TradeKing Advisors Inc,. (“TradeKing Advisors”) is the SEC-registered investment advisory arm of TradeKing, a discount online brokerage firm. TradeKing itself, headquartered in Fort Lauderdale, Florida, was launched in 2005 while TradeKing Advisors was formed in 2014. TradeKing Advisors still only maintains a small market share in the industry, with its latest SEC filing indicating just $15.6m in assets under management.
TradeKing Advisors is partnered with Ibbotson Associates a subsidiary of Morningstar, Inc., for the purposes of providing the risk tolerance questionnaire, creating and providing model portfolios, the initial selection of the funds in each model, as well as reviewing and updating the allocations and underlying funds of each portfolio. TradeKing Advisors also does not hold its clients brokerage accounts directly, but does so through the Apex Clearing Corporation.
TradeKing Advisors’ investment methodology is based on Modern Portfolio Theory, which aims to create a broadly diversified portfolio that maximizes the return-to-risk ratio. Based on backtesting from the 2011 to Q12016 period, TradeKing Advisors has released the following data regarding the performance for its Core portfolios.
Just like most robo-advisors, TradeKing Advisors invests in low-cost Exchange Traded Funds (“ETF”) however, it also invests in Exchange Traded Notes (“ETN”) to represent the different asset classes. Currently, TradeKing Advisors invests in stocks, fixed income, and real estate. The ETFs that TradeAdvisors uses to represent each asset class are as follows:
|US Stocks||Vanguard Total Stock Market ETF (VTI) Vanguard Value ETF (VTV) Vanguard Mid-Cap ETF (VO) Vanguard Mid-Cap Value ETF (VOE) Vanguard Small-Cap ETF (VB) Vanguard Small-Cap Value ETF (VBR)|
|International Stocks||Vanguard FTSE Developed Markets ETF (VEA) iShares MSCI EAFE Small-Cap ETF (SCZ) Vanguard FTSE Emerging Markets ETF (VWO)|
|US Bonds||Schwab U.S. TIPS ETF (SCHP) SPDR Barclays High Yield Bond ETF (JNK) Vanguard Total Bond Market ETF (BND) Vanguard Short Term Bond ETF (BSV)|
|International Bonds||iShares Emerging Markets Bond ETF (EMB)|
|Real Estate||SPDR DJ Global Real Estate ETF (RWO)|
To begin, users will have to fill out a questionnaire which asks for details on age, goals (wealth building, retirement, or saving for a major purchase), investment time horizon, risk tolerance, liquid assets, and initial investment amount. From there, TradeKing Advisors will give you a recommended portfolio allocation; an example is given below:
Figure 1: My recommended portfolio allocation
From there, users can proceed to fill in their details and fund their account.
TradeKing Advisors offers a wide variety of accounts: Individual, Joint, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, SIMPLE IRA, Beneficiary IRA, Beneficiary Roth IRA, Custodial and Coverdell. It also offers the following entity accounts: Trusts, Corporate, LLC, Partnership and Sole Proprietorship.
Minimum Account Balances
While there are no account minimum balances, TradeKing Advisors require a $500 minimum balance in order to begin building a Core portfolio for you. Momentum portfolios have an even higher minimum balance of $5,000.
For its Core portfolios, TradeKing Advisors charges an advisory fee of 0.25% annually, charged monthly, for balances of $5,000 and up. For balances of $4,999 and below, the fee is $1/month (which translates to an annual rate of 0.24% and up). Momentum portfolios incur a higher advisory fee of 0.50% annually.
Clients will also incur embedded ETF costs, however TradeKing Advisors has not publicly provided the average expense ratios of its ETFs.
Main Account Features
• Automated Portfolio Rebalancing
• Core and Momentum Portfolios
• Risk Assist
Automated Portfolio Rebalancing
As with most robo-advisors, portfolios are rebalanced during inflows and outflows such as from receipt of dividends, deposits, and withdrawals. TradeKing Advisors generally states that its portfolios are rebalanced ‘as needed’. Customers may also find some cash in their portfolios as TradeKing considers it as a small part of the allocation, depending on risk tolerance, and also uses it to automatically cover the relevant account fees.
We should also note that unlike most robo-advisors, where users are able to alter the portfolio allocation and risk tolerance level through the online interface, TradeKing Advisors require that clients contact its client services desk in order to perform such a task.
Core and Momentum Portfolios
In addition to its main Core portfolios, TradeKing Advisors also offers a Momentum portfolio, which is a more actively-managed portfolio. Both the Core and Momentum portfolios offer 5 different risk tolerance levels, being:
• Moderate Growth
• Aggressive Growth
Momentum portfolios aim to capture the market’s momentum, and thus, this type of portfolio is reviewed on a monthly basis in response to the movement of the markets. This means that the portfolio is rebalanced not only according to target allocation but also according to market fluctuations.
Note: As of this writing, it appears that TradeKing Advisors has removed all mention of Momentum portfolios on their site; we advise that prospective customers consult directly with a customer service representative to check whether Momentum portfolios are still offered.
This is an additional feature available to TradeKing Advisors’ Core portfolios which have a minimum balance of $5,000 and for an additional management fee of 0.50% annually (bringing the total fee to 0.75% annually). When this feature is activated, a client’s portfolio will automatically shift from more volatile asset classes such as equities toward safer asset classes such as bonds and US Treasuries during periods of market distress. When the market recovers, the allocation will gradually shift back towards equities. While this is a useful feature for shorter-term investors, investors with a long-term horizon may not consider this feature to be of much value, particularly given that management fees will be effectively tripled.
Who is TradeKing Advisors Suitable For?
As with most robo-advisors, TradeKing Advisors is suitable for passive long-term investors. Investors looking to beat the market via market timing or stock picking should not use its services or the services of robo-advisors in general.
As TradeKing Advisors does not offer any tax-harvesting features; something which most other robo-advisors offer, individuals with taxable accounts may want to look elsewhere. That said, TradeKing Advisors does offer a wide range of business accounts that most robo-advisors do not, making it one of the few options available for businesses.