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Robo Advisor

The basics of robo advisors

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

  • Built to range from very mild to super spicy in terms of investments

What is a robo advisor?

A robo adviser is simply an online investment service which typically asks you about 10-15 simple questions and allocates you to a suitable basket of investments. It then 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, 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.

Is a robo advisor right for me?

Robo advisors introduced

Most recommended

Unsure where to start? Our independent team have scoured the markets, set up test accounts and really put these companies through their paces. Our 2022 Best Buy awards are based on a combo of our independent analysis and customer reviews. All scores include how thousands of other investors rate their providers along with their recommendation score. If you are an existing customer, feel free to add your score to the mix here.

The three robo advisers shown above won our overall Best Buy ISA award in 2022.

If you are after a Lifetime ISA then Moneybox and Nutmeg can help.

How to choose a robo adviser

When it comes to risk levels, many people often pick the middle option (like going for the third cheapest wine in a restaurant!) because they think it's the safest bet. However, that's not always the right choice.

1. Choose your timeframe and risk level

For short-term investing, you may find that it's safer to keep your money in a low-risk portfolio. But if you're happy to keep it hidden away for a longer period of time, you may get better returns by investing it in a high-risk portfolio with greater exposure to the stock market.

2. Choose your risk preference

Timeframes aside, you also need to select a risk profile that you’re comfortable with. For instance, if stock markets plummet by 20% in one day, will you have a meltdown and sell up in a panic? If so, you may want to stick to a low-risk fund that invests mainly in cash and bonds. If not, you could consider a medium or high-risk fund that invests mainly in shares.

3. Still a bit unsure?

Find out more about how to choose a robo adviser.

How do I know which risk category is right for my financial goals?

High or medium-risk portfolios may be a better option for the following:

  • Saving for your pension

If you're not expecting to retire for at least 10, 20, or even 30 years, you may get better returns from a high-risk portfolio. As you approach retirement age, you may decide to switch your investments to a low-risk portfolio. A financial adviser is best placed to assist you here. Use our Adviser Directory to find one suited to your unique needs!

  • Saving for your children when they are still very young

If your child is only 2 years old, you can keep putting money into their Junior ISA until they're 18. 16 years is a long time to ride the waves of the stock markets, so you can usually afford to take on a little more risk. If your child is older - say, 11 or 12 - you may feel more comfortable with a low-risk portfolio as you have less time to regain any losses before the little one gets access to the cash.

Low-risk portfolios may be a better option for the following:

  • Saving for a mortgage within 3-5 years

For example, if you’re under 40 and have a Lifetime ISA (LISA), keeping your money in a low-risk portfolio may be a safer bet if you plan to use all or most of your investments to fund a mortgage deposit in the next few years. If you plan to continue topping up your LISA until you’re 50 in order to fund your retirement, you might want to consider switching to a medium or high-risk portfolio instead, as you have much more time to offset any losses on the stock market.

  • Saving for your pension if you plan to retire within 3-5 years

Likewise, if you plan to draw an income from your pension savings within 3-5 years, you might be more comfortable with a low-risk portfolio as it will be less exposed to any short-term market volatility.

Robo adviser performance (since Jan 2020)

Performance will change based on what risk profile you pick.

In layman’s terms, the higher the risk profile, the better it can do when things are buoyant but the worse it can do when things hit the skids. With the exception of the post-Covid panic in early 2020, and the Russian invasion in early 2022, it’s been a decent time for stock markets and so the higher risk portfolios have done better over the last two years.

Robo adviser performance (higher risk portfolios since Jan 2020)

Here are the top 5 for this High Risk category since Jan 2020. Click here to see all providers and relevant details.

Robo adviser performance (medium risk portfolios since Jan 2020)

Here are the top 5 for this Medium Risk category since Jan 2020. Click here to see all providers and relevant details.

Robo adviser performance (lower risk portfolios since Jan 2020)

Here are the top 5 for this Low Risk category since Jan 2020. Click here to see all providers and relevant details.

Robo advisors vs UK shares

A core benefit of robo advisor advice is having a diversified portfolio managed on your behalf. This means that you get a wide mix of investments, unlike people who just buy a few shares and are totally exposed to the UK market only.

Nutmeg has the longest track record of any robo adviser. Since its launch in October 2012, their 8/10 portfolio has returned 96.3%* compared to the FTSE 100 which has returned 31.1%* (*up to the end of March 2022).

Many robo advisors have only been in the market for a couple of years, so comparisons with shares can be challenging due to the usual fluctuations from year to year. For example, from the beginning of 2020 to the end of 2021, the S&P 500 rose an astonishing 47.34%, but the FTSE 100 fell by 3.12%. These percentages could look very different in the next couple of years, but we shall see.

What you need to know about robo advisers

How robo advisers invest for you

Robo advisors typically ask you about 10-15 simple questions and then put you into a suitable basket of investments. They then manage 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 adventurous your investment mix should be. Typically starting with Cautious, moving up through Balanced, and onwards to Aggressive.

Cautious vs balanced vs 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 it makes more sense 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 advisors, 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, guide you, and offer up suggested paths of action. The benefit of going to what the regulator sees as an ‘advisor’ is that you have recourse for some poor decisions made, whereas with the DIY brigade, it’s up to you.

Robo advisors are a great addition to the landscape, but they are not a like-for-like substitute for an experienced financial advisor today. They’ll help you assemble a portfolio of assets and 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.

Help me choose!

Our Best Buys will show you who we rate and why, as well as what each provider's customers really think about them. We also segment the providers according to who is the most helpful for less experienced and/or less confident investors.