This is a guest post from John Gay, CFP of ffplan.com, an online investment advisory practice.

Although not a household name, Folio Investing offers something that virtually no other brokerage firm does: the ability to easily and accurately implement and maintain a percentage-based investment plan.

Most brokerage firms are stuck in the 1950′s. “Hey, Jim-Bob, can you buy me 100 shares of XYZ stock?”

Who does that any more? Most people want to execute a percentage-based asset allocation plan. Let’s say I have 8 different ETFs that I want to buy in a pre-set percentage. To do that at a traditional brokerage firm, I have to convert percentages to dollars then dollars to shares and then individually place each trade. There’s significant time and effort involved, not to mention a high margin of error (what if I miscalculate and buy $100,000 instead of $10,000? what if I overbuy my IRA?).

Then, one year later, if my allocation is off, rebalancing involves a spreadsheet exercise which can quickly get time-consuming and complicated (for example, 8 funds across 4 different accounts creates a multitude of calculations and transactions… and if you’re “tax-engineering” your portfolio across taxable and tax-deferred accounts? What a nightmare).

Folio’s technology platform is built on percentages. It is similar to a 401(k) environment. You create a “folio” and then “subscribe” one or more of your accounts to that folio. Their platform then does all of the calculations and with a few clicks you are invested precisely according to spec.

When you rebalance, Folio offers multiple options from “rebalance only” which buys and sells as appropriate to get you to your target, to “buy only rebalance” and “sell only rebalance” which allow you to deposit or withdraw funds in a way that leaves your account as close to target after the funds are added or withdrawn.

The platform alone would be worth paying a premium for, but Folio offers all trades for $4. That includes stocks, ETFs and mutual funds. Even Vanguard index funds can be bought and sold for $4 each on their basic plan (many brokerage firms charge a premium for Vanguard and other funds, sometimes as high as $75!). Do note, however, that Folio’s basic plan fees are subject to a $15 quarterly minimum and they also charge an annual $25 per IRA fee (they outsource the trustee duties to a bank). Folio also offers an “unlimited” plan for $29 per month which allows unlimited “window” trading and discounted stop and limit orders.

Other valuable features include an almost paperless account opening and transfer environment, automated “specific share” bookkeeping on taxable accounts, and a simple yet powerful performance screen. The performance screen calculates a true “time-weighted” rate of return over any time period you specify and allows you to compare performance to a multitude of indexes or any mutual fund or stock.

Last of all, Folio’s platform allows easy collaboration with others. As a financial adviser, my Folio clients can give me “view-only” access with a few clicks so I can “look over their shoulder” to make sure they have executed my recommendations correctly and to monitor when rebalancing changes are warranted. Or, you can delegate full trading authority to your adviser or someone else to place transactions on your behalf. You can also easily give access to your CPA to pull up tax docs, or to anyone else you choose.

If you want to give their system a try, you can open up an account in minutes and until it’s funded, they don’t charge you. You can set up “test folios” that simulate the real thing to your heart’s content to decide if their platform will meet your needs.

If you think Folio Investing might be a good fit for you, here’s the page to open an account.

If you’d like to compare Folio Investing to other brokerage firms, here’s a comparison of IRAs at various discount brokerage firms.

Let’s start with the obvious: If you don’t feel that you need a financial advisor, there is absolutely no reason to have an account at Edward Jones. You can go elsewhere and find less expensive funds, less expensive stock trades, and lower account fees.

If, however, you do need a financial advisor, should Ed Jones be one of the places to consider?

Let’s take a look.

Advantages of Edward Jones

The primary selling point of Edward Jones is their broad network of local offices. In most parts of the U.S., there will be a Jones office not too far from where you live. If face-to-face interaction with your brokerage firm is important to you, Jones is hard to beat in terms of convenience.

The second primary advantage of Edward Jones is that you’ll have no difficulty understanding your advisor’s recommendations. Jones’ investment philosophy is straightforward. They suggest that you buy and hold a portfolio of comprised of:

1. blue chip stocks,
2. bonds, and
3. actively managed mutual funds (i.e., funds that seek to earn above-market returns).

Edward Jones Commissions and Costs

Per a phone call to Edward Jones’ customer service line, their commissions per stock trade are based on the size of the trade and break down as follows:

• 2.5% for trades less than $6,000
• 2% + $30 for trades between $6,000 and $10,000
• 1.5% + $80 for trades between $10,000 and $25,000
• 1% + $205 for trades between $25,000 and $100,000

That’s likely hundreds of dollars more per trade than you’d pay with a typical discount brokerage firm. Between that and their $40 annual IRA fee, Edward Jones isn’t exactly on the list of cost-effective places to invest.

Edward Jones Conflicts of Interest

The biggest drawback to having an account at Edward Jones (and the other “full-service” brokerage firms like Merrill Lynch and Wachovia) is that your financial advisor is paid on commission. Specifically, Edward Jones financial advisors earn money when you:

• Buy or sell a stock,
• Buy a bond, or
• Buy a mutual fund that charges a sales load.

This payment system leads to Edward Jones clients receiving advice that’s biased in a few ways. For example, an Edward Jones financial advisor will never recommend a no-load mutual fund (even when that’s the best option for the client) because he/she won’t receive a commission if you purchase such a fund.

An additional conflict of interest is created by the fact that Edward Jones receives “revenue sharing” payments from a handful of fund companies.

In other words, certain fund companies pay Edward Jones in order to receive preferential treatment. So if you’re a Jones client, you can expect your advisor’s recommendations to consist almost exclusively of the following fund families:

• American Funds
• Federated Securities
• Franklin Templeton
• Goldman Sachs
• Hartford Investments
• Lord Abbett
• MFS Funds
• Oppenheimer Funds
• Putnam
• Van Kampen Funds

No Online Trading

While it’s easy to check your holdings and account balances on Edward Jones’ website, they don’t actually provide any online trading capability whatsoever. If you want to execute any transactions, you’ll have to call your broker.

The official Jones position is that the lack of online trading is intended to prevent rash investment decisions. To some extent, that makes sense. Personally, however, I find it frustrating. I want to be able to do what I please with my money without having to talk it over with somebody.

Summary

Pros:

• Local offices,
• Personal customer service,
• Easy-to-understand investment philosophy.

Cons:

• Significant conflicts of interest between you and your advisor,
• High costs.

In most cases, if you feel that you need a financial advisor, I’d suggest going with one who charges a simple hourly or annual fee rather than one who is paid via commission. By using a fee-only advisor, you’ll get unbiased advice, and you’ll likely reduce the overall costs on your investment portfolio.

If you’d like to compare Edward Jones to other brokerage firms, here’s a comparison of IRAs at various discount brokerage firms.