Have you ever heard of so-called “robo-advisors”, online financial planners? No doubt you have. These technology-based companies have generated a lot of media buzz and are now actively winning clients around the world. The United States of America and the United Kingdom are spearheading this wealth management revolution. New entrants make bold statements claiming they will transform the entire industry while the older guard (traditional banks/money management firms) consider building automated platforms of their own. So why are online investment services all the rage now? Are they worth your time and money? Let’s have a look at the top five players and figure this out.
According to the service’s website, it was launched in 2011 and has accumulated more than 1 billion dollars of assets under management in just two and a half years. What made this success a reality? It’s basically due to its accessibility and affordable price. Wealthfront clients with portfolios over $10,000 pay a fixed fee of 0.25% a year. With an average price for the same service exceeding 1% elsewhere, Wealthfront appeals to many people just because it’s simple and economical. By investing in ETFs, Wealthfront achieves high asset diversification for its customers.
Betterment is an automated American advisor considered one of the pioneers of the robo movement. This service was founded five years ago, in 2010, and currently manages portfolios for more than 50,000 clients. With Betterment, you can invest as much or as little as you choose. The more money you want to be managed, the more you’ll have to pay. For example, an investment portfolio worth $5,000 will cost $1 a month. Management of a $500,000 portfolio will cost $63. As with most of the robo-advisors, Betterment popularizes passive investing. This goal-based investing platform lets customers know if they are on track to reach their investment goals.
Nutmeg is the oldest UK-based online investment manager. It was launched in 2012 and since then the service has been helping people with regular incomes manage their investments. From the outset, Nutmeg stressed the importance of building a nation of intelligent retail investors in the UK. The company recognises the need to educate people about their finances and aspires to popularise the idea of investing among the British public.
Nutmeg also relies on ETFs when constructing portfolios for its clients. Fees range from 0.3% (if you invest 500,000 GBP or more) to 1% (1,000 – 25,000 GBP). The idea behind this pricing policy is simple: the bigger your portfolio, the smaller percentage of it you have to pay for the advisor’s services.
Zen Assets is another option for the tech-savvy British investors. Unlike Nutmeg, it targets professional clients, who have prior experience in investing.
Members of Zen Assets’ investment board have over 30 years of combined experience in portfolio management. Prior to founding Zen Assets they have worked for Goldman Sachs, Morgan Stanley and other City’s reputable financial institutions. They hold CFA and PhD qualifications.
Zen Assets provides investment advice for a smaller fee (when compared to banks and other brick-and-mortar wealth management institutions). According to a recent FT article1 independent financial advisors and banks cost investors slightly over 3% per year. In stark contrast, Zen Assets offers professional advice for a flat fee of 0.5%, regardless of portfolio size.
Some of the platforms, such as Wealth Horizon, target investors stuck in the so-called “advice gap”. It appeals to people who need some guidance, but aren’t willing to pay high fees for face-to-face consultations. Wealth Horizon’s potential clients don’t use DIY investment websites because the process of decision-making seems stressful and time-consuming to them. This online money-management service will charge you an initial fee of 0.25% and then 1% per year for the ongoing investment advice.
Each online wealth management platform is unique in its own way. It would be wise to do some homework before making a commitment. Go online, look at their credentials, learn more about the key people behind each company, compare the prices.
We already shop, bank and order food online – so what keeps us from managing our investments the same way? Robo-advisors have become part and parcel of today’s financial world and the competition between them is heating up each day. What does it mean for the end users like you and me? Better quality advice and significantly lower prices.