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Asset Builder: Is This Robo-Advisor Right for You?

Author: Ethan Davis

Is robo-advisor Asset Builder worth it? The short answer is, 'it depends.' If you're a do-it-yourselfer passive investor, you probably don't need Asset Builder. As long as you can assess your risk tolerance, choose a diversified basket of low fee index funds and rebalance your portfolio every year, you're probably better off on your own. Additionally, if you don't have the $50,000 minimum investment amount then you aren't eligible for Asset Builder.

For investors with at least $50,000 looking for investment guidance using index funds and willing to pay a fee, Asset Builder may be for you. Asset Builder offers the well-regarded DFA mutual funds. These funds are advisor only which means you can only invest in these funds through a financial advisor, not on your own. (For more, see: Is an Online Financial Advisor Right for You?)

What Asset Builder Offers

After a short risk tolerance and time-horizon quiz, you're directed to one of the 12 pre-designed investment portfolios. Asset Builder constructs their portfolios using well regarded Modern Portfolio Theory. The underlying premises are: Markets are efficient, asset investments are fairly priced, diversification reduces risk and asset allocation is balanced in numerous asset classes. Asset Builder claims to improve on the simple passive indexing approach with a concept called smart indexing. This approach, popularized by researchers Fama and French, states that small cap and value-priced equites outperform the broader diversified indexes over the long term. (For more, see: Robo-Advisors and a Human Touch: Better Together?)

Asset Builder also claims to improve upon traditional diversification with smart allocation. This mean that variance optimization of the holdings attempts to obtain the greatest return for the least risk while considering any combination of asset classes. For example, Asset Builder Portfolio 8 looks like this:

Fixed Income

  • 15% - DFA Dimensional 1 Year Fixed Income (DFIHX)
  • 15% - DFA Intermediate Government Fixed Income (DFIGX)
  • 10% - DFA 2 Year Global Fixed Income (DFGFX)
  • 10% - DFA 5 Year Global Fixed-Income I (DFGBX)

U.S. Large

  • 4% - DFA U.S. Large Cap Value Portfolio (DFLVX)
  • 4% - DFA U.S. Large Cap Growth (DUSLX)

U.S. Small

  • 7% - DFA U.S. Small Cap Value (DFSVX)
  • 3% - DFA U.S. Small Cap Growth (DSCGX)
  • 4% - DFA U.S. Micro Cap (DFSCX)

REIT

  • 8% - DFA Real Estate (DFREX)

International

  • 5% - DFA International Small Cap Value (DISVX)
  • 4% - DFA International Small Cap Growth (DISMX)

Emerging Markets

  • 5% - DFA Emerging Markets Value (DFEVX)
  • 6% - DFA Emerging Markets Small Cap (DEMSX)

You'll notice that the fixed-income portion of the portfolio includes global bonds, an asset class lacking in other robo-advisors. In addition to traditional stocks and bonds, a real estate class is also included. Notice that as mentioned previously, the portfolio is strongly weighted towards small-cap value and growth companies. (For more, see: Should You Trust a Robot to Manage Your Money?)

Fees

Asset Builder's fees are lower than the 1% and higher fees of traditional financial advisors, yet greater than some of its robo-advisor peers. There are two components to their fee structure. The first is the investment management charge which is calculated based upon assets under management (AUM). The second are the fees of the underlying mutual funds. The fund management fees are included whenever you invest in a mutual fund and cannot be avoided whether investing on your own, with a financial advisor or a robo-advisor.

Asset Builder's management fees vary based upon the size of your portfolio. Assets between $50,0000 and $249,000 are levied a 0.45% management fee. Those with investments worth between $250,000 and $599,999 pay a 0.43% management fee. As the AUM falls, so does the management fee with a 0.30% management fee for portfolios of $1 million to $3.9 million. Portfolios greater than $20 million pay only 0.20% AUM. The second fee component is the underlying DFA fund fees. Depending upon your specific portfolio, these fees range from 0.25% to 0.48%. Asset builder has a tool which helps the investor calculate in advance their expected fees. (For more, see: Wealthfront Versus Betterment.)

The Bottom Line

For DIY investors, Asset Builder isn't necessary. If you're an investor who might ordinarily pay for a traditional financial advisor, then Asset Builder may serve you just fine, with lower fees. But with Asset Builder you won't receive the traditional personal touch of a financial advisor. For those investors looking for a simple robo-advisor that uses a diverse portfolio of index funds, there are lower cost alternatives than Asset Builder. (For more, see: A Guide to Choosing the Best Robo-Advisor.)

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