The robots deciding where your money goes

Written by Lisa Stanley Mann on 11th May 2016

Challenger banks are not the only thing to come out of the fintech revolution. There is also a new wave of investment platforms – AKA ‘robo-advisers’ – designed to make managing our money significantly easier, even, mayhaps, a joy.

What do the words ‘fintech’ and ‘robo-advice’ actually mean?

Fintech is a mash-up of ‘financial’ and ‘technology’: using tech to make financial services more efficient. The majority of the fintech companies grabbing the headlines are start-ups founded to disrupt the established financial players that are still playing catch-up with the new tech or software.

Robo-advice does not come from a robot sitting behind a desk (although that would be interesting). It is automated financial advice given in the form of recommended investments, generated by a set of algorithms and based on your basic personal circumstances. Transparency and simplicity of fees is key to their proposition – arguably a fairer, more honest approach than you will get from the incumbent investment managers.

There is a growing financial advice gap that as many as 16 million people in the UK fall into, according to the Financial Conduct Authority’s recent Financial Advice Market Review.

People in the advice gap will tend to be those who have never previously had an adviser and do not have enough ‘investible’ assets to be able to afford one in human form (human advisers are expensive these days, since a reform of the way financial advice is paid back in 2013 forced them to charge fees upfront).  The advice gappers will therefore tend to be younger people – millennials – who have some money to set aside, but not lump sums of cash, or significant other assets. They don’t feel confident DIY investing, either.

So it’s clear these low-cost robo-advice platforms have a place. And not at all surprising that their target market is this younger, possibly more female set of potential customers.

As more such businesses securing funding – often crowdfunding, and ‘old school’ investors such as Neil Woodford throw support at them, the sector suddenly looks ready to emerge as the dominant force in savings and investment.

Do they offer GOOD investment portfolios?

The platforms prioritise low-cost investing based upon some fairly generic information about you – your attitude to risk, age, occupation, etc. Low cost funds tend to be very basic ‘index trackers’ which invest right across the stock market, so they are not yet a solution for those looking for responsible places to put their cash (ie. us).

We’ve spoken to a number of platforms who have vague “plans” in this direction – but they won’t offer responsible portfolios unless customers tell them that’s what they want, because of the extra costs involved in choosing actively-managed funds (which Environmental Social Governance funds have to be), rather than the cheap, passive, morally neutral trackers they currently use. So if you are signed up to any of the below, do join us in asking them nicely to up their game here.

Gear Investments, Moneyfarm, Money on Toast, Nutmeg, Scalable Capital, Swanest and Wealthify are among the names vying hardest for market share. Here’s a quick overview.

  1. Nutmeg

Nutmeg is an online investment management service. For a single, low management fee, the platform’s bot builds and manages intelligent, tailored portfolios, ISAs and pensions based on an individual’s risk attitude and goals. It has a wealth of neat little tools, too, such as graphs showing projections of your portfolio’s future value, for example.

We love Nutmeg’s transparency (see the review in our Guide to Good Stocks and Shares ISAs)  – you can choose to see a pie chart of a portfolio’s assets by sector, and in contrast to many providers’ its top 10 holdings are displayed in plain view. However, there’s no values-based (Socially Responsible Investing / SRI or Environmental and Social Governance / ESG) options.

Nutmeg applies no set-up, transaction or trading fees, but charges 0.95 per cent on portfolios over the minimum of £500, 0.75 per cent for investments over £25,000, 0.5 per cent on portfolios over £100,000 and 0.3 per cent on portfolios worth £5o0,000 or more.

2. Moneyfarm

Another investment platform offering tailored ISAs and a general investment account. Asks a lot of personal questions to build a portfolio based on the individual. However, like the others, this is a risk profile, not a values-based profile. Invests in Exchange Traded-Funds (ETFs) which are exposed to a wide variety of sectors and stocks. As with Nutmeg, there is no choice available beyond risk and investment goals / terms. But it does have an app.

Cost-wise, it claims it does not receive any back-end fees on funds they recommend for an investor’s portfolio and enables users to save up to 50 per cent on other, presumably more traditional investment services. The first £10,000 of a portfolio is free-of-charge, with fees rising to 0.6 per cent up to £100,000 then dropping to 0.4 per cent up to £1 million. Portfolios worth more than £1 million are also free. In addition, there’s an average cost of 0.25 per cent deducted from the portfolio that goes to the ETF providers.

3. Money on Toast

Very simple to use, with a 1 per cent platform charge and 0.69% underlying fund management charge, Money on Toast uses an “intelligent algorithm” to find you appropriate ISAs, investments and pensions – and you can speak to a real human if you want too. It is owned by CPN Investment Management, a bespoke, discretionary adviser based in Chichester.

4. Wealthify

The newest kid on the block, launching in April this year, and the platform most overtly marketed at those valuable under 35s (millennials), has a very friendly image. Wealthify focuses on ISAs and charges a simple annual fee that covers everything. It’s never more than 0.7% and can be as low as 0.5%, depending on the value of your plan(s).

Like its counterparts, Wealthify uses low cost, ‘passive’ (meaning not actively managed) investments such as exchange-traded funds and mutual funds. The funds contain shares, but also bonds, property and commodities (such as precious metals, energy and agriculture). Wealthify describes these as “good stuff”, but we beg to differ. We’d love to see it talk up responsible investing, (for example, funds that avoid fossil fuels and mining and invest in renewable energy and water solutions instead) a bit more. It has a wide panel of providers: Vanguard, Aberdeen, Henderson, Fidelity, Legal & General, BlackRock and iShares. There are some good eggs in this bunch (Henderson and Legal & General) but some less good ones, too.

5. Swanest

Swanest is a digital stock broker and investment adviser that helps individuals invest in stocks, shares & ETFs.  It’s not yet available for use by UK investors, but once fully launched, it aims to be an “investment solution designed together with our users for the purpose of empowering self-directed investors.” It’s currently free for potential users to sign-up and help shape the eventual service. More specifics on pricing will come closer to launch, but they say: “You can be sure it will be transparent, fair and without any conflict of interest.” Because it will enable direct investment in individual stocks, Swanest arguably has the most potential for those interested in putting their money somewhere responsible. It would benefit from offering more education on the site about this topic. But there’s time.

4. EQ Investors

EQ is a boutique wealth manager acting for private clients, small companies and charities across the UK. Founded by Jon Spiers who founded Bestinvest, they DO offer ethical and sustainable options. The firm’s Simply EQ platform offers online and telephone-based advice, together with an initial face-to-face meeting. Charges are low, and transparent – based on a £1,000 investment in the EQ Low Cost Portfolios including fund charges and VAT you could pay as little as £0.98 per month.

Ethically-minded investors can opt for the Positive Impact Portfolios, which launched in 2012.

5. Scalable Capital

The website says Scalable Capital is “a discretionary investment manager offering intelligent investing for accounts starting from £10,000”. Another service using ETF-based portfolios (1,500 of them, in bonds, commodities, equities and property) meeting a range of risk profiles, charges will be 0.75 per cent of the average invested capital, including account management and custody fees, as well as all trading costs for portfolio transactions.

6. Gear Investments 

Awaiting authorisation and regulation by the FCA, its website says “soon”, investors will be able to “decide on the best landscape for your money.” Sounds promising. We watch with interest.

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