Back from a short vacation from Rhode Island, I’ve finally had a chance to continue exploring the Motley Fool One service, for which I’ve recently signed up. I covered the basics of the service here and then gave my first impressions of the service here. Today I want to focus on the Financial Planning Tool they’ve added to the service.
The Financial Planning tool is advertised as basically 2 pieces: one is an online tool which will analyze your current holdings and recommend a portfolio allocation along with appropriate Motley Fool stock recommendations from across all of its services. The 2nd is a more traditional financial planning service that will provide personal financial advice (but not specific trades or investments) via phone with a financial expert from Ayco.
I have not had a chance to try out the financial planning aspect yet, but Ayco seems to have a good reputation in that arena. I’ll add more when/if I take advantage of that service. If you have any experience with Ayco financial planning, leave a comment and let us all know about it.
But this morning I tried out the online tool, and I’ll walk you through my experience.
Set Up/Linking Accounts
The first step is filling out a really basic online profile that asks 7 quick questions to gauge your age, how far your are from retirement, and your risk tolerance. It’s quick and painless, but that’s because the questionnaire is fairly superficial.
After that you are asked to link your accounts to the service. You provide the name of the financial institution, and your log in details. If you’ve used financial software like Quicken, you are familiar with the process, and I found the set up to be easy. I linked two 401k’s, a brokerage account, and an online banking account. All 4 are with major institutions and the tool found and connected with my accounts very easily. In reading the Motley Fool One forums, some users have had difficulty connecting their accounts, some of which were also at large firms, so your experience may vary.
One note on security – Motley Fool makes a point to explain that they are using the highest level of encryption (same as used by the NSA and major banks), and that the access is read-only, so nobody can initiate any transactions via this tool. Security is definitely a concern, one that many members have raised, and the Motley Fool is working on changing the tool so that you can manually enter your investments rather that provide log-in details.
Once you have filled out the profile and linked your accounts, the tool will generate a personalized Investment Plan. It provides you with 2 pie-charts: one showing your current portfolio allocation broken down between Equities, Bonds, and Cash and the other one with your recommended allocations. Anyone who has used similar planning tools via their 401k or brokerage account will be familiar with this concept. The tool will also show you actual and target allocations based on market cap, style (growth vs. value), and sector.
So this is the crux of the service – what specific recommendations does the investment tool make?
On the left hand side you get a list of 10 Buy and Sell recommendations, specific to the data you provided about yourself and your portfolio. These recommendations will be updated on a regular basis, tied to what is going on in the Motley Fool universe. So theoretically this will take into account which stocks are recommended and sold throughout the Motley Fool investment services. You can choose when to refresh the recommendations, and the tool will take into account any updates to your accounts or profile. Motley Fool is basically trying to guide you towards their target allocations, and over time will recommend more trades to get you there.
The Sell recommendations will span across all your holdings, whether they be ETFs, mutual funds, bonds, or stocks. The Buy recommendations are individual stocks from the Motley Fool services. For all recommendations, they specify either a specific dollar amount or a specific number of shares.
In my personal situation, the tool recommended I sell a certain dollar amount of bonds (to get to 0%), but it did not specify which of the bond funds in my 401k I should sell. It also recommended I sell 3 specific ETFs in my 401k, and one of my non-Motley Fool technology stocks. On the Buy side, it recommended 2 Rule Breaker stocks, 1 Stock Advisor stock, 1 Income Investor stock, and 1 Special Ops stock. Only 2 of these stocks were something I would normally consider as an investment.
That’s the extent of the tool. If you don’t refresh the recommendations or update your profile questions, nothing on that page will change as I understand it.
First, the pros of the Motley Fool One Investment Planning tool. The design of the tool is pretty intuitive and nicely designed. The ability to see your portfolio analyzed on a number of different factors is helpful. And I like the idea of getting Motley Fool recommendations tied to my personal situation. The tool also suggested I scale down my growth stocks and buy more value stocks, which is something I was already in the process of undertaking on my own. Nevertheless, I was happy to see that it made recommendations that make sense to me.
However, the tool doesn’t recognize the limitations of various accounts. For example, it recommended I sell a significant amount of my 401k ETF’s, including all my bond holdings. Yet all the Buy recommendations are individual equities which I am unable to buy in my 401ks. Since I can not move money across those accounts, the recommendations are basically useless.
That by itself makes me question the algorithm that is generating these recommendations. Combine this with the sparse profile information they collect via the questionnaire, and it’s fairly obvious that the tool has only a basic understanding of my financial situation.
The bottom line is that although I applaud what Motley Fool One is trying to do here, I don’t trust this tool to give me investment advice, let alone specific stock buy and sell recommendations. I hope I will have more luck with the human Ayco financial advisors.
As always, leave a comment or question if there is anything else you’d like me to cover.