Do Robo-Advisors Really Offer Free Investment Advice?
The recent acquisition of UK
However, a valid question that has been asked
On the first question the best answer, despite its obvious ambiguity, is probably both ‘yes’ and ‘no’. All a
On the other hand, the reality is that this is exactly what a human financial advisor does for most clients. The majority of retail investors can be split into several profile categories based on their net worth, regular income, appetite for and tolerance of risk and investment aims. An IFA might slightly tweak a portfolio from client to client but will also have
On the second question, using a robo-advisor is, of course, not ‘free’. They are businesses and must earn an income. While there is a degree of variation, all-in fees investors pay on a robo-advisor portfolio in the UK come in at under 1%. Actively managed fund fees are an average of 0.9% in the UK so, if more expensive options are avoided, this works out at roughly the same. However, if funds are chosen and bought as a DIY investor, the investment platform will also charge an addition fee, bringing the cost up so the robo-advisor will most likely work out cheaper. If a DIY investor buys only passive index-tracking funds (ETFs) that usually charge annual fees of around 0.2% that could work out cheaper than using a robo-advisor. But the investor would have to do all their own research on what funds to buy.
In conclusion, while not exactly ‘free’ and not exactly ‘advice’ robo-advisors can be said to offer a very good value service that is the approximate equivalent of what most retail investors would receive from an IFA.
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