J.P. Morgan Automated Investing Review
Robo investing is becoming more popular, and J.P. Morgan Investing has noticed. The brokerage firm has launched a new automated investing service aptly titled J.P. Morgan Automated Investing. Here are the details:
Automated Investing vs. Self-Directed Investing
J.P. Morgan Investing offers two account types: automated and self-directed. The robo service is the automated version, while self-directed is just what it sounds like: managed and directed by the account owner. But there are other important differences.
J.P. Morgan Automated Investing accounts only get to invest in a small selection of J.P. Morgan ETFs. Because the funds are J.P. Morgan funds, there is a conflict of interest that the brokerage firm acknowledges in its wrap fee program brochure.
Self-directed customers get to trade a larger list of assets, like stocks, mutual funds, options, bonds, and ETFs from lots of fund families. So an automated account may not be for everyone.
There is a software program that manages every J.P. Morgan Automated Investing account, which is why it’s known colloquially as a robo account. The digital advisor chooses what to buy and what to sell. The decisions are primarily driven by an online questionnaire that the account owner fills out. We’ll look at this now.
Questionnaire
J.P. Morgan Automated Investing has a questionnaire that is attached to its online account application. This questionnaire must be filled out with the account application. It has several questions that the company’s robot will use to construct a portfolio with a risk-return profile that matches the answers to the questions.
Here are some of the issues that appear on the questionnaire:
- Purpose of investing (retirement, major purchase, etc.)
- Age
- Time horizon for the account
- Initial investment
- Recurring investments
- Risk tolerance
Samples of questions include:
- How comfortable are you with large swings in the value of your portfolio?
- What would you do if the value of your investment dropped by 20%?
- How likely would you be to invest if the value of your portfolio changed +/- 20% over three years?
At the end of the questionnaire, the website returns the recommended portfolio. It is broken down into pie chart format with percentages for asset types. Examples we were given during our application include U.S. equity, international equity, core fixed income, and cash. Percent allocations will be spread among these categories according to the risk tolerance the software program calculates.
The questionnaire also estimates the projected growth of the investment account based on the initial allocations and time horizon. There are three possible market scenarios (very strong, median, and very weak) and multiple timeframes out to 10 years.
Finally, the outcome page shows account details, such as risk profile (conservative, moderate, growth, or aggressive) and goal type. There are several options for goal type. Examples include retirement and major purchase.
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Available Account Types
An automated account can be opened either as a taxable individual or joint account or an IRA. There are two IRA types available currently: Roth and Traditional.
Glide Path
There is a glide path strategy for some retirement portfolios. To enable this feature, an account must select “Retirement” as its investment purpose on the questionnaire, must have a time horizon of at least 10 years, and cannot have a conservative risk profile.
Risk Profiles
There are four risk profiles that J.P. Morgan Automated Investing uses. Each has its own asset allocation strategy.
Conservative: 75% fixed income, 25% U.S. and international equities
Moderate: 50/50
Growth: 25/75
Aggressive: 10/90
An IRA that has a glide path strategy will gradually move towards the conservative profile as the target date arrives. Thus, it will often have percentages in between the four main profiles.
J.P. Morgan Investing recommends a minimum hold time of at least 3 years just for the conservative profile. The others have longer recommended time horizons.
Funding an Automated Account
Once opened, a robo account at J.P. Morgan Investing can be funded in one of several ways. The brokerage firm will accept a deposit of cash from a bank account (via wire or ACH transfer), an ACATS transfer of securities, or a rollover of a 401(k) or other employer’s retirement plan.
Assets that are moved into a J.P. Morgan Automated Investing account will be liquidated, and the proceeds will be used to purchase program ETFs. If an asset can’t be sold, it can’t be moved into a robo account.
Features
J.P. Morgan Automated Investing’s technology monitors every robo account every day. The software rebalances accounts as needed to keep them in line with their target percentages.
It’s possible to exclude up to three ETFs from a portfolio. The tool to do this will be found on the last page of the questionnaire.
Although the original questionnaire creates a risk profile for an account, this risk profile can be changed later. On the Financial Profile page on the J.P. Morgan Automated Investing website, there is a link to the same questionnaire that will need to be retaken. This can be done once every 30 days.
A glide path setting can also be added or removed. This, too, requires appropriate answers to a new questionnaire.
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J.P. Morgan Funds
J.P. Morgan has about 40 exchange-traded funds on the market today. Although the company does not publish the exact ETFs it uses in its automated program, here are some examples that may be used:
JPMorgan U.S. Dividend ETF (JDIV): This fund tracks the JP Morgan US Dividend Index, which itself is composed of stocks that pay regular dividends.
JPMorgan Diversified Return Emerging Markets Equity ETF (JPEM): This fund invests in stocks of emerging market countries. The portfolio is represented by a wide variety of industries and geographic regions.
JPMorgan Core Plus Bond ETF (JCPB): This fund invests at least 80% of its assets in bonds of varying quality. The average weighted maturity of JCPB is between 5 and 20 years.
Chase Automatic Investing Fees
All three of the funds mentioned above have expense ratios, and these will reduce returns. The expense ratios of all three funds are below 0.50% of fund assets.
On top of the ETF management fees, J.P. Morgan Automated Investing charges a
flat 0.35% annual fee of account assets. There is a $500 minimum deposit requirement to start the program, and the balance must be at least $250 at all times. There are no commissions on automated trades, which is a nice cost savings.
Chase Automatic Investing Judgment
J.P. Morgan Automated Investing has done a decent job with its robo service. However, the exclusive use of JPMorgan funds is definitely a conflict of interest. And the fact that expense ratios are charged on the funds in the program doubles up on the cost of the service.
The annual account fee is on par with what other robo programs are charging these days, although a few programs are available for free with a large cash balance, a feature that J.P. Morgan Investing doesn’t offer.
The questionnaire in our view is a little brief and could have more detailed questions on it. We do like the glide path feature, which will be a major benefit to IRAs that sign up for the automated service.
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Chase Automatic Investing Disclaimer
INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
Updated on 4/23/2022.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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