September 2016 – Review of Asset Allocation Tools

Investors often hear about the importance of diversification, but might not understand how to properly achieve it. Self-directed investors, without a financial advisor to lean on, often turn to their brokerage website for guidance, and even seasoned investors can benefit from a tool that analyzes their portfolio’s asset allocation and compares it to an established target. In this month’s e-Monitor Report, we take a look at the asset allocation tools brokerage firms provide to help clients achieve diversification and create a theoretically well-rounded portfolio. These tools, which offer model portfolios and compare clients’ current holdings to the targeted allocation, serve a vital role in helping clients meet their investing goals. We last visited this topic in August 2014.

Only seven out of the 18 firms in our coverage group (38%) offer such a tool and, despite the important role these tools serve for investors, many firms have not updated their offerings since our last report. Overall, the tools show a lot of uniformity in their functionality. All of the tools covered provide clients with a recommended allocation and show areas where the clients’ current portfolio is not in line with the target model. The main differences between the tools lie in the added features offered, such as the ability to trade within the platform and sync outside accounts, both which are only offered by Vanguard and Fidelity. Firms can also look to improve their tools’ recommendations, as many fail to offer concrete, actionable advice.