Experiences with FOLIOfn?

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Experiences with FOLIOfn?

Postby CompareContrast » Tue Oct 12, 2010 2:28 am

I'm considering supplementing my Vanguard accounts with FOLIOfn. The brokerage charges a fixed $299 yearly fee and permits unlimited market trades: you can build your own mutual fund. Competitors include Sharebuilder and LongTermBuyAndHold, but these other 2 operations don't emphasize the possibility of investing in whole bundles of stocks simultaneously.

I was wondering what experiences people had with this firm. I also have some specific questions:

1. Juggling hundreds of stocks with fractional shares sounds like a nightmare during tax time. FOLIOfn provides a tax file that can be exported to Turbo Tax desktop product (but not TT online).
1a) Do you recall whether the download was made available over an SSL line?
1b) Does the information really import properly into Turbo Tax?
1c) Is the tax file comprehensive? Does it contain foreign tax credit information? Has anybody filed an 1116 concurrently with having a FOLIOfn account?
1d) What about other odd tax boxes on the 1099, such as those favored by REITs? Any troubles? Does the complexity of your tax return tend to snowball?

2) What is the effective annual cost in practice? Given that you own hundreds of stocks, are there fees for re-organizations and the like? (IIRC, they say they charge fees only for voluntary actions, but some voluntary actions might not be so voluntary. What's the scoop?)

3) How is their forum? Customer support?

4) Mail delivery of monthly paper statements costs $150 per year. How do the online statements work out for you? Are the 1099s electronic as well? Perhaps signing up with Mozy or some other offsite backup would be advisable.

5) Is portfolio tracking software recommended? What do you use?

6) Has anybody constructed a country fund based on ADRs?

7) I guess it might be smart to avoid low volume securities, as you might get dinged during the big daily market trade. I've noticed that certain ETFs have pretty low volumes.

Some of this was discussed on bogleheads before: I'll post the link when I am able.
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Postby livesoft » Tue Oct 12, 2010 6:56 am

I have not used them. They were a nice idea several years ago just like DRIPs were decades ago. There is no longer any reason for FOLIOfn to even exist.

One can achieve the same thing for free with much less work by using exchange-traded funds in a brokerage account that has free trades. Nowadays, several such free-trade brokerage accounts are available.
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Postby dbonnett » Tue Oct 12, 2010 7:57 am

My issue with them was the execution price I received at "window trade" time (10:30am). It appeared to be higher than the price of execution at that time on Yahoo. It involved several lightly traded ETFs.

http://finance.yahoo.com/echarts?s=^GSPC#chart3:symbol=^gspc;range=5d;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
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Postby CompareContrast » Tue Oct 12, 2010 9:06 pm

I had worried about buying lightly traded ETFs via FOLIOfn: I'm not surprised there were some poor executions. Management claims that some of their executions can be superior since they pool all their trades at once and match buyers to sellers internally without charging a spread. But for thinly traded stocks, I doubt whether this would help much.

Certain types of mechanical investing might make sense via FOLIOfn: essentially you can apply your own index formula. At an old discussion at bogleheads, somebody also mentioned tax efficiencies: you can sell your stocks with capital losses, wait a month, then buy them back. But that would not be worth it if tax time is a complete nightmare. I'm guessing that the tax bookkeeping is manageable though, as I haven't read any complaints about this on the web.

For baskets not containing ETFs, there is also potential to achieve some modest cost savings vis a vis expenses. I hope to evaluate that possibility in a future post.
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Postby livesoft » Tue Oct 12, 2010 9:42 pm

CompareContrast wrote:At an old discussion at bogleheads, somebody also mentioned tax efficiencies: you can sell your stocks with capital losses, wait a month, then buy them back. But that would not be worth it if tax time is a complete nightmare. I'm guessing that the tax bookkeeping is manageable though, as I haven't read any complaints about this on the web.

This tax-loss harvesting is not an advantage of folioFN since it applies to any stock or ETF or mutual fund and has always applied to non-folioFN investments.

For baskets not containing ETFs, there is also potential to achieve some modest cost savings vis a vis expenses. I hope to evaluate that possibility in a future post.

I doubt it. There are no commissions to buy and sell ETFs anymore if you pick the right broker. folioFN is an anachronism.
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Postby dbonnett » Wed Oct 13, 2010 8:10 am

There is no need for Foliofn. However, their tax accounting is exceptional.
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Postby CompareContrast » Thu Oct 14, 2010 12:09 am

Indeed, I see that Schwab, Ameritrade, Fidelity and Vanguard have programs for commission free trading of ETFs, although details vary and there appear to be some limitations: http://etf.about.com/b/2010/05/05/trade ... r-free.htm

I should look into that. I can see a couple of possible advantages to Foliofn:

a) In theory, any sort of mutual fund index can be mimicked, which may be of interest to those who like mechanical investing. Foliofn's ready-to-go folios are here: https://www.folioinvesting.com/rtg/index.jsp So you're not limited to existing ETFs.

b) I've seen ETFs with expense ratios at 0.55% and above (typically international). Perhaps FolioFN would be economical for some.

c) As for tax-loss harvesting, might there be more opportunity for this technique if you own 200+ stocks all at once?


