Robo-Advisors are more popular than ever, no more so than in the UK, but what are they and where did they come from?
In 2008, two new fintech start-ups started a trading revolution. Wealthfront and Betterment launched their robo advisor products that catered to a new, digital-native audience while also tackling issues that previously locked so many people out of trading and investing. These two pioneers offered lower fee services for fee conscious wealth management clients who preferred to see their investments in front of them on-demand, rather than in a quarterly summary prepared by a wealth manager.
It wasn’t until 2012 that robo-advisors fully arrived in the UK, and by then, many of the niche’s early kinks both in product development and messaging were already worked out. Nutmeg became the UK’s answer to Betterment, and it was the first of many start-ups to offer UK residents the chance to invest in the financial markets (outside of the traditional stocks and shares ISA).
Today, as I show in my guide to Robo Advisors, UK residents have access to a long list of robo advisors, including programs offered by industry disruptors and challenger banks as well as long-standing industry giants whose efforts quickly outpaced the start-up scene including Wealthify, Moneybox and Moneyfarm. Even still, you might wonder; what is a robo advisor, and who’s really suited to their investment product?
My complete guide to robo advisors UK explains what makes robo advisors different, whether you can trust them, and how they fit into a strong retirement strategy.
What is a Robo Advisor?
A robo advisor is an online investment platform that uses a short survey to determine your investment strategy in order to match you to an appropriate portfolio, and a proprietary software program to manage your investment. This acts as a kind of financial advice that takes place on the back of artificial intelligence and complex algorithms. It’s a hands-off approach to investing your money that allows both new and familiar investors to check in on their portfolio every one in a while without the need to learn the ins and outs of trading on the stock market.
It’s best to think of a robo advisor as an all-in-one robo investing and wealth management solution that requires very little from the client beyond your bank details and a few questions to establish your risk profile in order to make investment decisions on your behalf. You won’t be making trades, and you probably won’t know whose stocks, shares, and bonds you invested in. Instead, you sit back and let the computer make the decisions on your behalf. What could be easier?
14 Best Robo Advisor Apps in the UK
Updated for September 2021, here’s my list of the best robo-advisors for UK investors that will save you time when comparing robo-advisor investment apps.
|Rank||Robo-Advisor||At a Glance||Visit Robo Advisor|
67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees
Suitable for both experienced investors and newcomers. New customers get a £50 welcome bonus! Read more in my review of InvestEngine.
No setup fees, no trading fees, no transactions or exits fees.
New accounts opened with Nutmeg get 6 months 0% Portfolio Management Fees.
Investment portfolios designed around your investment goals PLUS the ability to manage your Stocks and shares ISA and SIPP as well.
|5||Circa5000 (previously tickr)
Start robo investing in minutes with the Circa5000 App in their user friendly and impact focused investment themes.
Exclusive offer: Use my link and get £5 free added to your trading account!
Great save and invest app for beginners which is very quick and easy to set up. A done for you solution. Platform fees of 0.45%
A robo-advisor that works for you by diversifying your investments at different risk levels.
Fees start from 0.7%
Their “Go” product provides access to Fidelity’s own robo advisor.
Minimum investment amount is £1,000
With their AI private banker solution, minimum investment starts at £5,000 for each of its products
|10||Vanguard Digital Advisor
Manage your investment with their “Digital Advisor” to reach your retirement goals.
Digital Advisor targets an annual net advisory fee of 0.15% across your enrolled accounts.
|11||evestor by OpenMoney
A smaller robo advisor that caters to the new investor with deposits starting at just £1
|12||IG Smart Portfolios
Get access to BlackRock iShares ETFS with this robo-advisor and pre-built portfolios for one management fee with no commission fees.
One of the cheaper robo-advisors with no minimum investment. Portfolios start with just £1.
Quick and easy to set up and links to your bank account to set-up top-up savings.
Available on the App Store and Google Play
A Video Guide to the Top 5 Robo Advisors UK
The Best Robo Advisors for UK Investors Reviewed
The best robo advisors are increasingly hard to define because there are frankly so many options to choose from. As it stands, there is no clear front-runner among the UK products.
