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TD Ameritrade Essential Portfolios Review

A pioneer of robo-investing now offers an all-digital automated platform

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Account Minimum: $500 with automatic recurring investment, otherwise $5,000
Fee: 0.30% of assets managed per year

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TD Ameritrade was one of the pioneers of the concept of robo-investing, having launched its Amerivest service in 2004. Amerivest had many of the hallmarks we see in robo-advisors today—a questionnaire setting up a new client's goals and risk tolerance, the use of that data to create a balanced portfolio, and the ongoing encouragement to make regular deposits. Over the years, that service has been modified considerably and it now lives on as TD Ameritrade Selective Portfolios. Selective Portfolios' earlier incarnations included some human intervention and consultation, and it still provides these options. In 2016, however, TD Ameritrade launched a completely digital version to provide automated investment services.

New and Notable Updates

Clients who set up recurring deposits can open an account with $500 rather than the regular $5,000 minimum.
New product introduction at TD Ameritrade has slowed significantly since the Schwab buyout was announced.

Key Takeaways

Like its associated online brokerage, the Essential Portfolios service allows a wide range of account types. The one missing is college savings 529 plans, which are handled elsewhere at TD Ameritrade.
Customers with more than $25,000 qualify for TD Ameritrade Selective Portfolios, which has a wider array of ETFs available plus a higher management fee.

TD Ameritrade Essential Portfolios borrows from the lessons learned in the development of Selective Portfolios and delivers a passive investing platform through the site and the app without the need for a human touch. Without this context, it is easy to mistake Essential Portfolios as a newer entry in this space. In reality, the company has more experience than many of the firms in this space, and that shows in the quality of its offering in terms of the ease of use and the methodology behind the system.

Pros

Offers Core portfolio or a Socially Aware portfolio built from Morningstar recommended funds.
Wide range of account types.
Tax-loss harvesting.
Part of a wider financial product universe.

Cons

Details of the portfolio are not viewable until funded.
Portfolios cannot be customized digitally.
Dividends swept into the cash balance and only reinvested during rebalancing.
Portfolios cannot be customized at the stock level.

Important

On November 25, 2019, Charles Schwab announced a buyout of TD Ameritrade's online brokerage. The transaction itself is expected to close in the second half of 2020, and in the meantime, the two firms will operate autonomously. Schwab expects the merger of its platforms and services to take place within three years of the close of the deal.

Account Setup

Getting started with Essential Portfolios involves answering a few questions meant to assess your attitude toward risk and your time frame for the investment. Throughout the process, there are clear tip links to help you fill out the requested information. You are asked to choose a primary goal for your investment, choosing between retirement, general investing, education expense, or a large purchase. Once you have set a goal, you set an initial investment amount, and then you're presented with the choice between Core portfolios and Socially Aware portfolios.

There are five possible risk levels, ranging from conservative to aggressive, in each of the portfolio categories. You can adjust your stated risk levels to see different projections for your portfolio category on a one-year time period. At this point, you are given the opportunity to set a target amount for your investment and Essential Portfolios will give you a likelihood of success in reaching it. If you are unlikely to reach the target, you can modify key factors like your risk level, monthly contributions, and investment time horizon.

After you are satisfied with your likelihood of success, you can view breakdowns of the asset classes covered by the associated ETFs. More importantly, the performance data for the proposed portfolio is available for your review. If you feel like the choice is wrong for you, you can switch to more- or less-risky portfolios without going back and redoing the questions—although that option is also available to you.

One of the key strengths of TD Ameritrade's offering is the wide range of account types offered. The usual accounts, such as individual, joint, and Roth or standard IRA are offered, but you can also open other types of IRAs (Minor and Minor Roth as well as SEP-IRA and individual 401(k) plans), education plans (529 college savings, Coverdell ESA, and Uniform Gift to Minors), trusts, partnerships, LLCs, and investment clubs. On the downside, you cannot see the exact contents of your portfolio until you've funded your account.