This feedback has been great -- I hadn't considered the ETF angle sufficiently (and quite honestly it took a while for the point to sink in :oops:). I hope to crunch through a few scenarios over the next week or so.
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Postby DSimmons » Thu Oct 14, 2010 2:01 pm

Can't imagine "unlimited trading" being a bad deal if you heavily trade in your account
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Postby CompareContrast » Fri Oct 15, 2010 1:17 am

DSimmons: That said, FolioFN isn't designed for day trading: their free market trades operate with 2x times a day trading windows. And for thinly traded stocks -such as single-country ETFs- I suspect they have poor executions. Their concept is that you can purchase a big basket of stocks all at once, sort of like a mutual fund. Because they are willing to sell you fractional shares, you can even put a couple of thousand dollars into 50-100 stocks at the same time.
-----

I'd now like to analyze expenses. Firstly, how does $300 per year translate into expense ratios? I'll include investments up to $10,000,000, in case people are curious about what choices institutions may face. Admittedly, FolioFN probably charges them more than $300 per year.
Code: Select all
[b]Expense ratios corresponding to $300/year fee:[/b]
Principle   Expense         Comment
            Ratio
 $1,000        30.00%      Preposterous
 $5,000        6.00%      Pointless
 $10,000       3.00%      Inferior to all no-load funds
 $50,000       0.60%      Better than most actively managed funds
 $100,000      0.30%      Inferior to best index funds
 $500,000      0.06%      Superior to best index funds
 $1,000,000    0.03%   
 $5,000,000    0.01%   
 $10,000,000    0.00%   


By way of comparison, here is an arbitrary set of expense ratios for various mutual funds:

Sample Expense ratios
0.15% Vanguard Tax Managed Mutual Fund, Admiral
0.18% Vanguard Total Stock Market, Investor
0.18% Vanguard 500 Index Investor
0.25% Vanguard Consumer Staples ETF
0.27% Vanguard Em Market ETF
0.40% Vanguard Emerging Market (plus transaction fees)
0.48% iShares Consumer ETF
0.50% iShares Pacific Ex Japan
0.55% iShares United Kingdom
0.56% iShares Malaysia
0.65% Dodge & Cox International Stock
0.72% iShares MSCI Emerging Market
0.78% American Funds AMCAP A Load Waived
1.02% Fidelity Contrafund
1.06% Cohen & Steers Realty Shares
1.11% Permanent Portfolio
2.31% Olstein All Cap

At $50,000, expenses will be somewhat lower than most actively managed mutual funds. At $100,000, you can beat most international index funds (except for Vanguard's ETFs).

At $500,000 you beat everything. There's one caveat though: SIPC insurance is also capped at $500,000 and backup insurance is of uncertain quality. More on that in another post.

Ok, but what sort of sums are we talking about? In the next table, I translate expense ratios and principle into dollar amounts. Remember, we're comparing it to a $300 per year fee:

Image
Cold link:
http://i1032.photobucket.com/albums/a40 ... penses.png

Ok. I see some potential for Guru chasing: If you have $250,000 in a 1-2% actively managed fund, that's $2500-$5000 per year you're shelling out. If you believe that they are essentially running enhanced index operations (hint: see if the sectoral shares match that of the S&P 500), then perhaps there might be *some* FolioFN approach that could mimic the central part of their core competences. Or not.

Also, ishares ETFs often charge something over $1250 per year on $250,000 (or 0.50%+) . That may be beatable with an folioFn account. This includes single country international indices.

Those with asset levels substantially above $500,000 might even beat some of Vanguard's best index funds -- but there's that pesky SIPC issue to be considered.

Institutions might also give FolioFN a look. And mechanical investors should love them.
-------

I've searched google, and I haven't found any detailed discussion of FolioFN on the web. I hope to rectify that here, at least in part.
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Postby dbonnett » Fri Oct 15, 2010 7:27 am

You can trade free for 30 days. Do it. Report back on execution prices @ 10;30 am. That is to say: Yahoo reports the price of XYZ to be 35.09 at 10:30; my price was **.**. Bookmark this conversation and use Billpay to fund your account. Waiting for your results.
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Postby Ping Pong » Fri Oct 15, 2010 8:31 am

You can trade free for 30 days. Do it. Report back on execution prices @ 10;30 am. That is to say: Yahoo reports the price of XYZ to be 35.09 at 10:30; my price was **.**. Bookmark this conversation and use Billpay to fund your account. Waiting for your results.


The orders don't execute at the cut off time. They execute some time after that. You can't do a point in time comparison like that. They execute all customer orders together, and it could take multiple orders over the course of an hour to fulfill.

If they executed precisely at the cutoff time like you propose, they would be subject to front running and that would be bad.
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Postby cessna210 » Fri Oct 15, 2010 9:19 am

I used FolioFN for a few years. It was a stepping stone for me transitioning from individual stocks to mutual funds. You create your own mutual fund by selecting a basket of stocks & then you're able to purchase your fund with a fixed dollar amount. Each individual stock is purchased based on the percentages that you allocate.

Since I track the purchases with my own software program, I found that there was more accounting since I needed to book each stock purchase. If you had 50 stocks in your fund, that would be very time consuming. I only had 7 stocks in my Folio.

I looked back at one purchase from 2005. Purchased 0.12505 shares of BRK.B at 2998.785493.
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Postby dbonnett » Fri Oct 15, 2010 9:19 am

Perhaps then, you will be able to see WHEN your order was executed, and how relatively good or bad the execution was in relationship to the total time frame. Or using an analogy: when the ice cream cones were distributed, was yours the one that fell on the ground.
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Postby CompareContrast » Sat Oct 16, 2010 1:23 am

This is interesting. I could ask FolioFN managament how long they typically take to execute trades, then at least work out the trading range during that hour or whatever. (And report back.)

dbonnett wrote:Bookmark this conversation and use Billpay to fund your account.
Ok, we're bookmarked. :D When you say "Use Billpay" are you implying that I should start with a small amount of funds? Or am I misreading that? As it is, given my temperament, I don't anticipate acting soon (though I expect I will make some decision within the next 6 months.) Also, I still have a bazillion questions.