There are those with significant marketing budgets and deep pockets, but that doesn’t necessarily correlate to being the ‘best.’ What’s more, there’s a fair amount of churn in the sector: both large and small UK robo advisors have been known to sell up, close down, or pivot their services. For example, UBS has deep pockets, but it sold its robo product in 2018, only a year after launch, to a U.S. firm. Tiller Investments offered a discount to any UBS customers who transferred their accounts before closing its own robo advisor product in 2019.
What’s most important is to do your research and determine what platform caters best to your needs and investment goals. Your top-tier of products may differ significantly from others’, and that’s not only okay, but it’s to be expected. The most important thing is to find a product that enables you to grow your wealth as it currently stands. In addition to finding the best robo advisors to meet your needs, it’s also important to seek out a provider that’s generally reputable. In other words, they should not only have FCA and FSCS backing, but a history of good governance, experience in economics and finance, and a strong showing of support from their own investors.
For a quick overview of the best robo advisors I have the following recommendations for you to make a smarter choice. You will also find links to full reviews of the best UK robo advisors.
Whilst eToro is primarily an online Trading Platform, they also provide users with a robo-advice service. In 2010 eToro launched OpenBook, the first social trading platform in the world, revolutionising trading by making it possible for traders to imitate the trading of successful traders using CopyTrader.
Following on from the success of CopyTrader, eToro introduced CopyPortfolios in 2016, a series of managed portfolios that are professionally managed by eToro’s investment experts. The main focus for CopyPortfolios is to continuously rebalance the portfolios, using powerful machine-learning engines in order to maximise returns while simultaneously minimizing risk as much as possible.
When it comes to your attitude to risk, eToro offers a Risk Score, a feature that allows investors to manage their risk and understand the risk undertaken by other traders they are considering copying.
One of the most alluring features of eToro is that they don’t charge a platform fee or any management fees at all and you can expect to pay 0% commission on stock investment. The only fees to be aware of is the inactivity fee of $10 per month which is charged after one year in inactivity. There are also low withdrawal fees of $5.
67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees
Nutmeg is the largest and best known UK robo advisor and a pioneer in the UK market. When it opened its doors in 2012, it was the first online discretionary investment management company in the UK and it immediately won Finovate Europe’s Best of Show Award in 2012 and even an endorsement from the UK government.
As of 2020, the company has over £3 billion in assets under investment management.
Nutmeg concentrates its efforts in exchange traded funds and investors are free to choose between Nutmeg’s Fully Managed plan or the Fixed Allocation plan. Whilst the Fixed Allocation plan relies solely on the technology used by robo advisors, the Fully Managed plan at Nutmeg has the security of the in-house investment team who will monitor and adjust the portfolio according to changes in the market.
In terms of performance this fully managed robo advisor account has returned 43.7% over the past 7 years on a risk rating of 5/10.
Nutmeg requires a minimum investment of £500 so is more suited to serious investors, but what it does have is an innovative interface from which to track your investments and it takes moments to open an account.
Circa500 – Previously tickr
Even old school investors are getting in on the Green action now and Joe Biden’s commitment to clean energy will have its impact felt across the entire globe. This is where the best UK robo advisors like Circa5000 (who rebranded from tickr in September 2021) will start dominating the market, with their themed portfolios that address impact causes such as climate change and equality. Investors can finally invest in line with their values and the best part is that this is now an area that is experiencing enough growth that you don’t have to take a hit to your returns in order to have a positive impact.
Circa5000 have placed themselves in the market as an app that is suitable for new investors. It has the capability of linking to your bank account in order to include handy little features such as rounding up.
In terms of fees, Circa5000 charges a £1 monthly fee with no annual platform fees until your account balance goes over £3,000, at which point you will be charged 0.3% of your total assets under management.
The minimum investment at Circa5000 is just £5, and whilst this may sound like an attractive prospect to new investors who just want to dabble in the market without risking too much capital, it is actually one of the biggest flaws in their pricing structure as the £1 per month fee will slowly erode away at a balance of this size and any returns that may have come from it.
In order to see any returns on Circa5000 you would almost certainly need to have over £100 a month invested.
Exclusive offer: Investing Reviews readers get £5 free when opening and funding a new account, plus 1 tree planted!
Moneyfarm launched in Italy in 2012, and is one of the largest and best funded UK robo advisors.
Today Moneyfarm has seven managed portfolios for customers to choose from according to their attitude to risk with exposure to ETFs, although with even the riskiest portfolio at Moneyfarm being largely focused on UK and US stocks in their asset allocation, it is not an overly risky strategy.
