Why Are Online Financial Advisor Sites Replicating the Same Middleman Model?

It’s very profitable! Let’s understand the who, what and how of these new services.

online financial advisor

Save big when you invest your retirement savings directly

There are 37 new online financial advisor sites. How do these new services compare to direct investing when they don’t have a proven track record of results or experience during various market cycles?


Many new online financial advice sites generally do one of two things. They either link to financial advisors who then charge very high assets under management fees, or they tell you how to allocate your savings to the least expensive, and often poorly performing, funds in your 401(k) plan. See the Impact of these poorly performing funds.


Computer-based online models are typically at the heart of the new online advice and investment services. These algorithms are most often based on Modern Portfolio Theory*, which let down retirement savers in 2008 when over $2 trillion were lost in Americans’ retirement nest egg accounts. Further, these models often channel assets into indexed Target Date Funds**, which carry potential risks that aren’t fully disclosed.


New online advice services generally charge a fee to place your retirement savings in several  Exchange-Traded Index Fund (ETF), based on Modern Portfolio Theory’s asset allocation theory. They charge a middleman fee of 0.25%, much lower than a traditional financial advisor, but still they still are an unproven model. They also rebalance regularly. There is considerable controversy on the value of regular rebalancing.  Rebalancing may be best left to the Portfolio Manager and the stated objectives of the mutual fund, in lieu of a computer model.

On top of the advisory fee, you pay a portfolio manger fee to manage the fund, in this case an ETF. Like a traditional financial advisor, you are still paying twice. That’s how these services make money. A low 0.25% fee on hundreds of millions of dollars adds up fast. It works with volume sales, combined with passively managed (low cost) mutual funds.

Bottom Line

You are better off directly investing your retirement savings with an active portfolio manager or a passive fund that files performance with the SEC. Choose one with decades of experience through all market cycles and a proven track record with 5, 10 or 20 years outperforming the benchmark by at least 1%, after fees. Click here to see how direct investing with a NOMN portfolio manager works.

There are no guarantees with any approach and you are always ultimately responsible for your investments. However, it is less risky to invest directly with a proven, active portfolio manager who offers human interaction with weighing the pros/cons and complexities of investment nuances. A computer model can’t quite anticipate what an experienced portfolio manager has learned through tough economic periods. A middleman is a middleman, whether online or in person.

*Source: 2008 Flaws in Modern Portfolio Theory, Hayworth Richard, September 2012
** Source: https://www.sec.gov/spotlight/investor-advisory-committee-2012/iac-target-date-fund-recommendation.pdf

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