So, what is it exactly?
The short answer is that this is a robo-adviser. You’re visiting one right now.
The longer answer is that a robo-adviser is a service that uses highly specialised software to do the job of wealth managers or investment advisers – people who decide what type of investments you should be making and then tinker with those investments over time. Robo-advisers typically have you, the investor, answer a few questions to determine your appetite for risk and then, through the use of proprietary algorithms, spread your money into appropriate investments, making adjustments as your situation and the market change. They typically collect around 1% less in fees than a professional investment adviser.
Robo-advisers invest primarily in low cost passive funds.
What are the pros?
Robo-advisers have two advantages. The first is lower fees. Let’s say you’ve got a nice nest egg of £50,000. A professional investment adviser who charges a 1.5% fee for recommending a portfolio will charge you £750 every year, whether your portfolio goes up or down. Plus, his portfolio recommendations might include pricey active index funds (another 2% gone!) and lots of stock trading, both of which can eat into returns.
Robo-advisers typically invest in inexpensive passive index funds or ETFs - for example we only charge 0.7%, cutting that £750 yearly fee to less than half. And if you invest larger amounts of money? That 0.7% adviser fee shrinks even more Wealthsimple Black.
Robo-Advisers, given their scale, can often access funds with higher investment minimums that are outside of the range most private investors can manage on their own. Plus, robo-advisers rarely demand a minimum balance, which makes investing accessible to everyone.
Another advantage is the 24/7 accessibility and automation of robo-advisers. Since the companies operate entirely online, you can sign up, deposit money, check your balance, withdraw money, etc., all without getting out of your pajamas.
Some robo-advisers (like ours) also perform automatic portfolio rebalances for free which can be even more pricey with professional investment advisers.
Is there anything to be careful about?
Your choice of investments may be limited depending on the robo-adviser you use. At Wealthsimple, we use the following asset classes in our portfolios - equities (UK, USA, Europe and emerging markets), and fixed income (UK government, corporate, emerging markets and global). We believe they represent the best long-term sources of growth, income, and stability for investors.
Despite the name, not all robo-advisers offer real advice. And you won’t get any free pens or lollipops when you visit the office. Because there is no office. Or lollipops. At Wealthsimple, we believe that personal financial questions deserve professional personal answers. That’s why every client has access to a professional Portfolio Manager who can answer questions about your investments, your personal finance goals, or any other financial matter you’d like to discuss.