Moneyfarm also operates a tiered fee system whereby accounts under £10 000 will incur Moneyfarm management fees of 0.75% per annum. These fees can be reduced all the way to 0.35% for accounts worth over £100 000.
Moneyfarm has positioned themselves in the market as being ideal for beginners with a simple pricing structure and heavily diversified portfolios for investors who would usually struggle to access wealth managers or indeed investment advice. They also provide a top performing stocks and shares ISA and their website displays a clear four year track record of the performance of their portfolios.
The minimum investment at Moneyfarm is currently £500 and you will need a monthly direct debit of £100 or more.
Moneybox is another UK Robo Advisor that has harnessed the power of ‘rounding up’ to help its account holders save, and invest their spare change. The difference between Moneybox and a lot of the other apps on the market is that they are much more geared towards encouraging account holders to save, and even offer 0.6% AER on their 95 Day Notice Savings Account.
Moneybox have set out with the aim to make robo investing as simple and accessible to everyone as possible and anyone can start investing with as little as £1. They provide a choice of three starting funds and a socially responsible investment fund to choose from and investing can either be done from their Stocks and Shares ISA, Lifetime ISA, General Investment Account, Pension accounts, or Junior ISA.
With regards to the fees charged at Moneybox, this very much depends on the type of account you open as well as how much you have in your account. There is a £1 monthly subscription fee for all non pension accounts which can soon start to eat into smaller account sizes so that’s something to be aware of. In addition to this you can expect to pay a 0.45% annual platform fee and fund costs range from 0.12% to 0.30%.
Wealthsimple is a North American start-up that now caters to UK customers and holds a London office. The company boasts 175,000 customers across the UK, U.S. and Canada and has assets under investment management of £3 billion.
In the UK, Wealthsimple benefits from coverage from the Financial Services Compensation Scheme and is regulated by the Financial Conduct Authority.
Wealthsimple uses a custodial broker, SEI Investments (Europe) Ltd., to execute trades and hold UK assets. SEI looks after $468 billion in client assets and benefits from both Financial Conduct Authority regulation and FSCS coverage.
Wealthsimple is one of the larger robo-investors offering an investment service in the UK, and it’s set to grow. It’s received over $200m in investments from investment heavy-weights. The board is made up of people with huge experience in finance, including Bertrand Badré, the former CFO of World Bank and Joseph Engelhart, the CIO of Allianz X.
The minimum investment at Wealthsimple is just £1, which they claim is a way of making investing accessible to everyone.
Fidelity is a stalwart in financial planning, and the new Fidelity Go product provides current and new customers with access to Fidelity’s own UK robo advisor.
The premise is to provide a UK robo advisor to automate investing with low platform fees, but Fidelity also assigns a team to monitor the markets and adjust strategies.
The minimum investment amount at Fidelity is £1,000 which is higher than a lot of the other UK robo advisors on the market.
Exo Investing offers a slightly different approach to the traditional robo advisor and instead markets itself as an ‘AI private banker’ for everyone.
By using AI, Exo can offer more personalised services than a robo-investor using an algorithm. It asks about your experience, risk appetite, preferences, expectations, time horizon and more before developing a more personalised portfolio for you. It also allows you to rely solely on the AI’s choice or contribute to the decision making.
The company uses Nucoro technology and partners with asset management firm ETS. ETS is a partner in the firm as well as with financial legends Arianne and Benjamin de Rothschild, whose work is dedicated to improving and leveraging technology in the financial sector.
The minimum investment at EXO Investing is £5,000 for each of its products.
The Vanguard Group
For those already familiar with or customers of The Vanguard Group, there is the brand new Vanguard robo advisor.
Vanguard have positioned themselves in the market for investors with a medium to large portfolio who are seeking a hybrid of algorithmic and human investment advice. In 2020 they launched their new Digital Advisor service, aimed at providing financial advice to clients with a pot of £3,000 or more, complete with advice on how to rid yourself of debt.
Of course Vanguard offer their own funds, which come at less of a cost than if you were to access them through another provider. Vanguard estimates that you will pay approximately £15 in fees each year for every £10,000 under their management which represents excellent value in this space.
Evestor (by OpenMoney) is a smaller robo advisor that caters to the new investor.
Deposits start at £1, and investors can choose between an ISA, a pension product or a general investment account.
