How much should a person have to invest before they should not invest in a robo advisor?

18 April 2023

Question by David

How much should a person have to invest before they should not invest in a robo advisor?


Answered by Holly Mackay

Hi. I understand the question because it's easy to see a robo adviser as a 'starter' option and not something for squillionaires. However, if they do their job well (manage asset allocation, buy and sell the investments, keep risk under control, etc) then in theory this is a good option for everyone.

The argument I would have against using robo advisers for larger amounts is not really a technical one but a cost one. They tend to cost around 0.5% to 1% depending on how much you have and what you choose. But for larger amounts you can get (for example) a low-cost multi-asset fund from someone like a Vanguard LifeStrategy, or a BlackRock My Map, and pay only about 0.4% - 0.6% a year for this type of option including an ISA or an admin fee, depending on where you buy the fund.

Robo advisers will give you a nicer journey and help you to pick the right risk profile for you. So there's more help. But if you don't need this help and you simply want a low-cost ready-made diversified option, they can be a bit pricey for larger accounts. So it does depend on what you value.

I tend to think of robo advisers as good starter choices for people who are saving into ISAs and pensions, who have pretty simple affairs and who have less than about £75k and want a helping hand. However technically, if you can get the price down, there is no academic reason they couldn't be a good choice for someone with a lot more who wants an easy life with limited faff. I hope that helps.

Holly

Answered by

Holly Mackay

Founder and CEO of Boring Money

I’ve worked in investment markets for over 20 years. I started out at Merrill Lynch Investment Management and worked at a few big names before setting up my first business in 2008.