Robo-advisers have been hitting the headlines recently, with the UK’s biggest banks set to launch automated, online services designed to provide investment advice. Today, it was reported that RBS is moving to axe staff in favour of robo-advisers in order to cut costs, but what exactly are robo-advisers?
Robo-advisers are online wealth management services which provide automated, algorithm-based portfolio management advice. Doing away with the need for human financial advisers, customers get tailored investment advice based on the personal and financial circumstances.
CBR lists 5 UK robo-advisors changing the wealth management landscape, bringing it into the digital age.
1. Nutmeg
Founded in April 2011, Nutmeg is an online investment management company based in London. As an online discretionary investment management company, Nutmeg makes all investment decisions on behalf of its customers, instead of providing a platform for people to trade on. Nutmeg manages 10 portfolios, each with a different mix of investment assets. Ranging from ‘cautious’ to ‘aggressive’, Nutmeg works to create a diversified portfolio for the customer, investing money in different types of assets, countries and industry sectors. In this way it dilutes the risk on investments made.
Led by CEO Nick Hungerford and CTO William Todd, Nutmeg primarily uses ETFs (Exchange-Traded Funds) as the primary vehicle used to invest customer funds. Nutmeg has a minimum investment of £1,000 per fund created, with fees starting at 0.95%.
2. Money on Toast
Working via an intelligent algorithm, Money on Toast has collected expert knowledge of financial advisers and programmed an ‘online advice journey’ based on how they would conduct an appointment with an investor. The intelligent algorithm captures the expertise of many different experts, with the company stating that the new technology is akin to how Google replaced the yellow Pages – ‘Just as Google replaced the Yellow Pages, new technology allows an algorithm to perform many of the functions a human adviser could and in some cases, better.’
The free online service guides you through a series of questions designed to assess financial and personal circumstances, with the portfolios on offer spanning unit trusts, OEICS and tracker funds. There is a minimum investment of £10,000 per month, or £500 per month, with fees at 1.69%.
3. Wealth Horizon
Described as an online advised investment management service, Wealth Horizon uses academic theory to build portfolios tailored to investor requirements. Wealth Horizon will give an investor a ‘Personal Recommendation’, based on the information provided to the company. The automated process is designed to provide advice of a restricted nature based on restricted information provided by the investor, but is not, Wealth Horizon is quick to assert, a full advisory service. It aims to match investment objectives with an investor’s risk tolerance and risk capacity.
Once the decision to invest has been made, the company’s investment management team makes decisions to buy and sell investments on your behalf in line with the risk grade you have selected. There is an initial 0.25% fee, which rises to c.0.93% per annum, with a minimum investment fee of £1,000.
4. Wealth Wizards
Wealth Wizards have dedicated 6 years to the technology which sits at the core of its online pension advice service. The company uses algorithms to score an investor’s profile in order to tailor personal circumstances to suitable solutions. The scoring approach contrasts with the decision-tree approach used by other companies, as these generally result in ‘crude’ and ‘general’ results.
Based on academic evidence, the company uses asset allocation of investments – the proportion of your pension pot which is put into different types of investment – as a means of determining the balance of risk vs. reward. The cost of providing advice through Pension Wizard is typically £100 per employee per year which includes an Annual Review.
5. Fiver a Day
Offering 24/7 access and discretionary fund management at no extra cost, Fiver a Day deploys an algorithm based on your personal preferences. Like Wealth Wizards, Fiver a Day works on a scoring system in order to establish an investor’s attitude to investment risk. Asked a series of questions, each answer produces a score and these are then aggregated to calculate your specific level of tolerance for risk, from 1 (low) to 10 (high).
Aimed at UK residents only, Fiver a Day charges 0.25% of each initial contribution. That works out at, for example, £0.75 if you invest £300 per month or £0.25 if you invest £100 per month. Further fees are incurred at a rate of 0.34% per annum – together with the initial fees, investors will look to pay fees c.0.82% per annum.
