Which robo advisor is the best option to manage your investments?
Recent years have seen the emergence of digital financial advisers – known as robo advisers – which take advantage of modern technology to offer low-cost investment management services. Only 20% of Australians get advice. If cost is the reason the majority of Aussies don't get financial advice, then robo advice might be the answer. In this guide we explain how these robo advisers work and how can you compare the services offered by different providers.
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A robo adviser performs many of the same services as a traditional financial adviser. Using complex algorithms and technology, these digital advisers provide financial plans to consumers and automatically manage their investments. The basic operation of these automated financial advice services is quite simple.
Once you provide details of your investment goals, investment timeframe and appetite for risk, the robo advice service generates a recommended investment portfolio, which is usually based on exchange traded funds (ETFs). Once you’ve invested your money, the robo adviser manages your portfolio and re-balances it whenever necessary to ensure it remains in line with your risk tolerance levels.
Proponents of robo advisers say that instead of being influenced by emotion when making trades, digital advisers use algorithms and mathematical models to determine the right asset allocations for investors. They’re also much cheaper than having a traditional financial adviser actively manage your investments, with robo advice available for as little as one-tenth of the cost of receiving advice the old-fashioned way.
Digital advice services are based more on building and maintaining a portfolio than providing strategic advice, so most analysts predict that there will still be a place for traditional financial advisers in the future – in fact, the advantages the technology presents could be very useful tools for financial advisers. However, for the 80% of the population who either cannot afford or are unwilling to pay the fees to receive traditional financial advice, robo advisers offer a convenient and affordable alternative.
Joshua Stega, the financial planner behind personal finance blog The Wealth Guy, speaks to finder.com.au about the rise of robo advice and what it means for your bottom line. Read more…
The rise of robo advice
The robo advice revolution started in the US a few years ago, and since then companies such as Betterment, FutureAdvisor and Wealthfront have enjoyed enormous success. Both Betterment and Wealthfront each manage more than $2.6 billion of customer assets, with the market expected to continue to rapidly expand in coming years.
In fact, research by KPMG has predicted that by the year 2020, robo advisers will manage around USD$2.2 trillion worth of assets. In Australia, the robo advice sector is still in its infancy. We’ve profiled and compared the established players below, with several more providers expected to launch their own robo advice services in the next 12 months.
Stockspot manages thousands of clients, having launched in 2013 as the first provider of robo investment services in Australia. It gives you the opportunity to choose one of five investment strategies suited to your level of risk tolerance, with funds invested in low-fee exchange traded funds (ETFs) across five asset classes: Australian shares, global shares, emerging markets, bonds and gold.
If the account balance is under $10,000, fees for the first six months are $0 and $5.50 per month after that, (children's portfolios remain free if the balance is under $10,000). Balances over $10,000 incur fees ranging from 0.60% per year - 0.36% per year. There are no additional brokerage or administration fees and balances over $50,000 receive access to 'themes', allowing clients to select additional ETFs at no extra cost.
Although its robo advice service was launched in July 2015, InvestSMART has been offering investment advice to Australians since 1999. Once you’ve entered your investment timeframe, appetite for risk and your current assets, the robo advice service provides a financial health check and recommended investment strategy.
There are 10 investment strategies available and InvestSMART’s fees range from 0.67% to 0.97% a year, depending on the amount you invest.
Launched in late 2015, Ignition Direct’s robo advice service offers automated online financial advice, investments and education. Available to people with a minimum of $5,000, Ignition Direct requires you to open a Macquarie Bank Cash Management Account to fund your trades and an OpenMarkets online broking account (from which your trades are placed).
Your risk profile is matched with one of Ignition Direct’s 11 model portfolios. There is a monthly subscription fee and a brokerage fee attached to the service, with prices starting from $198 per month.
Launched in August 2015, Quiet Growth is an automated online investment management provider. With a minimum account balance if $2,000, Quiet Growth can manage investments in individual, joint, SMSF and trust accounts.
Fees start from 0.4% p.a. of the balance you invest, while the first $10,000 you spend is free from this service fee. You can choose from five investment portfolios based on your appetite for risk.
