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How to pick a good robo adviser

17 Jan, 2022

You’re probably considering – or may have already used - a robo adviser because you don’t have the time or the confidence to pick your investments yourself.

Robo advisers are supposed to take all the stress out of investing!

How does a robo adviser compare with other investment options?

Well, first of all, it's important to point out that the term ‘robo adviser’ can be a bit misleading. Robos DON'T give you personalised advice in the way that a financial adviser does. But they DO differ from DIY investing by giving you access to a ready-made portfolio of funds. This portfolio will vary depending the level of risk you're willing to take.

Millions of people are already using robo advisers – but how can you pick out the cream of the crop?

Here are five things to bear in mind when choosing a robo adviser!

1 - Will it make your life easier?

First of all, the alternative route - picking your own investments (otherwise known as DIY investing) is a bit like planning a dinner party. It might take you hours to come up with a decent recipe. Then you have to buy all those complicated ingredients. And you might have to weigh everything. And chop a dozen other things. And cook it all. And you’re not even sure if your recipe’s any good - but you’re hoping your guests will be kind if it's not.

Now, some people might find that enjoyable. But others might find it downright terrifying.

A good robo adviser is kind of like a company that provides you with a tried-and-tested recipe and delivers the ingredients straight to your door (aka Gousto or Hello Fresh).

2 - Will it save you time?

Since all you have to do is the 'cooking' stage of your investment journey, you should save you a lot of time!

(and all the 'cooking' stage really involves is sitting back and watching your investments take care of themselves, for the most part).

3 - Are the fees less than 1%?

Every investment management platform comes with fees - that's unavoidable, sadly. But most robo advisers shouldn’t charge you more than 1% in total. Anything higher than that and you might want to look elsewhere.

Look out for any other hidden fees. A good provider should always be transparent. You shouldn’t have to spend several minutes trying to figure out how much the platform will cost you for a specified amount (i.e. the total cost of investing £1,000, £5,000, and so on).

4 - Make sure the provider offers products that are relevant to your financial goals

For example, if you're looking to save up for a home or a pension, you may want to open a Lifetime ISA. Put in up to £4,000 a year and get an automatic 25% bonus from the Government (after each year). But remember that not all robo advisers will offer this type of ISA, so check beforehand.

5 - What sort of track record does your provider have?

Robos are still the new(ish) kid in town, so it's difficult to get long-term data (i.e. 5 years+) on returns.

But have a look at how your provider performed last year, the last two years, or the last three years. How did it compare to other robo advisers?

You can also check out our comparison page here. Use the advanced filter feature to tick 'Robo adviser' to find the best-rated and most-popular providers.

Have any questions? Ask an adviser.