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USAA Wealth Management Review

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USAA

USAA, or the United Services Automobile Association, is a San Antonio-based financial services company that primarily serves military members and their families. USAA offers insurance, bank and investment products, as well as financial advisor services. The company's division devoted to portfolio management is called USAA Investment Management Company. This division has $25.3 billion in assets under management.

Although most of USAA services are only open to military members and their families, the company’s investment products and services, including its managed portfolios, are available to the general public. The majority of the division’s clients are individuals who don't have a high net worth, but it also serves high-net-worth individuals, pension and profit-sharing plans, charitable organizations and corporations. Its custom program accounts are available to accounts of at least $500,000. However, it also has a digital investment advisor and wrap program accounts that require lower minimums.

USAA Background

USAA began in 1922 when a group of 25 military officers agreed to insure each other's cars. Since then, the company has grown to serve military personnel and their families across the U.S.

In addition to insurance, USAA now also offers banking, investment advice and retirement planning. USAA subsidiary USAA Investment Management Company, which offers investment advice, has been in business since 1970.

What Types of Clients Does USAA Accept?

Unlike other USAA services and products, which are only available to USAA members, the company’s investment products and services are open to the general public. The investment management division’s primary clients are non-high-net-worth individuals, though it also serves high-net-worth individuals. USAA Investment Management Company also has institutional clients, including pension plans, profit-sharing plans, charitable organizations and corporations.

USAA Minimum Account Sizes

As noted above, USAA Investment Management Company’s account minimums vary by portfolio type. The lowest required account minimum is for USAA's Digital Investment Advisor Program Accounts, a robo-advisor program that requires a minimum account size of $2,000 and a minimum annual account fee of $10. Wrap Program Accounts require a minimum investment of $25,000 and a minimum annual fee of $275. If clients invest a minimum of $250,000, they can receive USAA's wealth management service in addition to a wrap program. Clients will work one-on-one with a wealth manager to explore financial topics beyond investment management.

Custom Program Accounts require the highest minimum. The minimum is generally $500,000, with the exception of certain types of securities and asset allocation models. For instance, most corporate bonds and municipal bonds programs require a higher minimum than $500,000, as does the conservative stocks program, which calls for an account minimum of $875,000. A minimum annual fee of $275 is required for all Custom Program accounts.

Services Offered by USAA

As a whole, USAA can provide a wide range of services:

  • Insurance, including health insurance
  • Banking
  • 529 plans
  • Real estate 
  • Retirement and IRAs
  • Retirement planning
  • Financial planning
  • Investment management

USAA Investment Management Company, a division of USAA, is focused primarily on discretionary portfolio management. Investors interested in the USAA Managed Portfolios (UMP) program have three program options to choose from, with three model portfolio types offered in the wrap program:

  • UMP Digital Investment Advisor Account: includes low-cost, passive investments
  • UMP Wrap Account: includes actively managed mutual funds and passively managed ETFs
    • USAA Fund Wrap Program Accounts: mainly invests in USAA-affiliated mutual funds
    • Marketplace Fund Wrap Program Accounts: mainly invests in third-party mutual funds, which aren’t affiliated with USAA
    • ETF Wrap Program Accounts: primarily invests in third-party EFS
  • UMP Custom Account: includes a wide range of assets, including stocks and bonds

USAA Investment Philosophy

USAA say its takes a disciplined approach to money management that's derived from the company's military values. The company says it relies on research and a defined portfolio building process, "even if it causes us to deviate from the crowd." USAA fundamentally believes that the markets are often inefficient. It thus actively manages client portfolios, focusing particularly on global valuation and risk management.

To determine whether a UMP Wrap or Custom account is right for a particular client, USAA will review an investor's financial situation, investment objectives, risk tolerance, time horizon, tax situation and other relevant information. The firm's asset allocation strategies include strategic allocation, which is aimed at reducing risk and volatility, and tactical allocation, which is focused on maximizing market opportunities. Seven model portfolio options are offered, with styles ranging from conservative to very aggressive. USAA generally recommends its model portfolios to investors with a time horizon of at least five years.

Fees Under USAA

USAA fees vary by account type, each of which is subject to a minimum annual fee. Digital Investment Advisor Program accounts are subject to a minimum fee of $10, while Wrap Program accounts and Custom Program accounts are both subject to a minimum annual program fee of $275.

Clients are charged based on a percentage of assets under management. USAA calculates its net account fees differently than many financial firms do. Each annual net fee is calculated by subtracting an annual credit amount from the annual gross program fee. The company may instead subtract the sum of the investment management/advisory fees charged by USAA Mutual Funds, depending which is greater. USAA charges its fees in this manner in an effort to reduce a potential conflict of interest caused by the fact that its clients may invest in USAA Funds, which an affiliate company, USAA Asset Management Company, receives compensation for managing. Because this creates an indirect financial interest for USAA Investment Management Company to include these mutual funds in client accounts, it credits back the money that its affiliate collects to clients.