Goal Setting

The goal setting tools for Essential Portfolios involve articles and monthly emails. You can set an overall portfolio goal and dollar amount as part of your account setup, but the choices are limited. The tracking features are based on progress towards your stated targets. The primary planning tool available online is a retirement calculator. Beyond that, there is not much help on the platform or mobile app. To actually set your investing goals, TD Ameritrade wants you to visit a branch and talk with a representative at no additional charge. You can also use the firm's email channels or make a phone call.

Account Services

TD Ameritrade Essential Portfolios is contained within the wider service offerings of TD Ameritrade, so some of the account services blend in places. Essential Portfolios makes it easy to set up regular deposits to your portfolio. There are also features designed around your specific account types. For example, once you're at the point of making withdrawals from an IRA, you're informed of your annual required minimum withdrawal and given several choices for the timing and the location of the withdrawn funds.

Cash Management

If you have a regular TD Ameritrade trading account, you can attach a checking account and debit card. There is no cash management capability specifically built into the automated investing offering.

Portfolio Construction

TD Ameritrade Essential Portfolios uses your stated risk tolerance, time horizon and other profile information to match you with a portfolio with target asset allocations that agree with Modern Portfolio Theory (MPT). Essential Portfolios then turns to Morningstar as a consultant to populate the portfolios with non-proprietary ETFs that flesh out the proposed asset allocations. Morningstar's proprietary selection methodology uses qualitative and quantitative factors to filter the underlying funds. That said, Morningstar is known to prioritize funds that track as intended and have low expense ratios as a general rule. The providers of the ETFs used to create portfolios include Vangaurd, iShares, JP Morgan, WisdomTree and Invesco, among others.

Portfolio Management

Portfolios are rebalanced on a drift basis. There are no set timelines for rebalancing and the drift tolerance wasn't explicitly written out in the disclosure beyond "when appropriate." Interestingly enough, if you are moving from a self-managed TD Ameritrade portfolio to an Essential Portfolio, TD Ameritrade may keep any ETFs you hold that fit the asset allocation, slowly swapping them out for higher-ranked ETFs that fulfill that purpose as rebalancing opportunities are presented. This suggests that TD Ameritrade is able to dynamically rebalance, so much of the rebalancing may be done as new funds are added or funds are removed from the portfolio.

In addition to rebalancing, tax-loss harvesting is available on all the portfolios. Essential Portfolios can trade out an ETF that is showing a loss for one that is substantially similar in order to minimize your tax bill. There is no minimum account size required to opt in to tax-loss harvesting.

Both the website and the mobile app show you your asset allocation and changes in account value over time in easy-to-understand graphical formats. You can easily see how you're tracking against the general goal you've set and adjust monthly deposits or change the goal if you're falling behind.

User Experience

Mobile Experience

TD Ameritrade offers mobile apps for Android and Apple. The mobile app gives you a current breakdown of your portfolio and offers an easy way to make additional deposits. You can also keep an eye on your other linked TD Ameritrade accounts as they share the same app.

Desktop Experience

The Essential Portfolios section of TD Ameritrade's website is very simple to use, although it's not that easy to find. From the main page, you have to click on "Guidance," then "Investment Management Services," and locate Essential Portfolios from that screen. Most people will find the site directly from search, but an excess of menus is a known risk when a robo-advisor is just one of many products offered through a firm.

Customer Service

TD Ameritrade Essential Portfolios offers customer service on a 24/7 basis, which is not the case for many robo-advisors. You can contact the company through online chat or email, and our test calls to the phone support service were answered quickly and authoritatively. The FAQs don't go into a lot of detail, but TD Ameritrade has all its disclosures readily available on the site if you want to dig deeper.

There are no financial advisors available to talk to, though TD says that "financial consultants" are on hand.

Education & Security

TD Ameritrade's main website is packed with education materials available to all customers. Again, this is one of the benefits of having a robo-advisor as part of an established online broker. Since the Essential Portfolios service is focused on investing for the long term, market updates are typically shared in monthly newsletters.

