Acorns Australia: is it robo advice?
Acorns offers a convenient and inexpensive way for Australians to invest their small change, but is it a robo advice service?
The robo advice revolution is sweeping the Australian financial services industry. Designed to make investment advice more accessible for a wider cross-section of Australia, these services provide digital investment advice for a fraction of the cost charged by a traditional financial adviser.
Acorns Australia is at the forefront of this revolution, providing a convenient way for Australians to invest the small change from their everyday purchases. finder.com.au sat down with George Lucas, Acorns Australia’s CEO and managing director, to find out how the service works and the benefits it can offer to investors.
Not robo advice
Acorns is regularly mentioned as one of the leading players in the rapidly expanding robo advice industry in Australia, but Lucas is quick to point out that this is not what his company does.
Acorns is not technically robo advice. However, we offer a similar service,” he says.
So what is it exactly that Acorns does? Lucas explains that the company provides a simple and convenient micro-investing platform to the Australian market.
The idea came from Walter and Jeff Cruttenden, who saw that you needed to have a minimum of $5,000 to $10,000 to start investing in the markets – either through funds or broker accounts,” he says.
“They wanted to introduce micro-investing so that young people and the mass affluent could start investing and be fully invested from as little as $5.”
This is, in a nutshell, what Acorns aims to do: spread financial market literacy and the benefits of saving to a much greater number of Australians who don’t usually access traditional financial advice.
Managing your money
So Acorns isn’t technically a robo adviser, and it’s also not focused on generating maximum returns for its clients. Instead, Lucas says Acorns is based on a passive strategy.
After providing some details about their financial objectives and risk tolerance, customers can choose from one of five diversified portfolios designed to match their investment goals and the level of risk they’re comfortable with.
The portfolios have been created by Nobel prize winner Harry Markowitz so they are robust portfolios, but if you are looking for the best returns or the best fund manager, Acorns isn’t the product,” Lucas says.
“In return we are inexpensive. Acorns is about saving/investing small amounts regularly and getting people to understand two things:
- By saving small amounts regularly you can save more than you think without affecting your lifestyle
- That saving 2% more will significantly increase your final nest egg compared to trying to find a manager who can get you 2% more return than the average.”
Each of the five portfolios available from Acorns – Conservative, Moderately Conservative, Moderate, Moderately Aggressive and Aggressive –are created from seven exchange-traded funds (ETFs). These seven ETFs are weighted differently for the five portfolios.
“So the conservative portfolio has more than 50% in cash and fixed income, while the aggressive has more than 85% in equities,” Lucas says. “The strategy is passive – both at ETF and asset allocation level. We have two people who look at markets and trade, but a lot of their time is also to produce educational material as one of the big attractions of Acorns is financial literacy.”
If market fluctuations cause some of your portfolio assets to appreciate or depreciate to the extent that it is more than 5% off the target allocation for your chosen portfolio, Acorns automatically rebalances your portfolio to bring it back in line.
Choosing an adviser
Robo advice is still a relatively new concept in Australia, with new companies and investment opportunities becoming available all the time. The exact way in which robo advisers will reshape the financial advice landscape remains to be seen, but it’s thought that rather than taking the place of traditional financial advisers, the two will be able to co-exist side by side.
But regardless of whether you choose online financial advice or face-to-face investment management, the key things to consider when choosing an adviser remain the same.
Like all advice you need to choose someone who is inexpensive, who you trust and feel comfortable with their advice. Consumers need someone who is transparent and communicates well, even if it is all online,” Lucas says.
So if you want to start investing your money but only have a small pool of funds to start with, micro-investing platforms like Acorns Australia and other robo advisers are well worth a look. The sooner you start saving, the more secure your financial future will be.