Quantcast

Robo Adviser

17/01/2020

The Basics

A robo-adviser is simply an online investment service which typically asks you about 10-15 simple questions and then allocates you to a suitable basket of investments.  And manages these for you on an ongoing basis. 

The big plus for less confident investors is that you don't have to pick all the individual investments – they do it for you. Simples! 

It's still a small and growing market and many of the players are new and unfamiliar brands. But hold onto your hats – lots of the Big Boy Banks have now entered the robo ring too.

In a nutshell

• All-in fees are almost always under 1% – so fair value
• The sites are usually user-friendly and easy enough to navigate on mobile
• Typically choose from between 5 and 10 investment portfolios
• These are built to range from very mild to super spicy in terms of investments

Is It Right For Me?

Good if you ...

  • Need a simple, all in one solution
  • Have a timeframe of 5 years+
  • Are fed up with low interest rates

Not Good if you ...

  • You need to access the money soon
  • Have credit card debt to pay off
  • Will faint if markets have a bad year

The Numbers

The Detail


Guide to Robo Advisers

A robo-adviser is simply an online investment service which asks you about 10-15 simple questions and then puts you into a suitable basket of investments. And manages this pool of assets for you on an ongoing basis. You don’t have to choose the ingredients – this is all done for you.

Once online you will either self-select a ‘risk profile’ or go through a series of simple questions which will allocate you to a risk profile. In the same way that a curry menu uses 1 – 3 chillies to show you how spicy your meal will be, the investment world will usually grade you between a 1-5 when it comes to how spicy your investment mix should be.

Starting with Cautious moving up through Balanced and onwards to Aggressive. Cautious portfolios will behave the most like cash but also carry some investment risk. That £100 could turn into £110 or maybe £90 over say 3 years. The Aggressive one could turn into £140. Or maybe £60. No pain no gain but over the longer-term the more sense it makes to be in something more volatile as the upside is better. 

The longer your investment horizon, the more likely it is that you can ride out the choppy nature of the more aggressive portfolios. Although they are called robo advisers, be careful about how much advice you are getting. Not all of them have people on the end of phones who can help you through the process and guide you and offer up suggested paths of action. The benefit of going to what the regulator sees as an ‘adviser’ is that you have recourse for some poor decisions made. With the DIY brigade it’s up to you. Robo advisers are a great addition to the landscape but they are not a like-for-like substitute for an experienced financial adviser today. They’ll help you assemble a portfolio of assets and help manage them on an ongoing basis. But they won’t give you full financial advice and manage the whole bigger financial picture of your life.


How much might I make?

The million dollar question. It depends on what happens in the global stock markets. And how spicy your portfolio is.


As a guide, over the 12 months to Sep 2018, the mildest, most cash-like portfolios returned an average of 0.7%; the medium risk portfolios returned an average of 4.3% and the higher risk portfolios 7.1%. 

If you had invested in the FTSE100 (in a tracker fund) by comparison the returns would have been 6.1%. The leading easy access cash ISAs would have paid you 1.2%. 

These numbers are all after costs. 

Returns aren't like cash – we don't have a crystal ball. There will be some years where it goes backwards. And some years when they jump. Have a look at our Best Buys product cards for more performance details.


If you'd like to read more, check out the robo 'Learn Path' for individual performance. 


If you want to hear from other people who have opened accounts with these guys please visit www.boringmoney.co.uk/best-buys/


What do 12-month returns look like?

Since January 2018 Boring Money have held test accounts with 19 robo advisers and investment platforms. We opened the accounts with an initial deposit of £500 and have been analysing returns net of charges. 

Higher risk robo portfolios will have mostly shares inside, as well as less risky assets such as bonds, and cash. Inversely, lower risk robo portfolios will be mainly made up of bonds and cash, which are ‘safer’ than shares because they’re less volatile. Each portfolio will have a different amount of each asset, therefore these portfolios are not necessarily like-for-like which can contribute to the different returns you see. We have tried to select accounts with are as close to 60% shares as possible, which in most cases constitutes a "medium risk" investment option. 

The contributing factors to any relative and short-term underperformance are charging structures (Fidelity and Barclays both have minimum £ monthly charges which impacts a £500 account), fees (The Share Centre and Hargreaves Lansdown have ongoing fund charges of 1.56% and 1.43% respectively which are much heftier than the ‘passive’ robo advisers ) and asset allocation (Charles Stanley Direct had just 44% in shares in a year when global stock markets typically did well. So a conservative chunk in shares gives the portfolio less oomph).

 

A fairer way to look at performance for those with total sums of £50,000 or more…

The below is arguably a fairer way of illustrating performance, removing the fixed fee versus the % fee argument from the table for a second. If we assume that the £500 fund or portfolio was held as part of a bigger £50,000 investment account, this of course dilutes the blow of any fixed fees or monthly minimums.

For example, Barclays has a £4 a month minimum fee which sounds pretty reasonable, but takes a huge bite out of a £500 account every month! Looking at this as part of a £50,000 portfolio, the impact of this minimum monthly charge disappears and we see the Barclays relative performance look much healthier.

 

 

To see the full list of how robo advisers and investment platforms have done with their "ready-made" investment solutions click here. 


Help me choose

 

Our Best Buys will show you who we rate and why, as well as what their customers think. We also segment the providers according to who is the most helpful for less experienced and less confident investors.

According to the user vote, the ones you are most likely to recommend as at January 2020 are PensionBee, Moneybox, Santander and True Potential, 

www.boringmoney.co.uk/best-buys

Got a question? Ask our experts

Ask Our Experts

Sign up for Holly's blog

Stay up to date

Our free weekly blog with Holly's
no-nonsense opinions, tips & food for thought.
If you change your mind, you can unsubscribe at any time. We'll never share your details and you can unsubscribe any time.