3 Aussie robo-advisers and what they offer you
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Whether you're completely turned off at the thought of automated financial advice, or keen to give it a try, so-called robo-advice is gaining in popularity around the world.
The buzz around so-called "robo-advice" has been building over recent years, though in the Australian market at least, no clear leader has emerged.
In this article, we look at a few of the locally-based providers to give you a sense of what they have to offer, how they operate and what they cost.
Stockspot describes itself as Australia's fastest-growing automated investment service, founded in early 2014 by Chris Brycki.
"We provide specific scoped advice just around investing. We're only looking at the investment side," Brycki says.
"Customers come to the website, answer a series of questions about their stage of life, their risk capacity, their liquidity needs and what their personal balance sheet looks like. We then look at whether investing makes sense for them at all."
He emphasises that not everyone automatically passes this first hurdle, such as those with existing credit card or personal loan debt, who are much better served paying down debt before launching an investment portfolio.
Stockspot will then build an individual investment strategy, which selects from a range of exchange-traded funds (ETFs), "using mean variance optimisation to give clients a good mix of risk and reward".
What does it cost?
Brycki believes the cost of personal financial advice is a key reason many people opt for a self-directed approach to investing. He says Stockspot referred to Morningstar research about average active management fees to help establish a benchmark.
Morningstar research identified an annual average fee of between 2.5 and 3 per cent for active management.
"There are several layers of costs ... for many funds sitting on a platform, you can only access them through an adviser, then you pay a platform fee, fund manager fee, along with entry and exit fees, and bid/ask fees. Our cost, including the ETF's embedded management expense ratio and our fee, varies from 75 basis points to 1 per cent," Brycki says.
Cost is obviously a key factor influencing your decision to either seek and adviser or go it alone--and Brycki believes there is still a lack of clarity around the costs of digital advice services, despite stringent disclosure regulations.
"We've noticed others will often have a low headline rate of 2, 3 or 4 per cent, but if you read through their documentation, there's a whole range of other fees--brokerage fees, a flat setup fee, maintenance fee, netting spread."
Brycki says some digital advice services also have their own funds, which have bid/ask spreads, and other transaction costs that they don't disclose--"it's hard to get a clear idea of fees from some, the same as in the traditional advice industry".
Map My Plan
None of the digital advice platforms covered in this article claim they are a replacement for personalised, one-on-one financial advice.
However, Paul Feeney, co-founder of Map My Plan, comes quite close when he says: "We provide strategic holistic advice. There are big reasons why people don't use financial planners--it's too confusing, too expensive, intimidating, or they just think they're going to be sold something."
"But we want to change the statistic that means only one in five Australians access financial advice."
Map My Plan enables you to set various savings goals, track existing investments and it can also make recommendations about what level of life insurance might be appropriate. If you have more complex requirements, such as trustee entities or other structures, "you're probably still going to need some external advice," Feeney says.
He believes Map My Plan is clearly differentiated from other automated advice offerings in the Australian market. "I would call a lot of them automated investors, because there's no ongoing advice."
Feeney emphasises it doesn't sell any financial product--something he believes is a detrimental fixation of the industry.
"As far as we're concerned, we're influencing people's behaviours on a product class, such as whether they should have insurance or not, we're not saying you should have xyz branded insurance though. We then work with individual users, who can go on and build their plan."
Map My Plan is free for the first 10,000 users, and it currently has around 5,000 subscribers.
"Financial planning has an awful lot of variables to get someone on the right financial path, but if you ask someone five or six questions, half the information you get means a financial planner is no longer relevant. And you ask another five more, and you find the right path is bleedingly obvious," Feeney says.
Who uses it?
Unsurprisingly, its core users are primarily from the younger demographic, though people aged from their late 20s through to their early 70s are represented.
"A lot of the older demographic seem to be using it as a check and balance, to see whether what they've been told makes sense. The whole philosophy is just to make sure people have got the information they need when they need it, to make well-informed financial decisions, no matter what stage of life they're at," Feeney says.
This platform, which has been active in the United States for a few years, has the biggest uptake of these three offerings, with 160,000 subscribers in Australia--a particularly large number, given it only launched here in February 2016.
However, these investors seem to be at the smaller end of the scale, with an offering that appeals to younger savers looking to make a start. Like Stockspot, this is more of an investment selection application rather than an advice tool, and also draws exclusively on ETFs as the investment tools.
These are spread across a simple continuum, from conservative, to moderately conservative, moderate, moderately aggressive, and aggressive.
It offers access to seven ETFs, which are weighted differently according to which of these you select. They are: State Street SPDR S&P/ASX 200 ETF (ASX: STW); iShares Asia 50 ETF (ASX: IAA); iShares Europe ETF (ASX: IEU); iShares Core S&P 500 ETF (ASX: IVV); iShares Composite Bond ETF (ASX: IAF); Russell Australian Select Corporate Bond ETF (ASX: RCB); and Betashares Australian High Interest Cash ETF (ASX: AAA).
This is one of the distinguishing features of Acorn's offering. This enables you to automatically invest the spare change from small daily transactions. For instance, if purchasing a coffee for $3.50, the remaining $1.50 (out of a $5 note) would be invested in the Acorns account.
George Lucas, CEO of Acorns Australia, says it operates a two-tier fee structure of $15 per year for account balances of under $5,000; and 0.275 per cent for balances over this amount.
This excludes management fees from the underlying ETF issuers--these range from 0.254 per cent to 0.342 per cent.
Just last month, Acorns also added a functionality that allows members of retail super funds to make voluntary contributions--however, this doesn't include self-managed super funds, unless you're running this through an established platform such as AMP's North.
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Glenn Freeman is Morningstar's senior editor.
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