I like the underlying point though: we should attempt to evaluate this execution issue, rather than simply blowing it off. Even an imperfect test would have some value.
cessna210 wrote: Since I track the purchases with my own software program, I found that there was more accounting since I needed to book each stock purchase. If you had 50 stocks in your fund, that would be very time consuming. I only had 7 stocks in my Folio.
So I take it that at the time you were not able to import data directly into your portfolio tracking program?
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Postby cessna210 » Sat Oct 16, 2010 8:19 am

So I take it that at the time you were not able to import data directly into your portfolio tracking program?


I know that they have a way to import the data on an annual basis (or range of dates). I don't remember if they have it for each trade as it occurs.

I started investing in 1998 and opened my Vanguard account in 1999. While I kept most of my money in mutual funds, in 2000 I started purchasing individual stocks in order to learn how to do it. It was a rough time to start but a great learning experience, especially since I was dealing with small amounts.

I didn't like spending $20 a trade, so in 2001-2002 I tried direct investment plans with each company. While it was much cheaper, I didn't like dealing with so many different methods to invest, access information, etc.

At the end of 2002, I discovered FolioFN. I thought it was great at the time since I was able to dollar cost average into a number of stocks without worrying about the cost per trade and I could purchase fixed dollar amounts for the fund which would then purchase fractional shares for each company.

By the end of 2005, I decided that I was spending too much time focusing & researching individual stocks. I decided that I would stick with mutual funds at Vanguard.
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Postby CompareContrast » Sun Oct 17, 2010 6:01 pm

Thanks for your discussion, cessna.


My figures suggest that FolioFN can beat even top index funds if the principle exceeds $500,000. So is this a no-brainer for pension funds?

There are lots of things to consider, but here I'd like to touch upon SIPC limits. SIPC protects you if your brokerage goes under: you can still lose everything if you invest in securities whose values crash to zero. Now a bankrupt brokerage house doesn't necessarily imply investor losses. If things go well, the assets are simply transferred to another house, possibly with a delay. Indeed, it is my understanding that SIPC has not yet had to make outlays to Lehman Brothers' customers and won't need to.

Where things go wrong is if there's fraud at the brokerage house -- or their records are messed up. Recall that most securities are held in "Street Name" or the name of the brokerage. Firms that are in trouble often cut corners, and the quality of the back office work isn't always readily apparent to the customer. I understand that this was a big problem in the early 1970s.

FolioFN is not traded publicly and the bond rating agencies have not evaluated them to my knowledge. Their latest disclosure lists shareholder equity of 14.7 million on assets of 26.6 million: that sounds like a good ratio, but I lack the background to properly evaluate it. Anyway, FolioFN's long-term financial strength is unclear to me.

Like most brokerages FolioFN carries supplemental insurance for amounts above $500,000. Unfortunately Aetna has left that business, and the language regarding Lloyd's of London is shot full of holes. To wit:
FOLIOfn wrote: In addition to SIPC coverage, FOLIOfn has also purchased from certain underwriters at Lloyds supplemental customer securities insurance with a total aggregate limit of $50 million. This coverage is limited to a combined return of $10 million to any customer from SIPC and certain underwriters at Lloyds. Neither SIPC nor the insurance coverage protect against losses resulting from a decline in the market value of securities.
I don't know the quantity of assets held at FolioFN that fall above the $500,000 threshold, so these limits are tough to evaluate. Also, I understand that Lloyd's is organized into legally separate syndicates, so the financial strength of these insurance companies remains unclear. https://www.folioinvesting.com/content/ ... able.shtml

Pension funds would do well to think hard about this issue. A report that outlined the warning signs of a brokerage house in distress would be useful. Historical data since the early 1970s is probably available at SIPC, but I'm not aware of any study of this topic. Budding researchers take note!
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Postby Bobalude » Sun Oct 17, 2010 7:14 pm

I would think pension funds would be better off looking for a brokerage firm that focuses on execution and timing. It may be a penny wise, pound foolish to aim on saving money on per trade commissions but losing more on execution.
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Postby dbonnett » Sun Oct 17, 2010 7:30 pm

+1
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Postby pkcrafter » Sun Oct 17, 2010 8:35 pm

Why would any Boglehead be interested in trading anything? Seems that FolioFN only encourages trading. 100 different portfolios. Sigh..... This forum promotes holding, not trading.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Postby dbonnett » Mon Oct 18, 2010 7:07 am

Diverse thought and a lot of tire kicking
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Postby CompareContrast » Tue Oct 19, 2010 1:29 am

I hope to evaluate execution with greater rigor later. FolioFN claimed that they might be able to achieve better execution in certain circumstances, but I am somewhat dubious.

pkcrafter asks a great question and receives a great response by dbonnett. Whatever happens, most of my assets will be ensconced in Vanguard index funds. (YMMV, etc) But for some the lure of beating the market is irresistible, at least for a portion of the portfolio. International funds also have somewhat elevated expense ratios: a folio of ADRs might make a decent substitute. At any rate, I wanted to give FolioFN a hard look, as it were.


Here are a few links to other FolioFN discussions on the web.

