Liftoff: Is This New Robo-Advisor Right for You?
Liftoff is the latest entrant in the robo-advisor area. It is the baby of Barry Ritholtz and Josh Brown, partners at Ritholtz Wealth Management. The two highly-regarded wealth managers wanted to give lower-net-worth clients an opportunity to benefit from their financial advisory expertise at an affordable fee. The Liftoff platform is based on the Upside technology. Upside, recently acquired by Envestnet, creates a back-end digital program that may be licensed by financial advisors.
Before deciding whether Liftoff is worth it, let's take a look at the platform. Investors need a minimum of $5,000 and can expect to pay 0.40% of assets under management (AUM) for the service. Brown and Ritholtz are well respected and their reputations give this robo a degree of gravitas. According to the Liftoff website: We are held to a fiduciary standard as a registered investment advisory firm (RIA), and we work on a fee-only, client-first basis. (For more, see: More Firms Set to Join Robo-Advisor Ranks in 2016.)
The sign up works the same way as most robo-advisors. You answer a few questions, designed to get at your risk tolerance and investing goals and then are presented with a diversified portfolio of low fee, exchange-traded funds (ETFs) that fit in with your risk tolerance.Conservative Investor Allocation
In order to get any information, you must set up an account. Although the set-up is easy enough with just a few questions and an email confirmation, it was frustrating to be deprived of exploratory information without creating an account. (For more, see: Robo-Advisors and a Human Touch: Better Together?)
To look under the hood of Liftoff to decide whether it's worth it or not, I set up an account. After answering the list of questions as if I were a conservative, risk averse investor, the program assigned me a risk score of 1, the lowest level. Next, the interface asked why I was investing: 1) To invest; 2) For retirement; or 3) A specific financial goal. Next came three money questions: 1) What is my initial investment amount; 2) How much extra will I invest monthly; and 3) When will I need the funds. The third question was optional. After that came a 10-year chart illustrating a range of how much my funds might grow at the projected 8.6% rate of return. The recommended conservative portfolio would be invested in this allocation:
Liftoff Conservative Portfolio Asset Allocation
Exchange Traded Fund
Vanguard Dividend Appreciation
iShares S&P Midcap 400
Vanguard FTSE Developed Markets
Vanguard Emerging Markets
Vanguard Total Bond Market
SPDR Dow Jones REIT ETFIs Liftoff Worth It?
Liftoff has a lot in common with other robo-advisors who ask some risk questions and then populate a portfolio with exchange-traded funds in line with the client's reported risk tolerance. There are a few negatives to the Liftoff platform. The conservative demo profile came out with an aggregate asset allocation of 50% stock assets and 30% bonds with 10% real estate. This asset allocation may tilt to a less conservative portfolio, although in defense of Liftoff many of the robo-advisors lean to a more aggressive bent in their asset allocations. (For more, see: Betterment vs. Wealthfront: A Fee & Fund Comparison.)
A 60% allocation to stocks (some advisors include REITs in the stock asset class) is rather aggressive for an extremely risk-averse investor. The projected 8.6% future rate of return is excessive. Between 1928 and 2015 stocks returned 9.5% and bonds averaged 4.96%. Many experts are projecting lower returns going forward. So, even if we averaged a 60% stock and 40% bond portfolio using historical averages, the projected return would be closer to 7.7% (5.7% + 2%) not 8.6%.
Both Wealthfront with a 0.25% AUM fee and Betterment with fees between 0.35% and 0.15% beat Liftoff with lower fees and lower minimum investment values. Additionally, those robos don't require account set up to obtain basic information about their platforms.The Bottom Line
If you want to invest with Ritholtz and Brown at a lower fee than charged at Ritholtz Wealth Management, then you may want to investigate Liftoff. Otherwise, there are lower fee alternatives with comparable offerings. (For more, see: A Guide to Choosing the Best Robo Advisor.)
Barbara A. Friedberg owns shares in VWO.