Its parent company, OpenMoney, is a traditional investment firm founded in 2017 offering personalised financial advice and fully managed portfolios for an audience who are traditionally locked out of financial advice.
The team behind OpenMoney are inherently budget-conscious: co-founder Duncan is also one of the personalities behind MoneySupermarket.
One of the big differences between OpenMoney and other smaller UK robo advisors is that it sought approval from the FCA to also provide financial advice in addition to providing robo advisor services.
The company doesn’t share any financial info about backers or assets under management.
IG Smart Portfolios
IG offers its Smart Portfolio as the firm’s best robo advisor offering.
IG’s name recognition is already strong, which makes it a key player in the robo-race. Like Scalable, IG also partnered with BlackRock to create its Smart Portfolio system, which inspires real confidence in terms of the advisor’s longevity.
For those who haven’t used IG, the firm was founded in 1974 and is currently listed on the FTSE250. It boasts a market capitalisation of £1.98 billion and 1,700 staff across the world.
The “big sell” offered by IG is that you get access to BlackRocks’ asset allocation models, including BlackRock’s iShares ETFs. There’s no need to wonder what algorithm is behind your portfolio’s investment decisions: there’s a trillion reasons to have confidence in the product.
Wealthify employs a fully automated investment process in order to match clients with a portfolio that complements their appetite for risk. They invest in a range of ETFs which helps to keep costs low, a saving that is passed on to their clients. As of 2020, Wealthify are a subsidiary of the Aviva Group providing the robo adviser with the financial backing and security of a large financial institution.
Wealthify is ideal for new investors, partly because of their easy to use app, and partly because they accept investors for as little as £1. In 2020 they also picked up a number of awards including first place in the Investor Choice Awards and the British Bank Awards.
In terms of fees, Wealthify have kept it simple with an annual fee of 0.6% and on top of this you can expect to pay around 0.22% for their original plans and 0.66% for the ethical plans. This comes out as being excellent value for portfolios of less than £10,000, although for larger portfolios it can start to add up.
Plum is an excellent saving tool for people who struggle to save. They employ sophisticated algorithms and artificial intelligence to analyse your income and expenditure in order to identify amounts that you can save without really noticing it. In order to achieve this, Plum will link to your bank account and in doing so can identify areas where it thinks you are spending too much on your household bills, as well as make suggestions for switching providers, although I suspect that they have an affiliation with Octopus who always seem to be their default suggestion.
Whilst the basic saving pocket with Plum is free of any charges and therefore a great starting account, they also offer the option to invest your savings, although in order to do this you would need to upgrade to their General Investment Account or Stocks and Shares ISA at a cost of £1 per month.
Plum offers investors a choice between ten high, medium and low investment portfolios that include the Vanguard Lifestrategy fund range. The returns on their Tech Giants fund for the last five years has come in at 252.85% which has outperformed the average of its peer group. Funds can be chosen according to your appetite for risk, although it’s best to be aware that the £1 monthly account charge will soon eat away at smaller accounts.
What Products Do Robo Advisors UK Offer?
The best robo advisors offer both general investment or a trading account as well as a number of the popular retirement and tax-deferment options used across the UK. The typical robo advisor may provide some if not all of the following products:
- General Investment Accounts
- Investment ISAs
The same robo advisor platform may also offer all the tax benefits that can be accessed within Junior ISAs or Lifetime ISAs. However, these accounts won’t be privy to the best robo advisor product as they are not investment products.
How Does a Robo Advisor Work?
Robo advisors in the UK use an algorithm to choose your investment portfolio based on things like:
- Your risk profile
- Your current investment goals
- Your projected investment term
Because you won’t do any trading on your own, and you won’t have a human advisor doing any trading on your behalf, your portfolio usually comes in the form of different funds rather than individual stocks and bonds.
Most investment platforms use a theory called the Modern Portfolio Theory (MPT), a Nobel Prize winning economic theory, to create portfolios that the survey then assigns to each customer based on the three data points above (risk profile, financial goals, term). MPT argues that you can create an “efficient frontier” of portfolios optimised to generate the best available growth for each level of risk. Basically, it says that you shouldn’t consider risk and return individually but instead evaluate them against the whole portfolio for optimal performance. The theory operates on the presumption that all investors are risk-averse by nature and would prefer a portfolio that offers low risk with a reasonable return, and investors only want more risk if the growth matches it.
