With all of the discount online brokerages and so-called “robo-advisors” out there—online advice platforms trying to replace flesh-and-blood advisors, to greater or lesser degrees—you’d think it would be difficult for a new player to make an impact.
But Rich Hagen isn’t a new player. His firm TradeKing built a name for itself in the online discount brokerage world over the last eight years, focusing on active stock and option traders. Before that, in the late 1990s, Hagen helped build online brokerage Suretrade out of Quick & Reilly. In 2001, he moved to FOLIOfn, where he worked under former SEC Commissioner Steven Wallman, building out a platform that allows RIAs and money managers to manage models that can be distributed to investors. H&R Block then tapped Hagen to inject new online strategies into their largely offline business.
So the guy has experience. Hagen’s newest challenge is to build out his online advice platform, TradeKing Advisors, and, he says, eventually a custodian offering for RIAs.
Hagen does not see the robos, such as Betterment, Wealthfront and Personal Capital, as his competition. “When I think about who I’m going after as a target, it’s the Amerivests of the world,” referring to TD Ameritrade’s packaged products platform, Hagen says.
Grant Easterbrook, an analyst with Corporate Insight, says one of TradeKing’s competitive advantages is that it already has a captive audience of retail investors to tap. Rolling out the platform to these clients first, it will go live to the public in September. The idea? Put the versatility, ease-of-use and transparency of the online advice platforms into the hands of an actual advisor.
Investors will have 10 portfolios to choose from: five core portfolios covering risk tolerances from conservative to aggressive growth, and five actively-managed momentum portfolios. The portfolios are run by Ibbotson Associates, which is part of Morningstar’s investment management group. The platform charges 75 basis points on assets for the core portfolios with a minimum $10,000 investment, and 100 basis points for the momentum portfolios with a minimum $25,000 investment. Clients with over $250,000 will get a 25 basis point discount.
“If you think about the key tenets that make a good online-focused investment advice solution, it’s modern and user-friendly websites, low cost, low minimums, transparency on performance and fees,” says Easterbrook, who tracks online advice companies. “It sounds like they’re going to hit all those big themes.” But, he says, a market downturn could prompt a shakeout.
“The big ‘X factor’ with all these online-focused advice solutions is, what happens during a market downturn?” he says. “You’ve relied on a questionnaire, it’s self-directed and you don’t have an advisor relationship. But it’s hard to come up with some kind of automated solution to address human emotions.”
