The free portfolio is here....

• Covestor said this week it is building portfolios of ETFs for free.
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• Look out, smalltime financial advisors!

The wall of investment-management fees has been crumbling for some time. Wealthfront, another firm offering basic, pre-set ETF portfolios, last year said it would manage up to $1 million for 501(c) nonprofit organizations for free. Fees after the first million: 0.25%. The firm recently surpassed $1 billion in assets under management.

These efforts turn the typical model of the financial-advice business on its head. Advice is a scale business. The wealthier you are, the lower your fees. But it’s arguably the smalltime investor who could benefit the most from being freed of high fees.

In that regard, advisors often charge 1% or more a year to manage your money, on the theory that you won’t do it yourself, they can’t do it for much less and you can’t get a better deal elsewhere.

But if, like me, you don’t expect more than 6% annual long-term gains from stocks, an advisor who puts you in expensive mutual funds after laying in his own fee is siphoning away perhaps a third of each year’s expected return. Of course, he takes none of the risk. That’s reserved for you.

Compound lost returns over 20 or 25 years to see why your advisor drives a Jaguar and you drive a Honda.

Covestor’s program entails no management fee, just the underlying ETF expense ratios, which are measured in fractions of a percentage point, and trading commissions, which the firm estimates to be $20 a year.

So what about the portfolios? They’re about as basic and low-cost as the ETF market offers.Covestor Core Balanced Portfolio, targeting the Dow Jones Moderate Index, is invested in four funds from Vanguard Group and one from BlackRock’s (BLK) iShares.

That’s 33% in Vanguard Total Stock Market ETF (VTI), 24% in iShares Core U.S. Aggregate Bond ETF (AGG), 15% in Vanguard FTSE Emerging Markets (VWO), 13% in Vanguard FTSE Developed Markets ETF (VEA), and 5% in Vanguard REIT ETF (VNQ). Those ETFs’ combined weighted expense ratio is less than 0.08%. 

This is no threat to the high-end financial advisor. But I expect to be a threat to the ones who charge smalltime investors 1% or more.