Investors are spoilt for choice when it comes to robo-advisers – also known as digital wealth managers. David Stevenson looks at what’s available, and how they differ.
In the past few years we’ve seen an explosion of online platforms that pull together disparate ETFs (exchange-traded funds) into a personalised online portfolio. The exact composition will vary based on your own risk tolerance and investment timescale. All are low-cost and the technology is clever – most boast mobile apps and all provide great online tools that allow you to monitor your portfolio.
The first wave of providers include Nutmeg, Scaleable Capital and MoneyFarm, but in the past year we’ve had a slew of new entrants. Some are well-known brands such as IG, Investec and UBS, but there are also less familiar names such as Wealthify, Wealthsimple and Exo.
Understanding the differences
Each of the providers is different, and it’s crucial to understand how. Many older investors have been put off by the publicity surrounding these upstarts targeted at millennials, and by advertising that is perhaps a bit too clever for its own good. Many have shouted too loudly about their technology. But they all offer excellent customer interfaces and some boast really user-friendly apps (Wealthify’s is particularly good). All have roughly the same questionnaire-based process that asks largely idiotic and easy-to-game questions about your attitude towards risk and time horizons. They all typically charge between 0.30% and 0.80% a year, with the cost of the underlying ETFs on top – which will probably add another 0.25%. Add everything up and you get a range of between 0.65% and 1% for total cost of ownership.
Simplicity or greater personalisation
For many older investors – possibly with a bit more capital at risk – all the technology and cost differentials will pale beside the question of personalisation and returns, as well as which funds they put their money into. And it is here that new player Exo really stands out.
All the big robos say they’ll personalise your portfolio to varying degrees, but in truth you’ll probably get pushed into a standard model portfolio with a few bells and whistles. Most won’t then fiddle around much. Exo allows you to choose themes you are keen to focus on, and will then tailor your portfolio of ETFs accordingly.
Exo also manages each portfolio and its risk levels on a day-to-day basis, so the portfolio can change quite dramatically over a few months based on their view of the markets. Bigger rivals such as Scalable and Nutmeg also take a more tactical approach to risk management, but Exo feels much more active. It’ll ultimately succeed or fail depending on whether it produces the best returns for investors. Exo also allows you to change your portfolio in real time – so you can move from being aggressively adventurous to very cautious at the click of a button, which is important for investors whose attitudes to risk can change fast.
Which should you choose?
The crucial test, of course, is which provider will give the best return net of fees. Great apps (conspicuously absent on the Exo platform) and excellent education content (a strong feature of Wealthsimple) are fine and dandy, but investors will care most about long-term returns. Cheap and cheerful is no substitute for slightly more expensive but ultimately more lucrative. In this battle you’ll see the likes of Nutmeg, Scaleable, IG (which uses asset allocation expertise from BlackRock) and Exo slugging it out over personalised returns.
News bytes… losses quadruple at challenger bank Monzo
► Losses at Monzo, the app-based challenger bank aimed squarely at the younger generation, rose fourfold in the year to February to £33.1m, up from £7.9m in the previous year, says Nicholas Megaw in the Financial Times. Customer deposits totalled £71.2m – less than £150 per customer. Monzo has more than 750,000 customers operating current accounts, but less than 80% of them deposit their salary in it. Monzo’s chief executive, Tom Blomfield, expects the bank to have a million customers by “September or October”, and says that more than 40% of new customers deposit more than £500 a month. On the plus side, however, the cost to the bank of running each account has fallen from £50 in July 2017 to £15 in June 2018.
► More than 1,000 cryptocurrencies have folded since blockchain mania began, with investors losing billions to failed crypto-projects, says Olga Kharif on Bloomberg. Only 8% of tokens sold in initial coin offerings (ICOs) went on to be successfully traded on exchanges, according to analysis by ICO adviser Satis Group – 81% of ICOs were scams, 6% failed and 5% have since “gone dead”. Of the 8% trading, a third are “dwindling”. Most projects were just white papers (the prospectuses outlining the purpose of the ICO) “studded with promises” but very little substance. “We will see a lot more abandoned ICOs that never make it to an exchange,” Richler Vanierwitz of Coinopsy told Kharif. “ICO investment will become very unprofitable.” Still, ICOs have raised $11.75bn this year.
► Peer-to-peer lender Zopa has moved back into the black, says Rosamund Urwin in The Times. The online loans platform made a pre-tax profit of £111,492 in 2017, while revenue increased by 40% to £46.5m. Since it was set up in 2005, Zopa has lent out more than £3.3bn. It received full authorisation from the Financial Conduct Authority in 2017 and has applied for a banking licence. It hopes to open its online bank within a year and plans to launch an initial public offering in 2020. Zopa came under fire last week after “system maintenance” locked several of its customers out of their accounts, with some being told their account had been suspended, notes Nick Renaud-Komiya on MoneySavingExpert.com.