Essential Portfolios is covered under the same security as the rest of TD Ameritrade's offerings. This includes the regular safeguards and firewalls like 128-bit encryption. TD Ameritrade is also a member of the Securities Investor Protection Corporation (SIPC), providing coverage of up to $500,000 and additional supplemental coverage for each client up to $149.5 million for securities and $2 million for cash.

Commissions & Fees

TD Ameritrade Essential Portfolios charges you an annual advisory fee of 0.30% of assets under management. There are no commissions charged beyond that, although the ETFs that end up in the portfolio can charge expense ratios that will add another 0.08%-0.20% to your costs. The ETFs in the Core Portfolio option are very much on the low-cost end of the spectrum, as this is part of the criteria used by Morningstar. The Socially Aware Portfolio may have higher expense ratios tied to the ETFs selected, but again, these are run through Morningstar filters that are very hard on excessive costs in addition to things like tracking errors.

Monthly cost to manage a $5,000 portfolio: $1.25
Monthly cost to manage a $25,000 portfolio: $6.25
Monthly cost to manage a $100,000 portfolio: $25.00

Is TD Ameritrade Essential Portfolios a Good Fit for You?

TD Ameritrade Essential Portfolios is a solid offering at a very reasonable price. The higher account minimum may be a hurdle for new investors, of course. The automated management of portfolios stacks up well against competitors and there is the extra comfort in knowing Morningstar is vetting all the funds being added to your portfolio. Moreover, the sheer variety of account types available makes it one of the only robo-advisor options in some areas.

Some investors will want a higher level of portfolio customization, but that desire runs contrary to what TD Ameritrade (and robo-advisors in general) is offering. TD Ameritrade believes that Morningstar is better at selecting ETFs than you are—and they are probably right. Moreover, if you want to take more control of your portfolio than what is possible through Essential Portfolios, you can easily switch out to one of the other managed portfolio options like Selective Portfolios or Personal Portfolios.

Essential Portfolios is ideal if you already have a TD Ameritrade account and would like to carve off a chunk of it to be managed passively. This is simply because the transition is so smooth between the offerings. Even if you don't currently use TD Ameritrade, Essential Portfolios is a true robo-advisor that isn't trying to sell you proprietary funds it profits from. For the modest advisory fee, you get the advice, the portfolio management, and the ETFs without any additional transaction costs. That is a fair deal that will appeal to many individual investors.

Compare TD Ameritrade Essential Portfolios

TD Ameritrade is one of the pioneers of robo-investing. See how it compares against other robo-advisors we reviewed.

Wealthfront vs. TD Ameritrade Essential Portfolios
E*TRADE Core Portfolios vs. TD Ameritrade Essential Portfolios

Investopedia Robo-Advisor Rating Methodology

Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of robo-advisors. Our 2020 reviews are the result of in-depth evaluations of over 20 robo-advisor platforms, including the user experience, goal-setting capabilities, portfolio construction, costs and fees, security, mobile experience, and customer service. You can read our full robo-advisor rating methodology for a much more in-depth explanation than the summary below.

Overall Star Rating Explained

With the individual investor in mind, we took a critical look at the services and technology provided by robo-advisors. We organized our methodology into nine categories, scoring each advisor across multiple variables to rate performance in every applicable category. The score for the overall award is a weighted average of the categories.

EVALUATION CATEGORIES
Review Category	Weighting	Variables
Account Setup	5%	6
Goal Setting	15%	4
Account Services	10%	8
Portfolio Construction	15%	7
Portfolio Management	20%	4
User Experience	15%	6
Customer Service	5%	5
Education & Security	5%	6
Fees	10%	5

The Review Process

To evaluate these platforms, we sent questionnaires with over 100 queries to the participating robo-advisories. Most of the companies we reviewed gave us socially-distanced video demonstrations of their platforms and services during August 2020.

From the questionnaires, the hands-on testing of the platforms, and the platform demonstrations, we scored each category and then combined the category scores into an overall rating for each robo-advisor. Each category covers the critical elements users need to thoroughly evaluate a robo-advisor.