has existed almost 18 months, and is nearing $2 billion in assets. Selective Portfolios, which blends ETFs, mutual funds and a human element to robo investing, commands even more assets. TDA’s Keith Denerstein, director of guidance product management, shares an inside look into the firm’s robo experience.
ETF.com: How has TD Ameritrade’s efforts with robo advisory services been going?
Keith Denerstein: We were one of the innovators in digital investing, particularly as it relates to managed portfolios. Our Selective Portfolios have been in the market for over a decade now. The introduction of robo advisors as a platform over the past few years prompted us to expand our lineup and add a new product called Essential Portfolios.
Essential is designed for somebody entering the world of digital managed accounts for the first time, or someone who’s interested in having a portfolio that covers a broad range of the essentials. That's where the name comes from. It’s broad coverage for a very low management fee. We've seen some impressive growth.
ETF.com: Essential Portfolios is almost surprisingly simple. They typically own only five ETFs, so you’re offering access to five asset classes. That’s a lot fewer than other robo portfolios. Why?
Denerstein: The goal was to be simple and easy to understand. We recently expanded to six different asset classes within our product—six ETFs. We wanted to cater to the essentials, to cover the basics for our clients.
The six ETFs we've chosen allow us to do that provide the returns we’re looking for. They also offer low expense ratios. We're constantly assessing that performance and determining whether we need to expand our lineup of constituents within our portfolio. Thus far, it’s been sufficient.
Now, for clients who feel they need something more tailored or customized, we offer Selective Portfolios, which offers a number of different strategies and caters to an additional range of asset classes.
ETF.com: How’s the ETF selection process, especially since you don’t have proprietary funds?
Denerstein: We constantly evaluate available ETFs, and we periodically speak with Morningstar Investment Management, which makes recommendations for our portfolios. As far as offering proprietary products, that's something TD Ameritrade has never done. We want to be agnostic as we're creating these portfolios, and not be concerned with a proprietary product and the need to place that within our portfolios.
ETF.com: What ETFs are in the Essential portfolio today?
Denerstein: Depending on your risk level, time horizon and the goal you're looking to attain, we would adjust the allocation of these ETFs:
- iShares Core S&P Total U.S. Stock Market (ITOT)
- Vanguard FTSE Developed Markets ETF (VEA)
- Vanguard Emerging Markets ETF (VWO)
- VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC)
- Vanguard Total International Bond ETF (BNDX)
- iShares Core U.S. Agg Bond ETF (AGG)
ETF.com: Many say that, as investors age, they need more financial guidance, because their needs grow more complex. That means robos are ideal for younger investors. Yet, your biggest demographic in Essential Portfolio is boomers. Is that surprising?
Denerstein: The stereotypes about people of a certain age being the ideal investors for a robo advisor platform are misconstrued. We look at our products in terms of client need. So, regardless of the client's age, they’ll still be investing for a particular goal.
Also keep in mind that, in most cases, Essential Portfolios is only a portion of a client's overall investments. For the remainder of their portfolio, they may choose to interact in different ways, whether it be through one of our branches, one of our financial consultants, or one of the other services or products that we offer.
ETF.com: Do you find that people come in on the Essential Portfolio, and then at some point “graduate” into the Selective Portfolio as their assets grow and they look for more advice?
Denerstein: We’re seeing that. It's a bit surprising, because the Essential product has only been on the market for about a year and a half. But we’re seeing that sort of graduating up through what we call our “advice spectrum.”
They enter TD Ameritrade as self-directed investors, looking to enter the world of professionally managed portfolios, and doing it through Essential Portfolios. That provides the basics and the essentials. As their needs become more advanced, they look for more of a human element, and step into something like a Selective Portfolios.
ETF.com: What’s working well for TD’s robo efforts, and what’s been the most challenging?
Denerstein: To be honest, what's going well is also a challenge that we’re continually trying to crack: bridging the gap between digital and human advice—deciding what the right mix is; determining how and when to identify when a client prefers a digital interaction versus a human element; and deciding how far we can go and test the waters with some new channels, pushing digital boundaries.
We’ve been exploring “conversational commerce” to a great degree. We’ve brought education into Essential Portfolios through Twitter. We have account information that's available through Facebook Messenger. We've recently added account opening through Apple Business Chat. It's been a success thus far, but it's also a challenge in that we're constantly looking to push boundaries and define new ways of interacting with our clients.
There's a common refrain out there—“high tech/high touch”—that a lot of providers refer to. We've amended that to “high tech/right touch.” That’s the challenge—finding the right amount of human interaction that each customer would prefer, and then delivering in the format and through the channels they prefer to use.
As we look to the future, we see the experience of financial service delivery changing to the point where it'll seem antiquated to log in to a system. Your financial life will be available to you wherever you want it, however you want it and whenever you want it. We're looking to be a part of that ecosystem.
ETF.com: Any interesting trends in terms of ETF investing in robo platforms?
Denerstein: If you look at how the ETF holdings of the Essential Portfolios client base compares to our overall client base, what you’ll find is that, both for Essential and for Selective Portfolios, those clients hold a higher proportion of their assets in ETFs. And that's in addition to their Essential and Selective Portfolios accounts.
That shows that a lot of clients who are entering our products are people who are already predisposed to passive investing, and looking for broad market exposure. A lot of clients are starting out creating their own portfolios using ETFs, then they move on to something like Essential Portfolios, which adds a layer of management, and then they move into something like Selective Portfolios, which begins to bring that human element into the conversation.
Contact Cinthia Murphy at [email protected]