Past discussion on this board: viewtopic.php?p=134182
Disgruntled workers: http://www.glassdoor.com/Reviews/FOLIOf ... 214427.htm
2005 discussion: http://investorshub.advfn.com/boards/bo ... rd_id=3946
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Postby CompareContrast » Tue Oct 19, 2010 9:58 pm

pkcrafter wrote:Why would any Boglehead be interested in trading anything? Seems that FolioFN only encourages trading. 100 different portfolios. Sigh..... This forum promotes holding, not trading.
I'm not sure I was clear so...

Folio investing is consistent with a long term buy and hold strategy. You can buy a bundle of stocks and hold them for as long as you like (although there's also the possibility of tax harvesting to consider). Indeed, day traders should avoid FolioFN, as it specializes in bulk market orders.
------------------

I need to think harder about execution. Here's a cautionary example: there are others. The WisdomTree Middle East Dividend Fund ETF (NYSE:GULF) has an average daily volume of 7000 shares. Today 18,509 shares traded, and there was more than one hour-long period where not a single share was exchanged. Make a market order in those circumstances and you will be fleeced by GULF's market specialist: limit orders are the only way to go.

Generally speaking, FolioFN is no longer a great way to trade ETFs, as was pointed out above. Vanguard will trade up to 25 Vanguard ETFs commission free per year. Schwab offers it's own ETFs commission free. Other deals are outlined here: http://seekingalpha.com/article/229271- ... tf-trading . If there are any ETFs too obscure to be offered commission free, they probably are also the sorts of low-volume securities where limit trading is appropriate. FolioFN also offers limit orders of course, but for an extra fee.
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Postby CompareContrast » Sat Oct 23, 2010 12:59 am

For reference and comparison here's a roundup of commission-free ETF trading:

Vanguard ETFs: free at Vanguard
If you buy and sell the same Vanguard ETF in a Vanguard Brokerage account more than 25 times in a 12-month period, you may be restricted from purchasing that Vanguard ETF through your Vanguard Brokerage account for 60 days.

Schwab ETFs: Free at Schwab.
I'll note that Schwab's ETF expense ratios are currently competitive with Vanguard's, while iShares, IME, are more iffy. Obviously, that may or may not be the case in, say, five years. Vanguard is owned by its mutual fund shareholders.

Commission free iShares through Fidelity:
I count about 25 ETFs, which is a small subset of iShares' offerings.
http://personal.fidelity.com/products/t ... opup.shtml

Ameritrade offers 100 ETFs commission free from iShares, Powershares, StateStreet, Vanguard and more. They say that Vanguard offers 62.
http://www.tdameritrade.com/trade/etfs.html
========================================

And here are a set of hypotheses/conjectures regarding trade execution with FOLIOfn. I'm still thinking about this.

1. Making a market trade on an illiquid stock or ETF is a Bad Idea. The market maker will eat your lunch, or at least part of it.

2. Execution matters less for very long term buy and hold investors. Execution still matters to some extent: make the calculation. Those wishing to follow a strategy of tax harvesting are not implimenting a long term buy and hold strategy for these purposes.

3. Managers of large active portfolios will move market prices when they modify their positions in the market. Investors in such pools will absorb these poor excecutions. Investors in a capitalization-weighted index fund don't have the same problems, except to the extent that the entire index is moved relative to stocks outside the index. This latter problem, I suspect, is small and practically eliminated in tax-managed funds.

4. Folio investors and small investors in individual stocks at least don't have to worry about their trades moving markets, assuming the security has decent liquidity.(see #1).

5. Folio investors and those who trade liquid securities at market will have some good trades and some bad trades: these will cancel each other out to some extent.

6. Check the bid-ask spread. The internet seems to think that volume isn't a particularly reliable measure of liquidity. Bummer. Nonetheless, a minimum daily volume of 100,000 shares is a common rule of thumb in the ETF industry. http://seekingalpha.com/article/223190- ... -weisbruch My take is that very low volume stocks tend to have wide bid-ask spreads, but once a certain volume threshold is passed the relationship is no longer clear. [Compare Agrrawal and Clark to Timothy Johnson (2006)]

7. Does Vanguard get better execution than somebody with an FolioFN account? I would guess, "Yes", though I can't say for sure since Vanguard moves prices more than FolioFN.

8. FolioFN's argument for superior executions:
https://www.folioinvesting.com/content/ ... wtrade.jsp
https://www.folioinvesting.com/brokerag ... trades.jsp

"The bid (sell) price for a stock is $20.00 while the ask (buy) price is $20.10. Therefore the bid/ask spread is $0.10 per share.

Window trades can result in a price improvement because when we match our customers' buy and sell orders, we execute the trade internally at the midpoint of the bid/ask spread. Using the examples above, your buy or sell for the stock would be at $20.05, thus saving $0.05 a share for the buyer and the seller — in this example, that would save $5 per 100 shares."


9. A poster at the Motley Fool evaluated folioFN's trade executions and generally speaking approved:

http://boards.fool.com/foliofn-trade-ex ... 94401.aspx
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Postby CompareContrast » Mon Oct 25, 2010 12:57 am

Execution
I found some discussion of execution from the mid 1990s: unfortunately it is somewhat out of date given subsequent SEC rule making. Big institutional funds apply Transaction Cost Analysis, but as far as I can tell execution is impossible for the retail investor to evaluate well.

