Roboadvisors are digital platforms that emulate the role of a traditional fund manager but without the actual human. They replace traditional fund managers by using automated and algorithm-driven portfolios to scale and thereby are able to offer comparatively lower fees than their human counterparts.
Minimum cost, maximum exposure
In recent years, roboadvisors have been gaining plenty more traction with entry-level or passive investors as they are a low-cost and fuss-free way to get into investing with almost instant diversification. All you have to do is sign up, complete a questionnaire about your risk profile, select a portfolio, pump in funds, and voila! You’re good to go.
There is no need to pick your own ETFs as there are fixed portfolios catering to different risk profiles which takes away the daunting task of stock selection for inexperienced investors.
With more and more roboadvisory platforms appearing in the market today, it is necessary to do some research into the investment strategies, management fees, and investment amount before committing to one. You can refer to this guide to compare various roboadvisors.
For myself, I started investing with a roboadvisor in 2018 where there were lesser options to choose from compared to now. The recognised players in the market back then were Autowealth, Stashaway, and the now defunct Smartly. I chose to invest with Autowealth and have been contributing to it ever since.
My experience with Autowealth
The reasons I chose Autowealth were pretty straightforward:
- Most “personalised”
They don’t do this anymore, but back in 2018 I had to meet with them in person to set up my account. I liked this even though some people complained it was a hassle because this way, I knew that these are real people and not just a machine that I’m entrusting my money with.
- Individual custody account
A separate custody account (view only) is set up with Saxo so that your holdings are held in your own name. But because of this, Autowealth does not buy fractional shares unlike other roboadvisors that pool clients’ funds altogether. This was more of a legal security blanket for me in case of company insolvency.
- Lowest fees
Out of all its competitors, Autowealth offered the lowest fees for my investment amount and had a transparent fee structure that I could understand easily. This was the deciding factor for me as I believe that fees can affect your returns drastically. However, I do have to add that the higher your AUM, the more competitive the fees get.
Will I still use Autowealth?
Now that I have a little more investing experience than before, I still continue to fund my Autowealth account as I find that it helps me to invest in a disciplined and sustainable manner.
On months where I receive additional bonuses from work or dividends from stocks, I transfer more funds in since there is no extra costs anyway. I would say that the biggest plus point for me is that there are no additional fees for rebalancing the portfolio unlike for my own DIY portfolio.
In the same vein, because I have more investing experience now, I prefer to select my own ETFs and that is where Autowealth, or roboadvisors in general, is “limiting”. Autowealth selects low-cost ETFs for its portfolios and periodically reviews the ETFs to ensure that costs and performance are optimised so handpicking is not required by clients. This means that we do not have a choice in customising the specific ETFs we would like except for the asset allocation.
Another caveat of roboadvisors I would like to highlight is that while they try to maximise returns with minimal cost, the choice of ETFs may not be the most tax-efficient one. This could be due to the type of securities held in the fund or where the ETF is domiciled.
So if these concerns of customisability and tax-efficiency bother you greatly, you can consider DIY-ing your own ETF portfolio with the myriad of ETFs available out there like I did using FSMOne. Make sure you understand your risk profile first before doing so though.
A word of caution – can we trust technology with our finances?
Roboadvisors are a cost-efficient tool for your investment journey and can be great for passive, disciplined investing. But like any other investment product, returns are not guaranteed and it can be just as risky. Speak to a financial planner for more comprehensive wealth planning and do your due diligence before committing!