The term robo-advice is being used more and more. Even high street banks are now offering services labelled as ‘robo-advice’ and there’s a growing universe of providers online, with different claims about what they can do.
But what exactly is it? And more importantly, what isn’t it? Anthony Morrow of evestor.co.uk takes a look at the fast-growing world of robo-advice, to find out everything you need to know…
What is robo-advice? Why is everyone talking about it?
Robo-advice is a form of investment management – and possibly financial advice too. At its simplest the phrase ‘robo-advise’ is being used online to describe an algorithm that places your funds into different investment portfolios. Some other robo-advisers actually offer a wider financial advice service too. Typically, you are asked 10-15 simple questions on your appetite for risk, any short or long-term goals, how easily you’ll need to access your funds and then is your money placed into different investments.
By using algorithms, these forms of investment replace some of the face-to-face element of traditional investing. That means it is now easier and quicker than ever before.
This type of investing comes in at a much cheaper cost, too. Robo-advisers typically charge 0.5 – 1.5% of your investment value in annual fees, which is significantly lower than traditional financial advice.
Why do I pay any fees though? What do I get for my money?
Low all-in investment management fees are central to the appeal of robo-advice. Their costs are lower than traditional advisers, meaning you get to keep more of the returns. This affordability attracts a greater number of new investors, making investing more accessible to all ages and experience.
Robo-advisers charge an annual fee to invest your money. Plus, some robo-advisers offer financial advice as part of the service. This is typically included in the ‘all-in’ fee.
For example, at evestor, we provide customers with access to tailored online financial advice specific to their circumstances. Also, customers can book a call with our qualified financial advisers, adding a human touch to the technical process of investing. Our all-in-fees come to less than 0.5% each year, compared to the national average of 2.56% for a traditional financial adviser.
Finding lower fees makes a big difference to your future wealth. An investment of £10,000 growing at 5% each year over 10 years paying our fees (less than 0.5%) could save you £2,925 compared to the national average (around 2.56%).
Many robo-advisers invest with the biggest investment management companies in the world. With evestor you can invest as little as £1, which means anyone can get access to these top funds.
But remember – it’s also worth noting that many so-called robo-advisers don’t offer any financial advice at all. A true robo-adviser, such as evestor, will include regulated financial advice. For this reason, many argue the name ‘robo-adviser’ can be misleading when misused, and any company not offering advice should instead be called simply ‘robo-investors’.
What should I look out for when choosing a robo-adviser?
First, make sure you’re actually getting advice! Check the company you are using offers regulated financial advice according to the Financial Conduct Authority and really does what it says on the tin.
Also, check who is responsible for what happens if the advice you receive turns out not to be suitable for your needs. Remember that all investments can go down as well as up, but if you take out something that’s not right without official ‘advice’ then it’s down to you. True robo-advisers take responsibility for offering you something that fits your goals and lifestyle.
Check you have access to financial advice in the future too, ideally regular reviews of your personal circumstances included as part of the service!
You might also want to see if you can get in touch with a human if you want to? It can be reassuring to speak to a person rather than a computer about your financial future – and not every robo-adviser offers this.
Minimum investments vary wildly. Some robo-advisers will only be interested if you have £10,000 to invest but with others you can get started with just £1. This is often a good way to filter out any that just won’t be helpful to your circumstances. Saving little and often is usually best anyway.
And if you’re still unsure, here’s five key considerations for anyone new to investing:
- Think long-term. Can you afford to leave this money alone for at least 5 years?
- Would the idea of looking at the value of your investments and seeing it was less than you had put in, make you scream out loud?
- Spend as little as possible on fees, charges and commissions
- Make sure your robo-advice service is regulated by the FCA
For more advice speak to one of evestor’s dedicated financial advisers. We were created to help people from all walks of life make the right choices on their savings journey. We won’t recommend you do something that isn’t in your best interests and we will make sure you always keep as much of your hard-earned money as possible.