The robot revolution gathers pace

A new wave of robo-advisers has entered the digital wealth-management market, but investors should still demand more choices and lower fees.

There’s a quiet revolution brewing in the world of online investing. The first wave started a decade ago with the rise of online stockbroking platforms, which brought down dealing costs and sparked a wave of DIY investing. Then came the rise of robo-advisers – a rather daft term to describe what are in effect online wealth managers or advisers. These platforms use the internet to get information from you (on your risk preferences, your financial outlook and plans), then add in a few algorithms to help put together a portfolio of funds, usually low cost, passive exchange-traded funds (ETFs). In truth, though, many of the decisions made as to which funds to invest in were every bit as “human” as you’d expect from a professional adviser. This first wave of digital wealth advisers consisted of Nutmeg (I would guess still the biggest), Moneyfarm and Scalable Capital.

A second wave of providers

Now a second wave of new entrants has hit the market. Some big players have launched their own robo products, chief among them being private banks such as UBS and Investec – trusted brands with a great investment pedigree. They tend to focus on wealthier clients, however. Investec has a minimum investment of £10,000, while for UBS it’s £15,000. Another big player is IG and its Smart Portfolio, which has lower fees and a minimum investment of £500 per portfolio. Alongside these sit smaller companies such as Moneybox, Wealthify and Moola. The latest platform, Exo, launched just this week.

What the new platforms offer

Most of these platforms share common features and should tick nearly all the boxes for most investors. All feature a relatively seamless account-opening process, where you are asked between ten and 20 questions to gauge your tolerance of risk. Nearly all of them then funnel you into a variety of risk-graded portfolios that range from low-risk defensive to adventurous and growth-orientated. All have nice customer interfaces, relatively low costs of between 0.4% and just under 1% a year, oodles of ETFs, and a long-term investment plan with some short-term smoothing of returns.

All of them also, to varying degrees, add some investment management overlay – which means that they’ll shape your portfolio in a dynamic sense as markets ebb and flow, with the aim of minimising risk. Nutmeg, Scalable, and Exo especially make much of their in-house investment expertise, and there’s a sense that these are more focused on wealthier clients who want more bells and whistles and more active risk-reduction strategies. Moneybox, Moola and Wealthify, by contrast, seem happy to accept smaller amounts of money and keep things simple.

What to expect for the future

Most platforms haven’t been around long enough to rack up reliable numbers, so measuring performance is tricky – there’s no independent source that tracks returns. In future, I’d expect more platforms – new and existing – to give more personalisation (choose your own ETFs); better access to funds other than ETFs (Exo is promising this); and lower prices. On this last point I’d expect a serious, major player to launch a cut-price product that costs substantially less than 0.4% for a “bog-standard” product. I’d also watch out for more active portfolios that may even involve active funds and much more tactical investing. Watch this space.


News bytes… a newborn unicorn bolts from the stable

Adena Friedman, the chief executive of Nasdaq, the tech-focused US stockmarket, has said the exchange “would consider becoming a crypto exchange over time”, says Kate Rooney on CNBC. “I believe that digital currencies will continue to persist,” says Friedman, “it’s just a matter of how long it will take for that space to mature… Certainly Nasdaq would consider it.” However, she was less keen on initial coin offerings (ICOs) – selling cryptocurrency tokens to raise money. “ICOs need to be regulated,” she says. “The SEC [the US regulator, the Securities and Exchange Commission] is right that those are securities and need to be regulated as such.” Nasdaq recently partnered with Gemini, the cryptocurrency exchange headed by Cameron and Tyler Winklevoss. Gemini will use Nasdaq’s market surveillance technology to monitor trades to detect fraud.

Digital banking start-up Revolut has become the latest “unicorn” company after a new round of fundraising brought its valuation to £1.2bn, says Jasper Jolly in City AM. The company raised $250m from investors, including Hong Kong-based DST Capital, Index Ventures and Ribbit Capital, which it will use to expand into the US, Canada and Australia. It aims to have 100 million users within five years, says Kathryn Gaw in Peer2Peer Finance News. Revolut initially focused on foreign-exchange transfers, but is now diversifying into more traditional banking activities, and has applied for a European banking licence.

Ranger Direct Lending, the investment trust that puts its money into peer-to-peer lending platforms, has rejected a call by activist shareholder Oaktree Capital Management to wind itself up, says Michelle McGagh in Investment Trust Insider. Oaktree, the second-largest investor in the fund, described Ranger as “a sub-scale platform” whose shares are “too illiquid to attract large institutional investors”. It argued that the trust should wind itself up and return their capital. However, Ranger said that, while it has “considered” a wind up as part of a strategic review it is undertaking, Oaktree had “no serious interest in engaging in the review process” and its comments were driven “solely” by “short-term considerations”.