I could make some test trades at FOLIOfn, but it's unclear how they should be benchmarked. If I wanted to see whether they were godawful or not, I suppose I could just compare the prices to the ones quoted by google at the beginning of the trading window, at say 11AM. That's what the Motley Fool poster did. I could also compare them to the trading range from 11AM to 12 noon. Though that might ID terrible execution, it would provide no comparison to Vanguard's Total Stock Market Portfolio, or even to an active fund. I'm not sure what to do.
-------------------------------------------------------
Tax Loss Harvesting
Investing in a collection of companies should generate tax harvesting opportunities. As an example, take the venerable Dow Jones Industrial Average. It is up 6.8% for the year. But almost half of the companies in the index declined: three dropped by more than 10%. They could be swapped into a group of Vanguard sectoral ETFs for the 30 day wash sale period.
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As noted earlier International Funds often have expense ratios upwards of 0.50%. And it might make sense to evade countries with over-valued currencies. So I see some potential for Foliofn in that area.
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Those with a sizable FolioFN portfolio are "locked in". I can't imagine transferring hundreds of small lots to another brokerage. If FolioFN's customer service took a precipitous dive, I would probably have to just sell off my investments and take a substantial hit from the capital gains tax.
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Postby livesoft » Mon Oct 25, 2010 5:31 am

You left out WellsFargo from your roundup of your commission-free ETF trading. This is strange since WF has had commission-free trades of ETFs long before any of the others you mentioned. Furthermore, WF has had commission-free trades of not only ETFs, but also stocks and mutual funds as well.

I am curious how your research into commission-free trades could have missed the leader in this category. What else has your research missed?
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Postby dbonnett » Mon Oct 25, 2010 11:16 am

Zecco has 10 free trades a month, stocks or ETFs . Poor tracking of buy and sell.
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Postby CompareContrast » Tue Oct 26, 2010 10:17 pm

My research was entirely with google. I trust I missed quite a few brokers. I encourage everyone to post their faves. (I have no business relationship with FOLIOfn.)

I used to bank with WF and left due to customer service issues. I see that their standard charge per trade is $20 per stock or ETF -- but their PMA accounts charge no commissions for the first 100 trades in a 12 month period -- $6 after that. You need to keep $25,000 in qualifying bank accounts, including CDs. https://www.wellsfargo.com/investing/st ... s/standard

You could probably build some simple folios with 100 trades per year (7 trades per month, plus tax harvesting), though I'd be careful to evaluate Wells Fargo's tax documentation. In my experience, Wells Fargo representatives would offer to modify my bank accounts in ways that would not benefit me during most telephone or personal encounters. 90% of the time I would turn them down. For the remaining interactions, I would say, "Sure... I mean, what was that again? Could I take that back?"
"I just put it in the system."
"Ookay, can you take it out of the system?"
"Sorry. [Gotcha-ya!]"

So be sure to keep your guard up.
----

Zecco offers 10 free stock trades every month - provided you have a $25,000 balance or 25 trades per month. After that it's $4.50 per trade.

----
As far as I can tell Sharebuilder no longer has a plan that compares well to FolioFN. Sharebuilder offers 2 plans for automatic investing, which permits purchases of partial shares. The Basic plan is $4 per investment -- I assume that means $4 per stock and not $4 per basket. The advantage plan permist $1 per investment, with 12 free investments included. Their window opens every Tuesday.

Buy and Hold has a $15/month plan with unlimited investing. That's $180 per year. They don't appear to be set up for basket investing as well as FolioFN. Does anybody have experience with them? I passed them over some months ago when I was first looking into this.
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Postby Default User BR » Wed Oct 27, 2010 1:10 pm

CompareContrast wrote:I used to bank with WF and left due to customer service issues. I see that their standard charge per trade is $20 per stock or ETF -- but their PMA accounts charge no commissions for the first 100 trades in a 12 month period -- $6 after that. You need to keep $25,000 in qualifying bank accounts, including CDs.

That's not correct. The free transactions come with a linked PMA account. The $25k comes in to avoid the monthly fee for the PMA checking account. You also don't have to have the money in BANK accounts. It's all your brokerage accounts and even 10% of mortgage balance aswell. My WF bank account has $5.

CompareContrast wrote:You could probably build some simple folios with 100 trades per year (7 trades per month, plus tax harvesting)

My portfolio is far from simple, and I never come anywhere near using all the free transactions. It's also 100 free for each linked account, so if you have Roth and brokerage accounts they'd each get their own set of 100. It's also not limited to 7 per month. I realize that you were probably averaging the trades, but it could leave a false impression.

CompareContrast wrote:though I'd be careful to evaluate Wells Fargo's tax documentation. In my experience, Wells Fargo representatives would offer to modify my bank accounts in ways that would not benefit me during most telephone or personal encounters.

I can't speak to your experience with the banking division. The brokerage representatives have never offered to alter my accounts. I can't even imagine what they would offer. There aren't many options when you get down to it for a discount brokerage.



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Postby livesoft » Wed Oct 27, 2010 1:21 pm

WF is the only one of my brokers that downloads into TurboTax complete and accurate 1099's at tax time. Vanguard does not. TDAmeritrade does not.
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Postby CompareContrast » Fri Nov 19, 2010 6:35 pm

Wells Fargo indeed seems like an excellent choice for ETF trading. Incidentally, I asked for brokerage materials at my local WF branch, and they told me to go online. It seems that their business units are separate, which I find reassuring.
----------------------------------

I initially wondered whether Foliofn's flat rate pricing could potentially make it competitive with the expense ratios of Vanguard's mutual funds. The rough answer is, "No". If the portfolio is less than $500,000, an expense ratio of 7 basis points for the SP500 index will cost you under $350 per year, roughly equal to FOLIOfn's annual fee. Portfolios above that amount run into SIPC limits. FOLIOfn offers supplemental insurance to SIPC from unamed syndicates at Lloyd's. Unlike Wells Fargo, FOLIOfn doesn't report a credit rating for those syndicates: my understanding is that the financial strength of these insurers can vary. I am wary of substituting FOLIOfn for the lowest cost index funds.

