Young & Invested: Are robo advisers worth it?
Can investing be made simple?
Edition 19
Investing can be really hard.
Beginners often find themselves overwhelmed, caught between a flurry of content from financial institutions, super funds and finfluencers – it’s difficult to know who to trust and what to believe. While AI has made information more accessible and easier to digest, it can’t shape you into a perfect investor.
Above is a snip from an investing forum that I think candidly illustrates the problem. Both the investing and investments part is complicated, especially for those with limited exposure to the financial world.
It’s easy to dismiss these concerns with a simple “google it” but the reality is, a lot of us simply don’t have the time to flick through countless books, consume thought pieces or binge-watch Buffett interviews. We all want to build wealth but fear of losing money can put us off the prospect entirely. Nevertheless, we all know being in the market is always better than hoarding cash.
So, what can you do in this situation? How many of us can realistically seek professional advice? The average cost of a financial adviser in Australia ranges between $2,000 - $5,000 depending on the level of service sought which leaves most everyday investors scratching their head at the proposition.
But what happens if you don’t have the time, confidence or knowledge to create an investment portfolio? In comes Robo advice – an automated wealth management service that invests in a portfolio based on your risk preferences and goals.
It’s important to note that Robo advice is not intended as a substitute for traditional advice, it is simply another mechanism to increase accessibility at a relatively low cost. A traditional adviser works with clients to develop long-term financial plans and structures while offering ongoing guidance and adjustments. On the other hand, a Robo Adviser offers scaled advice and automatic investing, without a detailed understanding of your circumstances.
How does it work?
To test what this looks like in practice, I followed the steps required to engage Australia’s largest Robo Adviser – Stockspot.
After completing a short, initial questionnaire, I was given a model ETF portfolio with asset allocation to domestic, global and emerging market equities, as well as gold, fixed interest and cash. This recommendation was based on answers I gave about my risk tolerance, financial goals and personal circumstances – a process that is a lot quicker, and consequently more surface level than the traditional advisory route.
Besides a ready-made portfolio, Stockspot’s value proposition to investors involves the automatic rebalancing of holdings, auto investment of dividends and tax loss harvesting through the algorithm – things that typically demand time and attention to detail when managed manually.
What I like about it
Beginner friendly
Robo advice is designed to be a user friendly, accessible-for-all portfolio management system. I’d never advocate for uninformed decision making, but the reality is many individuals don’t have the capacity to research and manage investments alongside other life obligations. For these investors, the convenience and automation offered may present a compelling value proposition.
A ‘set and forget’ strategy is a popular option among investors. However, this rarely works in practice. We’ve all felt the itch to check our portfolio after news of market fluctuation or a relevant company announcement. The application of a Robo Adviser takes the autonomy away from the investor (for better or worse), negating the need to constantly check for updates and manually adjustment your portfolio.
Deters bad decisions
So maybe you’re not a beginner and have the capacity to DIY a portfolio with a reasonable amount of confidence – but how good of an investor are you?
The tariff fiasco in April taught us that some investors are willing to liquidate at almost any price leading to one of the steepest and shortest selloffs in market history. The following weeks saw the market rebound despite the doomsday predictions many were pedalling a few days prior.
Figure 1: Liberation day ranks amongst the worst selloffs on record. Morningstar. May 2025.
A lot of us are emotional investors. After all, emotion and financial decisions go hand in hand. It is almost impossible to maintain a strict level of objectivity when managing our own funds, which can lead to unfavourable outcomes.
Our Mind the Gap study is evidence of this. The conclusion of the latest study found that investors returns were on average, 1.1% lower than average fund returns. This returns gap stems from mistimed purchases and sales which are likely driven by emotionally irrational decisions.
Algorithm-based decision making is the hammer of objectivity that most of us could use (particularly in periods of volatility), to inform decision making that stays aligned with long-term goals and avoid the emotional pitfalls that drive this returns gap.
What I don’t like
The fees conversation
Robo Advisers often draw criticism for the degree their fees exceed those of the associated holdings within the investment option. The difference in underlying asset fees and the Robo Adviser’s customer fee can be significant, particularly in the case of model portfolios that are heavy in low-cost index funds that many retail investors can realistically manage on their own.
Stockspot offers a flat fee of $5.50 per month on account balances of $10,000 or less and then a percentage-based model on balances above that, with additional inclusions in each tier.
Figure 2: Stockspot fees. Stockspot Financial Services Guide as of November 2024.
I took a closer look into the underlying holdings of Stockspot’s ‘Turquoise Balanced’ portfolio and found the weighted cost of the ETFs were significantly lower than the portfolio’s service fee.
Figure 3: Weighted cost of underlying holdings in Stockspot’s Turquoise Balanced portfolio. As of May 2025.
