Making the decision to commence an investment journey is exciting, but often overwhelming. It is difficult to understand where to begin, how to invest, and what moves to make. This brought about the creation of the Robo-adviser. Robo-advisors are a fantastic way for people to find their feet and start seeing returns on their money. All the information you need about these useful tools is explored below. 

What is a robo-adviser?

A Robo-adviser exists to manage investments. There is very little, if any, human intervention, and these automated, digital services analyse market trends to decipher which moves are the smart ones. They use algorithms and work from the investor profile to create a portfolio that is in line with a bespoke risk adjustment, investment goals and asset preference. All the decisions are made by a computer program and are based around basic information inputted at the time of sign-up. 

What are the advantages and disadvantages of using a robo-adviser for investment management?

There are clear advantages and disadvantages to using a Robo-adviser. The main benefits are:

  • Convenient and accessible
  • Non-biased
  • Supports investment goals
  • Multi-functional

Compared with the main disadvantages which are:

  • Questionable standards in some cases
  • Can be too simplistic
  • Doesn’t suit every investment style

What is the difference between a traditional financial adviser and a robo-adviser?

The main difference between a traditional financial adviser and a Robo-adviser is that a traditional advisor is human, and a robo-advisor is not. While Robo-advisers can offer lower fees and faster service compared to traditional advisers, they may not be as effective in providing personalised advice that takes into account the full range of an investor’s needs and preferences.

How do robo-advisers determine which investments to recommend to their clients?

 Robo-advisers use algorithms and computer models to determine which investments to recommend to their clients. These algorithms take into account a variety of factors such as the client’s risk tolerance, investment goals, time horizon, and other preferences. The Robo-adviser will typically ask the client a series of questions to gather this information and then use it to generate a recommended portfolio consisting of a mix of different assets such as stocks, bonds, and other securities. The portfolio is usually designed to maximise returns while minimising risk, and the Robo-adviser will monitor the portfolio on an ongoing basis to ensure that it remains aligned with the client’s objectives. 

What are the best robo-advisers for beginners?

If you are interested in pursuing these services, here is a list of the top seven Robo-advisers in the UK at the current time. 

  1. Plum
  2. Moneyfarm
  3. Invest Engine
  4. Nutmeg
  5. Moneybox
  6. Wealthyhood
  7. Circa5000

What are the fees associated with using a robo-adviser?

The main types of fees associated with Robo-advisers are platform fees, fund fees, and EFT-spread fees

Platform Fees

This fee is calculated as a percentage of your portfolio value and charged yearly. It can be anything from 0.25% to 0.75%. 

Fund Fees

Depending on what you invest in, there may be fund fees if assets in your portfolio have a fund manager. 

EFT-Spread Fees 

EFTs are a passive investment, but any associated brokers are likely to charge a higher price to buyers to create a profit. 

How does the level of automation differ across various robo-advisers?

Every Robo-adviser service works in a similar way. The automation level is dictated by user preference. This means you are able to say how much you want the Robo-adviser to do on your behalf. They are able to rebalance a portfolio if you instruct them to, but they are limited just like a human would be when it comes to predicting the twists and turns of the market. Therefore, the automation level is up to you, and what you feel comfortable with. 

Robo-advisers exist to make life easier for investors. They create an informed investment methodology based on what you want and your general goals. To do this, they use data from the algorithm and create smart moves on your behalf. There are big advantages to this, but it’s worthwhile considering the drawbacks too.