Not all index funds are low cost though. Vanguard doesn't offer country-specific index funds, so you're stuck with Blackrock/iShares. When expense ratios exceed 0.40%, FOLIOfn seems like a viable alternative in some cases. This goes doubly (or triply) for actively managed funds. Taking 0.40% ER as a somewhat arbitrary cutoff, folio investing might be appropriate under the following circumstances (as well as others: add your own!):
  • You believe that a low-turnover portfolio manager might have special mastery of a particular market segment such as REITs. So you substitute a folio for an active fund, taking weights and selections from the 10Qs.
  • You think that you can build your own ADR index that substitutes for an international index fund, especially a single country fund.
  • You want to build your own dividend weighted index, substituting for the ETFs offered by Wisdom Tree. Wisdom Tree's international expense ratios hover near 0.48%.
  • You are an investment hobbyist, and want to try out a hypothesis that involves collections of companies, as opposed to individual stock picking. FolioFN apparently has a backtesting tool. Or maybe you have your own social screen that you want to apply.
The other advantage is tax harvesting. A good portfolio tracking program might help here as well. Quicken is one option. One reviewer at the American Association of Individual Investors (AAII ) liked Investment Account Manager.

I'm less concerned about execution after reading the Motley Fool post. Also, execution declines in importance as holding periods lengthen. There is one caveat: any test conducted with a small amount of money isn't likely to be representative of larger investments. FolioFN's process has 3 steps. First they try to match buyers and sellers internally. They may also dig into their own stock of shares. What they don't and can't do is send a fractional share trade to their market makers. So I suspect that bids and asks involving trades of less than one share will have superior execution than larger trades. So if I test FolioFN by buying 40 stocks with $200, the experiment might not scale very well.

My biggest concern is lockin: if things sour with FolioFN, I'll be stuck with a motley collection of odd lots. At that point options include cashing in my shares and incurring a hefty capital gains tax, or transferring my 200+ positions over to an outfit still doing window trades. I should hope that LongTermBuyAndHold doesn't disappear. (WF might be another option, assuming their framework hasn't changed.) FolioFN has remained in business for over 10 years without terrible customer reviews. But they could be bought out at any time. Furthermore they are a private company, so their financials are difficult to evaluate, SEC reporting notwithstanding.

More immediately, I need FolioFN to play nice with Turbo Tax. This may not happen, and it may not be Foliofn's fault. I often pay more than $300 in foreign taxes, so I have to file an 1116. In the past, I've filled that form out by hand. The 1116 instructions recently changed to explicitly permit breaking out foreign income by mutual fund, rather than by country (thanks IRS!). I plan to make some trades with Foliofn and evaluate how well it meshes with Turbo Tax-- and the extent to which Turbo Tax automates the 1116. This is a make or break issue for me. I will also observe whether the special REIT boxes in the 1099 export adequately.

In short, IMHO and with caveats, with regards to expense ratios:
    Efficient Index Fund > FolioFN > Actively Managed Funds

    FolioFN ?>? certain less efficient index funds in some cases, eg international ones?

...but FolioFN provides potential tax harvesting opportunities as well.
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Postby CompareContrast » Sat Nov 27, 2010 10:45 pm

Googling message boards, it seems that one poster had his account compromised at Foliofn:
http://www.portfolio123.com/mvnforum/vi ... 3&offset=0

Hackers ordered trades for an illiquid stock -- a variant of the pump and dump scheme. The SEC and SIPC didn't make person whole. The top post on page 2 of the thread is recommended: it notes that scammers have done this trick since the mid 2000s and that folioFN apparently hasn't put in place the sort of security arrangements that some other brokerages have. At Vanguard, they track your login computer, which fights against this.
---------------------------------------------------------

Well, I have my analysis of FolioFN's execution quality: at bottom it is inconclusive, as I can't figure out the proper way to set up a good test. See my previous post. That said, the purchase prices for the 11AM window trade seemed comparable to the 11AM trades listed by yahoo. Unsurprisingly, the variance tended to be larger for lower volume, illiquid stocks.

Here's the spreadsheet:
Image

I chose stocks with a range of volumes, from just over 1000 shares for a thinly traded ETF to almost 3 million shares by noon of that day for Coca Cola. They are sorted by volume at noon. Most of the stocks are traded once per minute or more, but some had as few as 3 trades during the entire day. I compared the price I received from FolioFN to yahoo prices quoted at 11AM (the beginning of the trading window) and 12AM.

Focus on the last column - FP vs 11AM. Window trade prices tend to drift farther away from the 11AM quote as volume goes down, unsurprisingly. Note that for illiquid stocks, the price received can be much better or much worse. This is my central conclusion.

On average, window trades cost 11 basis points above the 11AM price quote. Take out the low volume stocks and that drops to 3 basis points. Take out the arguably illiquid MTEX and I get a 7 basis point differential.

