August 2014: Asset Allocation Tools

For the average investor, portfolio diversification is necessary to protect wealth from market swings. An essential part of portfolio management is allocating assets across investments that carry different levels of risk. To help clients handle the task, online brokerages provide asset allocation tools that help clients determine a target asset allocation model, and then compare their current holdings to the target. In this month’s e-Monitor Report, we take a look at the asset allocation tools, a topic we last covered in May 2013. For this report, we reviewed the following information for each firm:

  • Is the asset allocation tool easily accessible and promoted by the firm?
  • How extensive is the asset analysis provided and how is it determined?
  • Does the tool provide actionable results after completing its analysis?

Less than half of all firms in our coverage group (38%) provide clients with an asset allocation tool; each firm that offered an asset allocation tool the last time we reviewed this topic continues to do so, while three firms have since updated their tools. Though nearly 70% of the firms provide quicklinks to their tools on either the private site homepage or through a main menu sub-tab, in some cases it can be difficult for first-time investors to find the tools. One firm discussed offers one the best asset allocation tools, but provides few highly visible links in either the main navigation or in account-related sections.

All seven firms reviewed offer an asset allocation tool that analyzes existing brokerage accounts held at the firm, though few allow clients to manually add outside holdings. Currently, only two firms’ asset allocation tools incorporate account aggregation functionality, enabling clients to import external accounts details. The majority of tools (71%) evaluate holdings along with a client’s financial background, investing goals and risk profile through a questionnaire within the tool. Based on these results, firms suggest a target allocation model; most firms offer 5-6 total models.

Additional key findings include:

  • All tools offer a comparison between the client’s current holdings and their target allocation.
  • After analysis, four firms incorporate trading ability directly into their asset allocation tool.
  • The majority of firms (71%) offer sector analysis and a breakdown of allocation by total Dollar amount.