What are robo advisors?
Advisors in the traditional sense are humans that provide financial planning services. They will create an investment strategy based on your financial goals and circumstances, then invest on your behalf.
Traditional advisors are now in competition with robo advisors. These are digitised versions of their human counterparts that provide investment management through an app or website and automate parts of the investment process. They use algorithms to determine the best investment strategies and automatically invest in them for you.
How do robo advisors work?
Traditional advisors have face-to-face meetings or phone calls with new customers to determine appropriate investment strategies. But robo advisors usually gather the information they need through an online survey.
The digital platforms that robo advisors run on require little or no human supervision. Their algorithms are developed by expert advisors.
Pros & Cons
Because robo advisors are automated, they are relatively inexpensive to run and the savings can be passed on to clients via lower fees. This also means robo advisors can take clients with less money to invest. This is significant because small scale investments are rarely worth a human advisor’s time and attention.
Another benefit of robo advisors is their 24/7 online access. Want to invest more? Withdraw funds? Change your preferences? Don’t worry about business hours – most platforms make it easy to log in and make changes.
These advantages all come at the loss of the human touch, discussion and subtitles. Many will categorise your risk tolerance as simply “low” “medium” or “high”, but the reality is that most of us have more complex needs that change over time. And during difficult finances times, a robo advisor is unlikely to provide the kind of guidance expected of a seasoned advisor.
Best Robo advisors in the UK
The robo advisors available to you depend on your country. For those living in the UK there are a handful of options.
One popular platform is Nutmeg, which offers a Stocks and Shares ISA and pension products. Another is Wealthify, which also offers a number of ISAs (and soon, pensions). Both have recently been integrated with Money Dashboard, meaning you can view any accounts you open with them, along with any other accounts you hold. This makes it simple to track day-to-day changes in the value of your investments alongside your other savings and expenses.
Should I invest?
Saving and investing should be part of everyone’s financial plan.
As a priority, you should be able to pay your expenses and debts, and have some funds set aside for a rainy day. After that, diverting funds for investment should be part of your monthly budget.
If you don’t have much to invest, a robo advisor may be one of your best bets. They take on customers with very little investment upfront and encourage monthly top-ups when possible.
If you feel a robo advisor can sufficiently address your current investing needs, then it is a good idea to start comparing UK services. Look at the investment products they offer and their fees. Their returns will also vary, but remember that even among the best robo investors, past performance is no guarantee of future returns.
If you find a robo advisor you like, it’s possible to start robo investing and robo trading within minutes.