Generally speaking, I would want to trade shares that have a minimum daily volume of 100,000 shares and and at least 1 million dollars trading every day. Stocks that do not qualify by that criteria are labeled "Ill". Still, there are high volume securities that are highly volatile, like the hapless ZLC -- one can receive a price different than posted at 11AM for that, but at least it's a "Real" price, and not one imposed by a market maker.

More charts. The S&P500 fluctuated in the hour after the 11AM window opened:
Image
Though PKN had only 3 trades during the day: I didn't receive a godawful price: it was only a little elevated. Then again, I was trading between 10 and 50 shares of the stock: this experience may not scale up to larger trades:
Image

Look at APSA! There were bona fide trades much higher and lower than the price I received. It seems that FolioFN isn't eager to fleece me.
Image

For CRESY, I received a price substantially greater than the 11AM opening -- but below the 12AM price by a greater extent:
Image

As always, comments are welcome and appreciated.
Cold links:
http://i1032.photobucket.com/albums/a40 ... tion1a.png
http://i1032.photobucket.com/albums/a40 ... ndNoon.png
http://i1032.photobucket.com/albums/a40 ... t2023c.png
http://i1032.photobucket.com/albums/a40 ... 62451c.png
http://i1032.photobucket.com/albums/a40 ... v2010c.gif

-------------------
ETA: Did some quick statistical analysis in Excel. When making window trades, don't just be wary of low volume: beware of low priced stocks as well. Then again, the sample size above is worrying small.
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Postby dbonnett » Sun Nov 28, 2010 5:00 pm

This is consistent with my live observations. It almost looks like someone is vacuuming up pennies.
Sometimes I wonder if the house doesn't give you the ask price (of the low volume stock) of that time period and then simply goes short rather than go out and buy $50 worth of a stock (1.3866 shares). It then would give you the ask when you sell. To some extent they would be a market maker. This possibly could be very profitable on a large spread. Hopefully they are not also buying and selling at window trade time; keeping the choice pieces for themselves and passing on the 'ends" to the customers.
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Postby CompareContrast » Sun Nov 28, 2010 7:11 pm

Well, better hoovering pennies than taking scalps...

Like many brokerages, FolioFN receives "Payments for order flow" from their market makers. Some portion of that 3, 7 or 11 basis point differential can be explained by ordinary market movements after the 11AM opening of the window. So it's unclear who is making how much. At least we know for the small trades I made that the House didn't invariably favor itself. The fool.com poster reported similar findings. Still, if you can manage to hold your shares for five years or more on average (with allowances for tax harvesting), even 2*10 = 20 basis points for the round trip will amount to 4 basis per year, or $40 on $100,000.

This issue of execution probably deserves more attention. Vanguard is clearly concerned with it, as they have instituted ever tightening controls on frequent trading. Perhaps a budding researcher could get a handle on the problem by measuring the performance, expenses and turnover of a number of index or even mutual funds -- it might be possible to statistically net out trading costs. How do they compare with fund expenses or brokerage commissions?

Odds and ends:

Incidentally, I was impressed by FolioFN's interface - they provided the sort of options that I would want. FolioFN doesn't sponsor a forum for users, which is probably understandable, though they have a blog. I might think about dropping by fool.com or portfolio123. If Turbo Tax plays nice with FolioFN and the 1116, I'll look into the ADR country fund concept. I see that ADRs trade at all volumes -- very high and very low.
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Postby yobria » Sun Nov 28, 2010 10:59 pm

FOLIOfn always seemed good for people who just didn't have enough complexity or bookkeeping in their lives...

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Re: Experiences with FOLIOfn?

Postby defender86 » Wed Jan 04, 2012 6:11 pm

I recently opened an account with Folio and have done a couple of dozen window trades, both buys and sells. My impression so far is not great. Examining the window trades compared to raw sales data for the one hour window (11AM-12 noon), on sells, I seem to be getting the lowest 25% range on prices and on buys I seem to be paying in the top 25%. As such, not only am I seeing no price improvement, but I seem to be getting just the opposite. I would be very interested in getting feedback from other Folio customers to find out if their experience is the same. Of course Folio has no internal forum so users are forced to go outside, such as here at Bogleheads.
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Re: Experiences with FOLIOfn?

Postby peekaboo » Wed Aug 01, 2012 5:19 pm

Couple of years ago, a financial advisor highly recommended folio investing and insisted this is the only broker he worked with, but I am skeptical about it since there are not much review or information about this company.

Now I have serious doubts about them... recently I opened a trial account but haven't done much with it and it expired, when I logged in after the expiration, it prompted me to open the account again for real investment (which is fine). However in the middle of the process it showed an error saying you cannot view this page, so I called their number for support.

First agent, looked at my account info, asked for full social security number and reset my account using ss# as password (bad idea), it didn't solve the problem but still the same problem. Then she insisted it was my computer problem (which I know very well it is not) and pushed me to restart my computer and hang up.

Second agent, again asking the same thing but when I insisted I have tried everything even on multiple computers, finally he said I don't understand you and hang up.

Third agent, much more helpful and after several tries, he's able to correct the problem in their system. He is helpful and stay with me the whole time, instead of just pushing me away like the first two.

My biggest concern is they have no clue what they are doing and the person who answered the phone also has complete details of me including social security number, work, home info ....etc. What prevents a disgruntled employee from taking those information for fraud or illegal activities? There are secret question and answer in the profile which they never asked but interestingly on their site, only the last 4 digit of the social security is shown!

