Why you should consider a Roboadvice investment solution
Given that it costs around $1,700 annually to maintain a client, full service financial advisers are moving towards the point where $200,000 will be a minimum net wealth requirement for new clients crossing their front door. That’s fine if you’ve already acquired some wealth, and can justify paying average fees of between $2,000 and $3,000 annually for comprehensive advice.
But where does that leave young, low-balance Australians, and their low-value older counterparts who neither fit the investor profile of full service advice firms nor can afford their fees? The realisation that the business model used by financial advisers to link their fees to total assets under advice is fatally flawed - especially when it comes to the younger market - has given rise to what’s known as Roboadvice.
Millions of Australians are best suited to Roboadvice
Roboadvice delivers investment advice online, without the bells and whistles needed by wealthier investors who need comprehensive advice – and/or the direct involvement of a human financial adviser – for a fraction of the cost. The number of Australians now using Roboadvice is 7 percent, and it’s not only millennials who are benefiting from these low-cost, on-line investment solutions.
Roboadvice: A game-changer for investors
Roboadvisers’ generally provide personal investment advice based on your financial situation, how long you plan to invest for and your capacity for risk. As well as challenging the traditional notion of what financial advice is, Roboadvice also removes advisers' persona as the only credible source of investment and financial knowledge.
Some Roboadvice is simply free digital self-help education and research, like on-line calculators. But there’s also another layer of Roboadvice that extends well beyond simply accessing online tools. What we’re talking about is actual Roboadvisers who provide a low-cost alternative for millennials and/or anyone trying to acquire and grow more modest savings or assets over time.
You’ll typically get a different level of service from a Roboadviser than from a full service advice firm, but that’s exactly why they were established. With Roboadvice you may not always have access to actual ‘human contact’ provided by traditional advisors.
But this is reflected in the fees, which at between 0.25 to 0.89 percent of assets under management (AUM), is a fraction of the 1 to 2 percent fees charged by traditional advisers or active fund managers. In some cases, a Roboadvice solution may even be more cost-effective than a do-it-yourself approach to investing in a diversified mix of assets.
InvestSMART: A pioneer of Roboadvice in Australia
Roboadvice doesn’t mean real experts aren’t operating behind the scenes. For example, one of the early entrants into Australia’s Roboadvice space is the independently-owned, InvestSMART. Combining the best of sophisticated investing with automation, InvestSMART has attracted investors who want to deploy their savings to a low-cost, no-fuss investment plan.
Since our inception in 1999, InvestSMART has become a popular source for investment research and tools for investors. InvestSMART also offers a free Portfolio Manager, and a suite of low-cost ETF-based investment products. Fees start at $99 annually, and are capped at $451 annually for investments over $82,000, which based on that amount would represent a modest fee of 0.44 percent.
InvestSMART’s Roboadvice advice model is based on providing access to a suite of ETF portfolios, which due in part to significantly lower fees, can outperform their benchmark index. Much of InvestSMART’s Roboadvice investment philosophy centres on the argument that paying higher fees to an active fund manager - in the hope they can outperform the market - is a fallacy.
The vast majority of active fund managers (around 70 percent) repeatedly fail to do so, with the extra fees seriously diluting an investor’s returns over time.
Which InvestSMART portfolio is right for you?
All InvestSMART ETFs offer the diversification of a multi-asset strategy, together with elements of what’s known as a ‘passively active’ portfolio management. That means InvestSMART’s portfolio managers are responsible for picking the right stocks at the right price, and then deciding when to rebalance your portfolio in response to market and individual company activity.
In addition to lower fees, InvestSMART portfolios also benefit from compounding returns, which add to your wealth by capturing the dividends in the cash component on the portfolio, and using it to buy more holdings when the portfolio is rebalanced. Due to lower fees, plus the power of compounding returns, InvestSMART’s Conservative, Balanced and Growth portfolios have beaten 91%, 90%, and 87% of its peers respectively over the past five years.
By clicking through to our Invest with us page, you’ll be able to match your investment time frame with the recommended time horizon of InvestSMART’s four diversified portfolios, so which one suits you best?