Below if USAA’s provided fee schedule for its three program types, with the annual net program fee rate listed:

Wrap Program Fee Schedule
Account Value Maximum Annual Net Program Fee Rate
Up to $125,000 1.10%
$125,001 - $250,000 1.00%
$250,001 - $500,000 0.85%
$500,001 - $1,000,000 0.75%
$1,000,001 - $2,000,000 0.65%
$2,000,001 - $10,000,000 0.50%
Over $10,000,000 Negotiable

 

Custom Program Fee Standard Schedule
Account Value Maximum Annual Net Program Fee Rate
Up to $125,000 1.10%
$125,001 - $250,000 1.00%
$250,001 - $500,000 0.85%
$500,001 - $1,000,000 0.75%
$1,000,001 - $2,000,000 0.65%
$2,000,001 - $10,000,000 0.50%
Over $10,000,000 Negotiable

 

100% Fixed Income Allocation Custom Program Fee Schedule
Account Value Maximum Annual Net Program Fee Rate
Up to $500,000 0.50%
$500,001 - $1,000,000 0.40%
$1,000,001 - $2,000,00 0.30%
$2,000,001 - $10,000,000 0.20%
Over $10,000,000 Negotiable

 

Digital Investment Advisor Program Fee Schedule 
Account Value Maximum Annual Net Program Fee Rate
$2,000 up to $10,000,000 0.50%
Over $10,000,000 Negotiable

Note that in addition to program fees, clients with Wrap Program accounts will also pay fund fees, which tend to be higher for mutual funds than for ETFs. UMP Custom Account customers must also pay an investment management fee, which is a maximum of 0.60% for equities and 0.25% for fixed income securities. However, the investment management fee schedule is also tiered, with breakpoints provided:

Custom Program Account Assets Marginal Equity Rate Marginal Fixed Income Rate
Up to $500,000 0.60% 0.25%
$500,001 - $1,000,000 0.50% 0.20%
$1,000,001 - $2,000,000 0.40% 0.15%
$2,000,001 - $10,000,000 0.25% 0.10%
Over $10,000,000 Negotiable Negotiable


What to Watch out For

If you tend to prefer working in person rather than online, note that USAA does not have many physical locations. USAA previously had more financial centers open, but closed the majority of them in 2017 because most of its customers preferred to use its mobile app and website. Of its 21 financial centers, only four remain open in San Antonio; Colorado Springs, Colorado; Annapolis, Maryland and West Point, New York.

Though USAA has structured its fees to alleviate the conflict of interest posed by the fact its affiliate receives compensation for managing mutual funds in client accounts, prospective and current clients should still be aware of this dynamic and how it affects the company’s fee structure.

Additionally, USAA does have disclosures -- see more below.

Disclosures

According to FINRA's records, USAA Investment Management Company has been subject to a total of six disciplinary events over the last 30 years. However, most of these events occurred more than 10 years ago and were relatively minor in scope.

Opening an Account With USAA

To get started with USAA, you'll first have to answer a few questions so it can determine your risk tolerance. Based on that, USAA will recommend a portfolio. You can then fill out an application and open your account.

To open a managed investment account with USAA, you must be a U.S. resident with a legal U.S. mailing and physical address. For a Digital Investment Advisor Program account, you must also have a valid email address. Additionally, applicants must agree to the terms and conditions outlined in the USAA Managed Portfolios Investment Advisory Agreement and also sign the account application. Your account will not be opened until USAA has received and accepted your application and you've fully funded your account with the required minimum initial investment.

Prospective clients can get more information by using the chat functionality on the USAA website or by calling USAA at 800-531-USAA.

Where Is USAA Located?

USAA is headquartered in San Antonio. It also has financial centers in Colorado Springs, Colorado; Annapolis, Maryland and West Point, New York.

Tips for Finding a Financial Advisor

  • Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.  
  • Note an advisor's areas of expertise and typical client base. Whether you're looking for help with estate planning, wealth management or retirement planning, ensure the financial advisor you choose to work with has experience in that area or a relevant certification.

How Many Years $1 Million Lasts in Retirement

SmartAsset's interactive map highlights places where $1 million will last the longest in retirement. Zoom between states and the national map to see the top spots in each region. Also, scroll over any city to learn about cost of living in retirement there.

Least
Most
Rank City Housing Expenses Food Expenses Healthcare Expenses Utilities Expenses Transportation Expenses

Methodology SmartAsset calculated the average cost of living for retirees in the largest U.S. cities. Using that calculation, we determined how many years $1 million would last in retirement in each major city.

First, we looked at data from the Bureau of Labor Statistics (BLS) on the average annual expenditures of seniors throughout the country. We then applied cost of living data from the Council for Community and Economic Research to adjust those national average spending levels based on the costs of each expense category (housing, food, healthcare, utilities, transportation and other) in each city.

We assumed the $1 million would grow at a real return (interest minus inflation) of 2%, reflecting the typical return on a conservative investment portfolio. Finally, we divided $1 million by the sum of each of those annual numbers to determine how long $1 million would last in each of the cities in our study.

Sources: Bureau of Labor Statistics (BLS), Council for Community and Economic Research