Science-fiction writers have long been predicting that robots will take over the world, and those predictions could soon come true in the lucrative investment advice market.
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. With an estimated 80% of the general population priced out of receiving any help from a traditional financial adviser or financial planner, robo advisers are being promoted as an affordable alternative. But how do these robo advisers work and how can you compare the services offered by different providers?
Robo advice offer
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Robo advisers you can compare today
|Name||Launched||Account minimum||Fees||Investments used||Investment strategies||Asset classes||Download|
|Stockspot||2014||$2,000||$0 for the first 6 months then $6.60 per month||ETFs||5 – Aggressive Growth, Growth, Balanced, Moderately Conservative, Conservative||Australian Shares, Global Shares, Property, Bonds and Cash||No download link available|
|InvestSMART||July 2015||$5,000||0.67% – 0.97% p.a.||ETFs||10 – High Growth, Growth, Conservative, Balanced, Income, International Equities, Property, Fixed Income, Intelligent Investor Growth, Intelligent Investor Equity Income||Australian Equities, International Equities, Property, Cash, Fixed Interest, Alternatives||No download link available|
|Ignition Direct||November 2015||$5,000||From $198 to $660 per year||ETFs||11 – Capital Secure, Capital Plus, Capital Plus Kickstarter, Income, Income Kickstarter Balanced Kickstarter, Growth Kickstarter, Growth Plus, Growth Plus Kickstarter||Cash, Global Equities, Australian Equities, Property, Market-Specific Funds, Small Company Funds||No download link available|
|Quiet Growth||August 2015||$2,000||0.4% – 0.6% p.a.||ETFs||5 – Based on your risk tolerance factor from 1 to 5||Australian Shares, Developed Market Shares, Dividend Shares, Emerging Market Shares, Bonds, Natural Resources||Download|
|Acorns Australia||January 2016||$5||$1.25 per month (for accounts under $5,000) or 0.275% p.a. (for accounts over $5,000)||ETFs||5 – Conservative, Moderately Conservative, Moderate, Moderately Aggressive, Aggressive||Australian Large Cap Stocks, Asian Large Cap Stocks, European Large Cap Stocks, US Large Cap Stocks, Australian Government Bonds, Australian Corporate Bonds (Fixed Income), Australian Money Market (Cash)||Download|
|OwnersAdvisory by Macquarie||December 2015||N/A||$55 per statement of advice + $45 monthly subscription fee||Shares, ETFs and managed funds (investment advice only)||N/A – Provide details about your risk tolerance to receive tailored investment advice||Advice given across Australian and international shares, ETFs and managed funds||No download link available|
|Six Park||2016||$10,000||$10.95/month or 0.35%-0.50% p.a||ETFs||5 - Conservative, Conservative balanced, Balanced, Balanced Growth, Aggressive Growth||Australian shares, International shares, Listed properties, Emerging market shares, Australian fixed income/bond, High yield cash assets||No download link available|
Robo advisers in Australia
Alternative investment classes
What is a robo adviser?
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.
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 was launched in 2013 and was 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.
Stockspot charges an annual advice fee of $77 plus a monthly management fee of between 0.044% and 0.077% of your account balance. You will also need to set up a Macquarie Cash Management Account when you open a Stockspot account.
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, Acorns Australia 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 Acorns Australia 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 Acorns Australia’s technology. Your money can be invested in a choice of five 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).
OwnersAdvisory by Macquarie
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.
Plenty (formerly CapitalU)
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 launched in 2016 after two years of testing, with more than $2 million of customer funds under management. Six Park offers five investment portfolios ranging from low to high risk. When you invest with Six Park you’ll pay a one-off establishment fee and a balance-based management fee. The management fee is deducted from your account every month and is calculated based on your average account balance in the preceding month. The management fees start from $10.92/month + GST for account balances between $10,000 and $24,999, and then range from 0.35% to 0.50% a year for accounts above $25,000. There is no annual administration fee.
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.