What’s a robo-adviser?

Transcript

What’s a robo-adviser?

It doesn’t matter what you do, where you go, whether you’re at work or socialising, but everyone seems to be talking about robo-advisers.

The new buzzword is robo. But what is a robo-advisor and what does it do?

What is a robo adviser

The term robo-adviser is an American one that’s been exported to the UK. It’s confusing because in the US, the word adviser usually means a wealth or money manager or stockbroker. However in the UK, financial advisers offer a broader financial planning service that includes tax, estate and long term goal planning as well as the investment or money management part.

Examples of robo advisers

Some people think that a robo-adviser means an online do-it-yourself investment platform, where consumers can select and buy their own investments or pick from the platforms recommended shortlists.

Examples of this kind of platform include Hargreaves Lansdown and Youinvest and although they’re digital and online they’re not robo-advisers.

A robo-adviser makes the investment decisions for you so you don’t need to worry.

The service is automated and uses algorithms and other clever computer stuff to create a portfolio that matches your financial goals and attitude to risk.

How robo advisers work

You go online and answer a set of questions about your current finances, your savings and investment goals and your attitude to risk.

and based on your answers – the robo-adviser will recommend a portfolio that matches your risk profile and goals.

You can invest a lump sum or monthly amounts and once you’ve started your account you’ll receive regular reports and the robo-adviser will invest your money as agreed until you tell it to stop or you change your requirements.

When you invest with a robo-adviser, your money is normally invested in a basket of ETFs or passive trackers that has been designed to achieve your goals at the level of risk you’re comfortable with.

These investments are usually cheaper than actively managed investments.

Here are some examples of robo-advisers:

Moolah, Money Farm, Munnypot, Nutmeg, Scalable Capital and Wealthify, but there are plenty more and these are not endorsements.

Last but not least, it’s important that you understand that when you invest with a robo, your capital is at risk and can go up, as well as down.

In the current low-interest rates and high inflation environment, you’ll only get modest growth in a savings account. However, if you’re not comfortable taking risks with your money or if you need your money in the short-term then robo possibly isn’t for you.