I wouldn't be surprise if they have other IT problems but for financial institution, this is a fatal problem; how do they keep customer financial data? Are they safe and well backed up, do they follow all the federal rules, since this is a private company, there are no much scrutiny into it. It looks like a start up with no well established guidelines in operations.

I am reversing my decision and not to use folio.
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Re:

Postby hpowders » Sun Jan 20, 2013 10:27 am

dbonnett wrote:My issue with them was the execution price I received at "window trade" time (10:30am). It appeared to be higher than the price of execution at that time on Yahoo. It involved several lightly traded ETFs.

http://finance.yahoo.com/echarts?s=^GSPC#chart3:symbol=^gspc;range=5d;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined


Yes. When you use their window trades, you will notice quite a few of their executions are above the ask price. What would you expect? How on earth could Foliofn stay in business charging only $290 a year for unlimited trades? They take their cut by selling you shares at a price above asking price, which is their commission.
Last edited by hpowders on Sun Jan 20, 2013 10:38 am, edited 1 time in total.
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Re: Experiences with FOLIOfn?

Postby hpowders » Sun Jan 20, 2013 10:32 am

peekaboo wrote:Couple of years ago, a financial advisor highly recommended folio investing and insisted this is the only broker he worked with, but I am skeptical about it since there are not much review or information about this company.

Now I have serious doubts about them... recently I opened a trial account but haven't done much with it and it expired, when I logged in after the expiration, it prompted me to open the account again for real investment (which is fine). However in the middle of the process it showed an error saying you cannot view this page, so I called their number for support.

First agent, looked at my account info, asked for full social security number and reset my account using ss# as password (bad idea), it didn't solve the problem but still the same problem. Then she insisted it was my computer problem (which I know very well it is not) and pushed me to restart my computer and hang up.

Second agent, again asking the same thing but when I insisted I have tried everything even on multiple computers, finally he said I don't understand you and hang up.

Third agent, much more helpful and after several tries, he's able to correct the problem in their system. He is helpful and stay with me the whole time, instead of just pushing me away like the first two.

My biggest concern is they have no clue what they are doing and the person who answered the phone also has complete details of me including social security number, work, home info ....etc. What prevents a disgruntled employee from taking those information for fraud or illegal activities? There are secret question and answer in the profile which they never asked but interestingly on their site, only the last 4 digit of the social security is shown!

I wouldn't be surprise if they have other IT problems but for financial institution, this is a fatal problem; how do they keep customer financial data? Are they safe and well backed up, do they follow all the federal rules, since this is a private company, there are no much scrutiny into it. It looks like a start up with no well established guidelines in operations.

I am reversing my decision and not to use folio.


I believe you are referring to Jon Markman. I followed his advice for a while, opening a Foliofn account. I noticed that on buys and sells, his execution prices were always better than mine, so I quit both Foliofn and Markman's market advice.
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Re: Experiences with FOLIOfn?

Postby raptor9118 » Sun Jan 20, 2013 11:47 am

I was thinking about using FOLIOfn, but after some research, I'm having doubts. I found this site where employees rate their workplace and it seems like most are dissatisfied working there and they have a high turn-over rate, which seems to support peekaboo's assessment.

http://www.glassdoor.com/Reviews/FOLIOf ... 214427.htm


peekaboo wrote:Couple of years ago, a financial advisor highly recommended folio investing and insisted this is the only broker he worked with, but I am skeptical about it since there are not much review or information about this company.

Now I have serious doubts about them... recently I opened a trial account but haven't done much with it and it expired, when I logged in after the expiration, it prompted me to open the account again for real investment (which is fine). However in the middle of the process it showed an error saying you cannot view this page, so I called their number for support.

First agent, looked at my account info, asked for full social security number and reset my account using ss# as password (bad idea), it didn't solve the problem but still the same problem. Then she insisted it was my computer problem (which I know very well it is not) and pushed me to restart my computer and hang up.

Second agent, again asking the same thing but when I insisted I have tried everything even on multiple computers, finally he said I don't understand you and hang up.

Third agent, much more helpful and after several tries, he's able to correct the problem in their system. He is helpful and stay with me the whole time, instead of just pushing me away like the first two.

My biggest concern is they have no clue what they are doing and the person who answered the phone also has complete details of me including social security number, work, home info ....etc. What prevents a disgruntled employee from taking those information for fraud or illegal activities? There are secret question and answer in the profile which they never asked but interestingly on their site, only the last 4 digit of the social security is shown!

I wouldn't be surprise if they have other IT problems but for financial institution, this is a fatal problem; how do they keep customer financial data? Are they safe and well backed up, do they follow all the federal rules, since this is a private company, there are no much scrutiny into it. It looks like a start up with no well established guidelines in operations.

I am reversing my decision and not to use folio.
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Re: Re:

Postby defender86 » Sun Jan 20, 2013 1:43 pm

hpowders wrote:
dbonnett wrote:My issue with them was the execution price I received at "window trade" time (10:30am). It appeared to be higher than the price of execution at that time on Yahoo. It involved several lightly traded ETFs.

http://finance.yahoo.com/echarts?s=^GSPC#chart3:symbol=^gspc;range=5d;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined


Yes. When you use their window trades, you will notice quite a few of their executions are above the ask price. What would you expect? How on earth could Foliofn stay in business charging only $290 a year for unlimited trades? They take their cut by selling you shares at a price above asking price, which is their commission.


I believe that brokers get paid for "order flow" so one might hope that they get paid for order flow and not by getting you executions out of line with concurrent trades.
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