Sleek UI and Lower Fees – are they worth the risk?
As you look around the robo-advisor/online wealth management landscape you will notice a general trend. The websites look great, there is always a focus on how quick it will be to open an account and there is usually a reference to being a high-net worth platform for non high-worth investors. Although these features make it attractive to sign up, are they really a reason to risk my capital with that ‘advisor’?
For all the talk of lower fees and moving away from wealth management salesman, there is not a lot of obvious literature about the investment approach of each site. You will find different buckets depending on risk profiles but this is most certainly not a new concept. Usually a less risky portfolio will have more Fixed Income and less equity and vice versa for your more risky investor. What differentiates wealth managers and what can be the difference between an up and a down year is how many factors they use in determining their model and how and when they will rebalance to different asset class, regions or sectors.
Two platforms who do well in this regard are Hedgeable in the US and Scalable Capital in Europe. Both offer their clients the opportunity to read about how they invest and why they think they can add value to their investment performance. One area they can improve on, however, is reducing the word count and making the explanations more palatable to your average investor. It should be remembered that people like being sold to. They just don’t like it if that selling turns out to be not in their best interest. There should be 3–5 minute videos on each part of the investment rationale and also PowerPoint decks for those investors who prefer slides, charts and tables to words and videos.
One final thought is on what happens if and when some of these companies go out of business. Are clients’ assets at risk or are they under some compensation scheme? The hard truth is that there is more risk of a robo-advisor going bust than a large incumbent and this should definitely be a factor that should be taken into consideration when risking your hard-earned cash.
The robo-advisor industry is here to stay and will become a prominent part of the lives of most savers and investors. Let’s hope that there is more substance than a sleek UI and low fees that they so heavily pride themselves on.