Disenchanted with mutual funds, some investors are turning to a pair of online registered investment advisory firms to create managed accounts that mimic the investments of preselected managers.
Covestor Investment Management, a New York and London company, and kaChing in Palo Alto, Calif., are attracting assets by targeting a segment of mass-affluent investors that other financial advisers might ignore.
"We want to give the middle class and regular investors access to the same wealth management products that the wealthiest individuals have access to," said Perry Blacher, Covestor's chief executive officer.
Covestor requires a minimum initial investment of $10,000, and kaChing requires a $3,000 minimum. Blacher said that Covestor has been accumulating assets quickly in the past five months - increasing its assets more than 50% monthly - but he would not specify its total assets under management. "When we launched in July, we said that we wanted to reach $10 million in assets by the end of the year, and we expect to more than accomplish that goal," he said. "Our goal now is to get to $1 billion in assets under management. We hope to get there in three to five years."
Analysts said that platforms offered by companies like Covestor and kaChing are not for every investor. Burton Greenwald, president of B.J. Greenwald Associates in Philadelphia said they require more of a "do-it-yourself approach at a time when investors are begging to have their hand held."
KaChing draws clients from an association with Facebook, whose users include 31,000 active kaChing customers. Covestor, which has more than 25,000 clients, began in July to offer individuals the opportunity to mirror the investment strategies of 25 investment professionals by investing in managed accounts. On Wednesday, Covestor expanded its platform to all individuals or professional investors in an effort to increase the number of portfolios it could offer.
Blacher said the platform is attractive to investment professionals because it offers them the chance to build portfolios that can develop a track record. Covestor pays money managers half the fees it collects from investors who mimic investment portfolios.Both Covestor and kaChing are Securities and Exchange Commission-registered investment advisers. Blacher said Covestor has safeguards in place to monitor money managers.
Greenwald said it could be difficult for this type of company to attract significant assets but that he would not be surprised to see them bring in $3 billion collectively in the next three to five years.