What you need to know about: Moneyfarm

Written by Lori Campbell on 12th Apr 2022

Here we look at Moneyfarm – an online investing platform and app that offers ready-made portfolios, including socially responsible options.


The deal

Moneyfarm is an online platform and app that is designed to make investing easy even for those with zero experience. It is known as a “robo-advisor,” which means it automates part of the investment process to make it simpler and cheaper. Moneyfarm uses an algorithm to match you with one of its seven ready-made standard portfolios, or one of its ‘socially responsible’ portfolios, based on your goals and appetite for risk.


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User-friendliness

To get started with Moneyfarm, you’ll need to fill out a simple online questionnaire about your financial background, investment knowledge, goals, and the level of risk you are comfortable with. You will then be automatically recommended one of seven standard portfolios – ranging from low to high risk – based on your answers. If you want to be ethical with your investments (more on this below), there is also a range of seven ‘socially responsible’ portfolios.

You will need to choose a product to hold your investment portfolio in, such as an Individual Savings Account (ISA), Junior ISA, General Investment Account (GIA) or pension, then you can either transfer funds in or set up a monthly direct debit. Minimum investment to get started is £500. Moneyfarm is currently running an offer – ending on April 30, 2022 – that gives you £400 cash back (this is added to your account) when you invest in any of its products.

You can keep an eye on the balance and performance of your investments either online or in the Moneyfarm app.

Is it safe?

Moneyfarm is regulated by the Financial Conduct Authority (FCA). Your investments with Moneyfarm are also protected by the Financial Services Compensation Scheme (FSCS). This means that if the company was to go bust, you would be covered up to £85,000.

For added security, your money and investments are ring-fenced in a separate account. Moneyfarm does this by appointing a custodian bank, called Saxo, to hold your money and investments. You can find out more about how Moneyfarm keeps your money secure here.

Sustainable investing option

Moneyfarm recently launched a range of seven socially responsible portfolios that prioritise environmental, social and corporate governance (ESG) factors. It selects the funds to go into these portfolios using ESG metrics such as company voting policies, carbon emissions, involvement in social controversies, and potential exposure to ESG-related risks (particularly environmental concerns).

Moneyfarm says these portfolios invest in “some of the most forward-thinking and impactful companies in the world – along with many others working hard to improve.”

Its mid-range ESG portfolio claims to have 42.3 per cent lower carbon emissions (compared to a standard ESG portfolio), 100 per cent compliance to the United Nations Global Compact and 100 per cent compliance with labour laws (these include prohibition of child labour, unfair discrimination and forced labour).

Moneyfarm’s portfolios contain Exchange Traded Funds (ETFs). While ‘normal’ ETFs are invested based primarily on exclusions (or negative screens) and simply track markets, Moneyfarm’s ESG ETFs go much further than this and are therefore less passive. For the socially responsible portfolios, it selects ETFs that rank highly on the MSCI ESG Metrics index and those that actively consider the environmental impact of the underlying companies.

Moneyfarm also uses its own filtering framework for prioritising funds where asset managers show the highest level of engagement, such as voting to drive positive change within an organisation.

The socially responsible portfolios appear to perform better than their non-ESG peers. Simulated performance by Moneyfarm shows that from 2013 to 2021, investing in its most adventurous portfolio would have earned you up to five per cent more than a regular non-ESG portfolio.


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Unique selling points

  • Automatic portfolio matching. Moneyfarm keeps things simple with an online questionnaire that uses an algorithm to match investors with suitable portfolios.

The plus points

  • Free withdrawals. Although all investments are designed for the long term, you can take your money out of Moneyfarm at any time without having to pay a penalty.
  • Easy for beginners. Moneyfarm is very hands-off – it will match you with a portfolio and take care of the entire investing process for you.

Any drawbacks?

  • Limited choice. With simplicity can come lack of choice. Moneyfarm’s offering is deliberately streamlined, but this might not suit everyone.
  • Minimum investment is quite high. You need £500 to get started.
  • Hands off approach. While this is a positive for some, if you’re looking for DIY investing, you might be better off going with other platforms that offer more control.

Cost of use

Moneyfarm’s fees are tiered so as you invest, your money falls into four separate ‘buckets’. The percentage paid in fees gets smaller with each threshold. Fees start at 0.75 per cent on your first £10,000 invested and reduce to 0.35 per cent on investments of £100,000 and over.

You will also need to pay a fee to the fund manager for the ETFs. With Moneyfarm, this is usually 0.2 per cent of the ETF per year. This price is built into the cost of the ETF on any given day, so you won’t see it go out of your account.

How do these costs compare to competitors?

Annual charges

Bestinvest charges a 0.4 per cent annual service fee up to £250,000 (0.3 per cent cent for SIPPs). This drops to 0.2 per cent service fee between £250,000 and £1 million, and anything above £1 million is free. There is a £7.50 fee to trade shares and investment trusts online. Online trading for unit trusts and open-ended investment company funds is free.

Hargreaves Lansdown charges an annual fund fee of 0.45 per cent up to £250,000. This goes down to 0.25 per cent on the portion of funds between £250,000 and £1 million, and 0.1 per cent on anything between £1 million and £2 million. Anything above that is free.

Interactive Investor charges a fixed fee of £9.99, £13.99 or £19.99 per month depending on the plan you choose. These fees include an unlimited amount of trades. This could make it cheaper for investors with larger portfolios, compared to HL.

CIRCA5000 charges a flat £1 per month subscription fee. There are no annual platform fees, until your balance goes over £3,000 when you will be charged £1 per month plus 0.30 per cent on any portion of the balance above £3,000. There is also a cost from the fund manager, which varies between 0.30-0.61 per cent per year, according to your portfolio.

Other options to consider:

Bestinvest

Hargreaves Lansdown

Interactive Investor

CIRCA5000

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