FutureAdvisor launched Tuesday a financial services website that displays, analyses and offers advice about a user's entire investment portfolio.
The website, which was previously in private beta, works like Mint.com for investments, compiling information about multiple accounts in one place and offering analysis of the user's overall financial picture. But while Mint.com's financial advice comes in the form of paid advertising, FutureAdvisor's investing advice is its own work product.
The company, which consists of both software engineers and finance experts, relies on algorithms to deliver relevant parts of investing best practices advice to diverse users. According to cofounders Jon Xu and Bo Lu, financial advisers share a set of "well-known best practices" when it comes to structuring an investment portfolio, which includes, for example, balancing stocks and bonds.
Lu said the algorithm that powers the advice is "definitely complex - that's one of the reasons that no one's built it."
FutureAdvisor claims to be the first company to offer online financial analysis and advice across multiple investment accounts. Websites Betterment and WealthFront offer similar services, but their advice only applies to a single account a user opens through them. Personal Capital displays multiple accounts but doesn't offer advice.
The co-founders hope their service will do for financial advising what Expedia and Hotwire did for the travel industry: "Disintermediate the human in the middle who in a very non-transparent way is taking a cut," Lu said. Investors pay fees whenever they invest through mutual funds or IRAs, but the fees are often only clarified in the fine print. Moreover, as recent financial scandals have revealed, advisers often operate under pressure to sell particular products.
But can a computer offer good financial advice, when each person's financial picture is so different? "In theory, yes," said Gartner analyst Ray Valdes. In practice, it remains to be seen whether [FutureAdvisor's] particular artificial implementation is worth handing over the wheel of the financial vehicle to a software adviser. The proof is in the pudding."
The security of their financial information may give would-be users pause. FutureAdvisor, which was supported by Y Combinator, uses Yodlee as an authentication system. Yodlee, which originally powered Mint.com's access to user accounts, has offered its platform to select Y Combinator-backed startups. FutureAdvisor only reads user data, it cannot move money, and all data is encrypted using 256-bit encryption.
Nevertheless, security will remain an issue for FutureAdvisor. Valdes said, "The bad guys have been getting smarter and more sophisticated over the last five years and the question is, are the good guys keeping pace? For me personally it's a question mark. But the success of Mint shows that there are plenty of consumers that are comfortable entrusting some of their financial future to a piece of software."
FutureAdvisor operates on the popular freemium model. Use of the site is free, but the company's revenue will ironically come from premium users who pay for personal advice, via video conference, from staff advisers. FutureAdvisor maintains that these advisors are better because their fees are transparent and they don't receive any incentives to push particular products.
With Tuesday's launch, the company also announced that it can now guide investors in their use of 100 major IRA plans.