In this post, you will find a complete guide to UK robo advisors so that you can choose which online wealth management service is right for you and your investment needs as a UK-based investor.
What are Robo Advisors?
Robo-advisors are online investment management services that offer fully automated, algorithm-based portfolio construction and investment management advice without the need for human financial advisors. Furthermore, robo-advisors charge substantially lower fees than most traditional investment management companies, making them an excellent alternative to expensive mutual funds.
How do Robo Advisors work?
Most robo-advisors work in a very similar way. You sign up to their platform using your personal details. You then fill out a risk assessment questionnaire to determine your level of risk aversion. Their algorithm then composes a low-cost diversified ETF-based portfolio for you, given your risk preference, investment horizon, and investment goals.
Robo-advisors generally use Modern Portfolio Theory to create your portfolio. Modern Portfolio Theory (MPT) is a financial theory that aims to maximize expected return given a certain amount of portfolio risk by selecting the right proportions of various assets within the portfolio.
The speed and ease of setting up your investment portfolio is a huge benefit of using robo-advisors versus traditional human financial investment advisors.
A Guide to UK Robo Advisors
Established in 2016, eVestor is an app-based digital wealth management service. It is one of the several Robo-advisory firms that was established to offer competition to other robo-advisors and traditional wealth management firms.
The 0.44% charge (constituting 0.35% for advice, platform and portfolio administration and 0.09% as fund charges) undercuts other robo-advisors such as Nutmeg and Wealth Horizon, which charge as much as 0.95% or even more on client portfolio. It offers a well-diversified portfolio that ranges from cash and property to the equity market.
Fiver A Day
Fiver A Day is a robo-advisor that simply doesn’t care about how much or how little you want to set aside for investment. With Fiver A Day, you pay on two occasions: on an initial case and on an on-going basis.
The investor is charged 0.25% for every preliminary contribution and an additional 0.34% per annum for portfolio management. However, an investor will typically pay 0.82% annual charge for an all-inclusive investment management service. This cost covers financial advisory, the platform, flexible portfolio management, buying, dealing, selling as well as reporting costs.
Digital investment and savings start-up, MoneyBox, recently launched a mobile app that allows users to round up unused change in their card transactions to the nearest pound. Users can then invest this money in three types of funds in a Stocks & Shares ISA or a General Investment Account. This is a novel way of making small investments that is accessible to everyone.
Moneybox has developed three risk categories: adventurous, cautious and balanced. Investors can invest as little at £5 per month but a fixed subscription fee of £1 is charged on a monthly basis. This fee, however, does not apply in the first three months. An annual fee of 0.45% is charged on the value of an investor’s portfolio.
MoneyFarm became the first UK digital investment advisory service available on iOS for investors with amounts as little as £1. MoneyFarm has positioned itself as an investment advisory platform that doesn’t restrict itself to any class of investors and appeals to clients who wish to invest with a hands-off approach.
Investors with MoneyFarm pay 0.7% annually on portfolios up to £20,000 and 0.6% for portfolio between £20,000 and £100,000. Investment portfolios of between £100,00 and £500,000 million are charged 0.5% annually and anything above £500,000 incurs 0.4% fee.
MoneyFarm is the robo-advisor I use to invest.
Nutmeg was the first UK-based robo-advisor and was established in 2011. Nutmeg manages ten different portfolios and makes all investment decisions for its clients. Like other Robo-advisors, its investment classes cater to investors with different types of risk preferences. It uses ETFs to build its clients portfolio, investing in different sectors and countries.
Nutmeg’s charges range from between 0.3% and 0.95% and are contingent on the size of your portfolio. The minimum investable amount is pegged at £1,000 for every fund.
Founded in 2014, Scalable Capital is a German wealth management service that has recently also launched in the UK. It offers investors diversified ETF portfolios and charges it’s customers an annual fee of 0.75% for wealth management advisory, account administration, custodial charges and for trading. Investors are also charged an annual fee of 0.25% on average for ETFs. The minimum investment is £5,000.
Swanest is an online investment assistant using automation & algorithms to empower self-directed investors in building and managing personalised portfolios. Compared to other robo-advisors, Swanest is not selling model portfolios but instead helps to build truly personalised investment portfolios with any stock, ETF or mutual fund.
The service is available in Beta mode and is looking for more user feedback. Swanest intends to introduce a plan-based pricing model that includes free trading when they will launch in early 2017.
Offering what they term as surprisingly simple investment advisory services, robo-advisor, Wealth Horizon allows its clients to invest as little or as much as they want at a fraction of the cost that traditional wealth managers charge.
Investors pay a preliminary fee of 0.25% on their portfolio. This fee rises to up to an annual rate of 0.93% or goes even higher to 2% depending on whether the portfolio is passively or actively managed, with the latter attracting a higher rate.
Since its official launch in April 2016, Wealthify has positioned itself as a robo-advisor keen on keeping your fees as low as possible while growing your wealth over time.
Wealthify charges an annual fee that ranges from 0.5% to 0.7%. But, as you sit back and watch your wealth grow, always remember that all types of investments carry some degree of risk. You may get back much higher returns than you anticipated or even get back less than you bargained for.
Robo-advisor Wealth Wizards has positioned itself as an online pension financial advisor and is dedicated to helping its investors plan for a decent retirement. Wealth Wizard works “directly with employers, or alongside pension consultants, to offer pension and retirement advice to company employees.”
The charges levied per employee is £100 and includes a yearly review. For employees requiring more sophisticated financial advice, there are extra charges usually dependent on the time it takes to finalise the work. For employees whose employers do not pay the service on their behalf, the annual levy for funds of up to £30,000 is £6. A fund size of between £30,000 and £50,000 attracts a 0.45 % annual charge, a portfolio of between £50,000 and £75,000 is charged 0.40%. Clients investing £75,000 and £100,000 are charged 0.30% while those investing over £100,000 pay an annual fee of 0.25%.
*If I have missed out a UK-based robo-advisor, please contact me at firstname.lastname@example.org and I will add it to the list.
Furthermore, if you want to learn more about how you can use innovative new products and services from the financial technology sector to better manage your money and improve your financial situation, download my ebook Everything You Need To Know About Money – The Complete Financial Intelligence Handbook.