“Earning 1.5% interest per year in a bank account is incredibly exciting.”
Said No one. Ever.
The problem was that if you didn’t want to buy a property (or couldn’t afford one) and didn’t have the time or money to see a financial adviser there really weren’t many options for you and your savings other than the boring bank account.
That has all changed in the past 3 or so years with a spate of what are called “Robo-advisers” launching in Australia.
In this article we look at these new offerings and how they stack up against each other.
(this is a follow up to last month’s article we took an in depth look at the new wave of superannuation funds competing for your hard earned 9.5%.)
Without getting into too much detail, robo-advisers manage your money digitally. They invest your savings in a combination of Exchange Traded Funds (read what these are here) to give you exposure to a broad range of industries.
They are a lower cost alternative to traditional managed funds and give everyone the opportunity to have their investments managed professionally.
Robo-Advisers Operating in Australia
How to Compare Robo-Advisers?
All the robo-advisers we mention above have a few things in common:
- Investment Options – Robo-advisers will typically have ~5 portfolios your money will be invested in (Stockspot offer additional “theme” based portfolios for balances over $50,000). These portfolios are built to match the amount of risk you want to take on (i.e very risky through to more cautious). The more cautious you are the more money will be invested in lower risk assets such as cash and government bonds.
- Advice – They wouldn’t be robo-advisers without the “advice” part – this advice involves telling you which portfolio to invest in based on your answers to a set of questions they ask you on registration. They also look after the rebalancing of your portfolio – i.e making sure you stay within their recommendation as the market moves.
- Returns – Given the similar assets the robo-advisers invest in, the returns across the investment options should be very similar.
Given that all robo-advisers offer the above the most important factor to consider when comparing them is fees.
Before we jump into that analysis a quick word about…
Raiz (Previously Acorns)
We haven’t mentioned Raiz as a robo-advice company because they miss a key component – the advice. While they have similar investment options and do the re-balancing they won’t tell you where to invest your money but rather you have to choose. One of the advantages of Raiz is they do cater for smaller investment amounts – but be warned; the further your balance slides below $5,000 the more expensive it is.
Despite this fact – we have decided to include Raiz in our comparison as they do offer a solid alternative to a bank account and a very similar service to other robo-advisers.
The table below compares the % fees you will pay per year across Australian robo-advisers (and Raiz) at different investment amounts:
|<$10,000||$10,000 - $49,999||$50,000 - $99,999||$100,00-$199,999||$200,000 - $499,999|
These fees don’t include the ETF fees which typically are ~0.25%.
Why Care About Fees?
Take someone who has $10,000 in savings and plans on investing $500 per month. Below would be the investment balance after 20 years of investing (assuming a 7% annual return):
As you can see, there is a substantial $15,000 difference between Raiz (the lowest cost option) and the highest cost options
We also included a bank account that pays 1.5% interest – clearly a poor option.
Raiz – The Clear Winner?
Raiz does have the lowest fees and, based on our criteria, it does make it the winner.
However, while Raiz is the cheapest in the bunch it is worth noting that when investing with Raiz you don’t own the underlying investments – rather your money is pooled together with over investors and are held by a custodian (i.e a third party). This does add more risk in the event that anything happens to the custodian.
Raiz and Clover are also the only two to offer Socially Responsible portfolios which some investors might find appealing.
Special Mention – Spaceship Voyager
Late in May-2018 Spaceship (a new breed of superfund discussed here) launched a non-super managed fund called Spaceship Voyager that invests in Australian and Global stocks at a VERY LOW management fee. The investment options are featured in the table below:
|Spaceship Index Portfolio||0||0.05%|
|Spaceship Universe Portfolio||0||0.10%|
As you can see – at fees of just 0.05% and .10% above $5,000 (and free below $5,000) the new product blows even Raiz out of the water from a fee perspective (there aren’t even ETF fees with Spaceship Voyager). Adding Voyager to the comparison table you can see a fee saving of $16,000:
However – it is worth noting a few points about Voyager:
- Choice – Voyager only has 2 options too choose from at the moment – both invest in similar types of companies (the difference is one is more actively managed than the other). This compares to the other investment services which will have 5-8 portfolios to choose from (or more in some cases).
- Diversification – Voyager only invests in equities – this compares to the others which will all have multiple asset classes (bonds, gold etc) in each portfolio.
- Advice – Like Raiz, Voyager doesn’t actually advise which portfolio you should invest in.
How Does Plenty Compare to Robo-Advisers?
Plenty considers your investments within the scope of your entire financial life – we will not only tell you where to invest but also how much to invest and whether investing is the right option given your other debts, goals in life and overall financial picture. (Note: at present we don’t have the capability to invest your money automatically but when we do our costs will be low.)
We also understand that sometimes you might want to speak to someone about your wealth and that is why we have the option to pay and receive digital meetings. Find out more about Plenty’s investment advice.
The information contained on this page is of a general nature and may not be appropriate for your personal circumstances. You should obtain personal financial advice before acting on this information.