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Covestor was founded in London in 2007 and has a U.S. office in Boston, MA. They are an online investment company for individuals who want a better way to invest. Their platform and technology allow them to deliver specialized active and passive investing services at a lower cost while still providing you with the benefit of online convenience.  And they are a registered investment advisor. Covestor has been featured in Kiplinger's, Forbes, Barron's and The Wall Street Journal. They have also been seen on CNBC and Bloomberg. Their exposure on such prominent news sites lends some credence to their abilities and reflects a positive trend when it comes validating the popularity of this new and growing way to invest.

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The Good

  • Covestor difference
  • Process
  • Never any associated fees
  • How Covestor makes money
  • Portfolio managers
Covestor is becoming one of the industry's most innovative and powerful investing marketplaces. They differ by providing investors a direct connection to top-notch money managers, all with a single goal in mind, which is to do everything humanly possible to bring you the highest possible returns on your investments. Covestor is a unique new way to take charge of your investing needs. However, since this is such a new concept, let's take a few minutes to explain exactly how everything works and how that translates into a benefit for you:

Covestor Difference

You are probably wondering what makes Covestor different and if this isn't just some clever marketing ploy. Well, Covestor has low management fees that start at 0.03% and brokerage fees that are about a dollar a trade; therefore, they can save you a significant amount of money. Your money stays in your account and you continue to have full control over your funds, as well as the ability to change your portfolios any time you want. Covestor prides themselves in being completely transparent, as they don't have any hidden fees. You always know exactly what you will be charged, the style of your research manager's investment strategies and his performance. Additionally, Covestor offers a wide variety of portfolios, with management fees that start at 0.03% to 1.5%. This makes it easy for you to choose only the things that are suitable for you and they also offer financial professionals who would be happy to help. And you don't have to be rich to gain access to one of the portfolio managers on the Covestor platform. Covestor is a relatively new concept and this idea was brought about because not all talented investors are on Wall Street. With the Covestor platform, you will be given the ability to discover some of the next up-and-coming portfolio managers and invest with them before everyone else does.

Process

It's an extremely simple and very powerful concept. Covestor provides you with unmatched access to all the talent and experience of their marketplace full of portfolio managers. Then your portfolio is matched to the appropriate money manager's personal portfolio. When that money manager places a trade, that same trade is placed for you, trade for trade. This makes for a smarter and much easier way to invest. So let's go over how all this works in four simple steps:
  1. Covestor only selects portfolio managers who meet their exact criteria and those same portfolio managers stay on a continual vetting and monitoring process. Therefore, only the best meet the Covestor criteria and are qualified to make the cut. And those same portfolio managers are investing their own money as well; therefore you can be sure that their best interests are your best interests. Additionally, you will be able to view any given portfolio manager's verified track records, as well as positions and trades on the Covestor's site. This means you will be able to see exactly how and what they are doing at all times.
  2. You find a portfolio manager who matches your own personal style. If you prefer a bold investor, pick someone who matches that persona. If you prefer a slow and steady portfolio manager, then pick someone who has that type of style. Covestor's portfolio managers encompass a wide range of sectors, strategies, and risk levels. It's easy to do as Covestor offers a risk score that's associated with every portfolio, so you can quickly find someone who matches your style in just a glance. Additionally, every portfolio is benchmarked against the broad market (represented by the S&P 500 index) and a second specialist index if needed. You will also like the fact that you can switch portfolios at any time and at no extra charge, no fees, and no penalties. And if that wasn't enough, you won't incur any entry fees, exit fees or load fees either.
  3. When your chosen portfolio manager makes a trade using their own money and their own account, the same trade is automatically made for you as well, within seconds, so you never miss an opportunity. One caveat, however, there are certain trades your portfolio manager makes that you might be protected from by Covestor's trading rules. This is to safeguard you from undue risk and that will give you some peace of mind that your money is being protected as much as possible.
  4. You are always 100% in control every step of the way. That means if you want to switch managers, take some of your profit or cash-out completely, go ahead. There's no problem because everything is up to you. And since you always have a completely transparent view of your Covestor account and your portfolio manager's activity via Covestor's online investor portal, you will always be able to make sound decisions about what you want and need to do. Additionally, you will receive regular updates on your portfolio activity.

Never Any Associated Fees

With Covestor, there are never any associated or hidden fees added to your account. You will never pay sales fees, load fees, entry fees or exit fees. And you will never be charged for cash that is not currently invested in any given portfolio. It should be important to note that most trading fees are less than a $1 but there is no specified fee.

How Covestor Makes Money

When investing with Covestor, you pay a single fee for assets in your Covestor account. Depending on who your portfolio manager is that fee will range from 0.03% to 1.5% per year. Covestor keeps 0.25% and your portfolio manager receives the rest. All Covestor transactions are executed quickly by Interactive Brokers, which is a firm who has been around for more than 35 years and has upwards of $5 billion in equity capital. Furthermore, every trade will cost an average of $1, which is exactly what the brokerage firm charges Covestor, so no markup there. And Covestor never marks up any transaction costs as they are forwarded directly to Interactive Brokers.

Portfolio Managers

Covestor portfolio managers are selected based upon three pieces of critical criteria points. The most popular portfolio's among existing clients, the top performers at each risk score level and which ones are the most consistent performers. Each portfolio manager who leads each of these criteria points is named the Covestor Champions. All Covestor trades are executed by Interactive Brokers, LLC, which is a member of the Securities Investor Protection Corporation (SIPC). Therefore, all your assets are protected up to $500,000 in value, including $100,000 in any cash awaiting reinvestment.
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The Bad

  • High minimums
As with all our company reviews, we will present you with all the facts, the good and the bad. This will help you make an educated decision about whether or not any given company is the right fit for you and your particular financial situation. Drawbacks include:

High Minimums

For actively managed portfolios, Covestor requires that you fund your account with a $10,000 minimum.  However, if you plan to invest in a number of portfolios or those who trade heavily, Covestor recommends you fund your account with a minimum of $30,000 to prevent your account from being locked under SEC pattern day trading rules. For Covestor qualified hedge-fund-like strategies designed for qualified investors who have at least $1 million invested at Covestor or have $2 million in assets, the management fees plus performance fees and investment minimums start at $500,000. Well, fortunately, there are no other potential issues to report about Covestor, nor do they have any negative feedback of any kind on any of the online public forums. It's not often that we can't find at least a few things we feel you should be aware of; however, this is one of those times.
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The Bottom Line

Covestor is a fairly new, innovative way of investing and one that is becoming more and more popular as it leaves little room for error. Therefore, due to Covestor's positive online reputation, their popular platform, their easy to use website and their unique fee structure, we have no problem giving them a high recommendation. However, just as with anything else, we recommend that you perform your own due diligence before deciding whether or not they are the right fit for you.
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