If you were to replicate the same allocation through a self-directed approach, the total cost ratio* (“TCR”) would be approximately 0.27%pa. In contrast, an investor holding the Turquoise portfolio with a $15,000 balance would incur a 0.66% p.a. fee on top of the indirect ETF management fee of 0.27% p.a. – a rather noticeable premium on a self directed approach.
Of course, this comparison doesn’t factor in brokerage costs incurred on a DIY-platform, however low-cost or even free brokerage is becoming increasingly accessible, with many providers now offering CHESS-sponsored trading.
Ultimately, the additional fees paid above the underlying TCR is where the value proposition becomes subjective – some may find it justified whilst others may consider it an unnecessary premium.
Low costs are the key to success
Morningstar research shows low costs are the key to success. The chart below shows the cheapest quintile achieving a higher success ratio than the most expensive fee quintile. Despite this, investors should not look at fees in isolation as qualitative factors are also vital in determining a fund’s outperformance potential.
Figure 4: Low costs are the key to success. Morningstar. 2024.
Naturally higher fees weigh heavier on performance. But if you can justify the cost as a mechanism to avoid poor behaviour, automate rebalancing and tax loss harvesting, some may certainly see the value proposition.
Limited personalisation
If you’re looking for an entire replacement of a traditional financial adviser at a much lower cost, it’s likely that Robo advice won’t solve all your problems.
Given most providers stick to portfolio construction but don’t offer broader financial guidance, they certainly don’t negate the value proposition of a traditional adviser who can provide a holistic view of your circumstances.
There is still a significant gap in the market for Robo advice on the transition to retirement, estate planning and utilising tax efficiencies outside of security investments.
Alternative options
Raiz – a popular micro-investing app allows users to automatically invest smaller amounts (e.g. spare change from card transactions) into pre-made portfolio options comprising of ETFs and Bitcoin.
Raiz also offers automatic rebalancing if the portfolio strays too far from the target asset allocation, rather than rebalancing on a set schedule. Stockspot offers similar services, however only for account balances over $10k.
There are a few differences between Raiz and Stockspot, however from an advice perspective, the key distinction is that Raiz lacks a direct mechanism (such as a questionnaire) to guide investors to which product is ‘most appropriate’. The onus falls on the investor to seek information through their Raiz’s blog or external sources and then make an informed decision.
Given this, there is a variation in fees between the two platform providers.
For standard portfolio options, Riaz charges currently charges $4.50/month for accounts under $20k and 0.275%/year on accounts over $20k.
Figure 5: Raiz fees for standard portfolios. Raiz as of May 2025.
In comparison, Stockspot charges $5.50/month for account balances of $10k or less and 0.66% per year for account balances over $10k and under $200k. Intuitively, the larger your portfolio grows, the more percentage-based fee structure matters. Let’s see what this looks like in practise.
Charlotte has an investment account balance of $15k and is charged $4.50/month (or $54/year) by Raiz. On the other hand, if she was with Stockspot, she would incur an annual fee of ~$99.
If Charlotte’s account balance grew to $25k the next year, Raiz would charge approximately $69 whereas her Stockspot fee would be ~$165.
It is important to note that whilst Stockspot’s fees appear higher, Raiz fees are not all inclusive, therefore the $4.50 per month or the 0.275% p.a. is only a maintenance fee and doesn’t account for underlying ETF fees, transaction and operational costs. Despite this, under most scenarios Raiz presents as the cheaper alternative partly due to the absence of a portfolio recommendation service.
Should you use a Robo Adviser?
If there’s one thing that I’m a heavy proponent of – it’s the democratisation of financial knowledge.
The advent of AI has played a large part in increasing accessibility to information. Furthermore, it is an apt way level out the socioeconomic playing field and give Aussies a chance to pursue their financial goals, regardless of factors such as time, level of formal education and financial capacity.
Criticism of Robo Advisers largely arise from the assumption that everyone has the ability to DIY an investment portfolio – something that requires an understanding of financial markets, risk management, asset allocation and a disciplined mindset (at the least!).
In reality people lack the time, expertise and confidence to build and maintain an investment strategy and for those, a Robo Adviser could be the start of their investment journey. Ultimately, paying a moderately higher fee for a quality Robo Adviser is still better than not investing at all.
Ultimately, I do think such services are transitory with their value proposition being highest at the beginning of your investment journey. For those with more time or interest, I encourage them to take initiative and build the knowledge and confidence required to develop a DIY portfolio, allowing for greater agency over investment decisions and potentially lower fees.
*Morningstar’s total cost ratio (“TCR”) aims to identify the main component of the total cost of an ETF. The TCR is typically a percentage of the holding value. The TCR includes management or investment fees, performance fees, administration fees and any other fees for underlying funds or similarly outsourced fee arrangements. An investment with a TCR of 0.5% and a holding value of $1,000 would incur $5 in fees per year.