Launched in January 2016 under the name Acorns Australia before rebranding to Raiz Invest, Raiz is the local arm of a US parent company that has offered robo advice to more than one million US investors. It offers something a little different to most other robo advisers by allowing you to link your bank accounts and credit cards to your Raiz account, and then investing the spare change from your daily purchases.
You can set aside a recurring investment amount daily, monthly or weekly, or even invest a lump sum amount with the help of the Raiz app. Your money can be invested in a choice of six diversified portfolios based on your risk tolerance, with fees from $1.25 per month (for accounts under $5,000) or 0.275% p.a. (for accounts over $5,000).
Macquarie Group’s OwnersAdvisory platform lets you access more than 30,000 investment choices in Australia and around the world. Customers can use the online platform to buy tailored investment advice that covers local and international shares, ETFs and managed funds. A $55 fee applies per Statement of Advice, while there’s also a $45 monthly subscription fee.
However, OwnersAdvisory merely offers financial advice and does not execute any investments. You can then take the advice you receive and invest your money through your choice of online trading platform.
Clover aims to make it as simple as possible to build wealth and save money in the process. Founded in 2015, it can help you invest in a diversified portfolio of ETFs based on your personalised risk assessment.
Your portfolio can also be regularly re-balanced to ensure that you are on track to reach your financial goals. Clover had not fully launched at the time of writing, so limited information is available concerning the provider’s investment strategies and fees.
Another online robo advice platform still to launch at the time of writing, CapitalU is an online financial planner and advice service.
By connecting all of your accounts and outlining your financial goals, you can receive a comprehensive financial plan and help to manage your investments. Pricing starts from the free Ulite plan through to the $37 per month + 0.3% charge attached to the comprehensive Ustar management investment plan.
Six Park was founded in 2014 to offer professional, low-cost investment advice to Australian investors. Six Park offers five investment portfolios ranging from low to high risk. These portfolios contain exchange-traded funds representing different asset classes - Australian and international shares, global property, global infrastructure, emerging markets, bonds and high-yield cash assets. Six Park's asset allocation is overseen by its experienced Investment Advisory Committee, which includes former JP Morgan Australia chairman Brian Watson AO and former Finance Minister Lindsay Tanner.
Management fees are: 0.50% p.a for balances between $10,000 - $199,999.99, 0.40% p.a for balances between $200,000 - $499,999.99 and 0.30% p.a for balances above $500,000.
In addition to the online robo advice services listed above, it’s also worth pointing out that there are some robo advice services that are only available through a financial adviser. One such service is Guru, which was launched in June 2015 by Yellow Brick Road Wealth Management. The initial Guru session is free and takes place with a Yellow Brick Road Money Coach, allowing you to assess your financial goals and what you need to do to achieve them.
Access to the robo financial management tool and a Yellow Brick Road adviser is then provided for an ongoing fee. The big banks are also moving into the robo advice sector. NAB rolled out its Prosper service to 40,000 customers in September 2015. Available through Internet banking, Prosper asks customers questions about their current financial situation and future goals before providing tailored advice and assessment. Initially designed to provide personalised advice on super and insurance, Prosper is scheduled to expand into debt, cash flow, investments and estate planning in the future.
How do I sign up to a robo advice service?
Although the exact signup process differs between robo advisers, you will generally need to follow these steps:
Provide your name, contact details and proof of identity.
Complete a questionnaire regarding your investment timeframe and your tolerance for withstanding market fluctuations.
The robo adviser generates a recommended investment portfolio. This is often accompanied by a Statement of Advice, which is required by Australian law if you are being given personal advice.
If you’re happy with the investment portfolio, you can opt to proceed with the recommended strategy.
Provide your bank account details to fund the investment.
The robo adviser invests your money in the chosen portfolio.
The robo adviser monitors your portfolio and makes adjustments when necessary to make sure it satisfies your tolerance for risk.
Robo advice is changing the face of wealth management around the world and could offer a more affordable way for you to look after your investments. However, make sure you compare the benefits and features of a number of robo advisers before choosing the right service for you.
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