What does it mean in terms of a robo advisor’s portfolio offering? It means a significant focus on an instrument known as an index-based exchange-traded fund (or index-based ETF). However some UK robo advisors will also use mutual funds as part of their portfolio construction.
What Are Index-Based ETFs?
Indexed-based ETFs are ETFs that track the performance of an index (like the FTSE 100). Indexes track a targeted group of companies that reflect the growth of the overall market. Thus, an index-based Exchange Traded Fund attempts to provide investors with a return that reflects the subset of the market they’re tracking.
Why are index-based ETFs such a popular addition to a portfolio among robo advisors in the UK? First, they’re low cost, which benefits both the robo advisor platform and the consumer. Second, there’s a tonne of investing research underpinning their use within a portfolio; they offer a favourable return compared to tools like fully managed mutual funds both in the short-term and long-term. In fact, research from two key players in the U.S. robo-investor market found that index-based ETFs outperform mutual funds 80-90% of the time. As a result, robo advisors in the UK offer both a low-cost and efficient form of investment that also happens to offer a long list of other benefits.
What About Mutual Funds?
Mutual funds use active fund management in an attempt to produce better returns and beat the stock market. As a result, they aren’t found among robo-investors which demand a more passive role to function. Some providers who offer robo advisor services may offer mutual funds as a separate product. Because mutual funds demand active management from a human advisor, the management fee is higher.
As a result, they don’t cater to the crowd who would prefer to accept computer-driven investment service in favour of a lower management fee. The difference can be significant: you could spend 1-3% on management fees on a mutual fund but a robo advisor could charge you as little as 0.25%.
Who Do Robo Advisors in the UK Help?
In the past, access to trading was largely limited to those who either had the knowledge to go it alone or those who could afford to pay a financial advisor service to work on their behalf. It was also limited to people whose initial investment amount was large enough to meet a high quota — not the everyday saver or new investors getting started with their portfolio.
Robo Advice turns existing financial services products on their head by combining a low management fee with a low barrier to entry.
How Much Does A Robo Advisor Cost?
Whilst the cost of a UK robo adviser is significantly less than what you would expect to pay a human financial adviser, there is a management fee involved which can vary wildly from one investment service to another.
Typically there are two major components that you need to worry about, the portfolio management fees which is usually a percentage of your annual investment and typically costs anywhere between 0.25% to 0.5% and the Fund Fees which can be anywhere between 0.05% and 0.65% of your annual investment.
Some robo advisers will use a sliding scale fee structure based on your annual investment amount so it is worth checking which bracket you would fall into before attempting to calculate your costs. This sliding scale can also make it worth changing from one robo adviser to another once you have grown your money so check there are no withdrawal fees associated with the robo adviser you choose.
Which is the Cheapest Robo Advisor in the UK?
Whilst low fees shouldn’t be your only consideration when choosing the best robo advisor for you, it is a factor and I have therefore conducted a price comparison of the major UK robo advisors on the market today so you can see which is the cheapest robo advisor. There are many variables to consider when it comes to how much money robo advice will cost, such as the minimum investment amount offered by the robo advisor, which account is best suited to your needs, and the robo advice services that each UK robo advisor offers.
Many UK robo advisors have hidden fees, such as deposit and withdrawal fees, set-up fees, trading fees, transaction fees, and exit fees associated with the robo advice they provide. However, Nutmeg scrapped all these extra charges and at just 0.25% for a fixed allocation portfolio beyond £100k and 0.19% fund fees I felt that these low fees offered exceptional value for the level of investment service Nutmeg provides and therefore they have taken position as my recommendation for cheapest robo advisor available.
Should You Use a Robo Advisor?
A common misconception is that robo advice generally isn’t for clients interested in investing in wealth accounts or high-net worth clients. Early versions of the consumer-facing product saw that not only were the premiums not optimised for high-value retail investor accounts, but there was no real oversight from humans, which some consider essential.
What’s more, robo-advice tended to be inflexible; you couldn’t maximise your investment nor will you have any sort of detailed or personalised financial advice. This image and trend is changing, however, and while some robo advisers do fit the above description and use it as their value proposition, an increasing number of investment platforms are integrating new (traditional) services to supplement their computers’ robo advice. In other words, you’re not only more likely to now see clients with £100,000+ using robo advisors for at least part of their portfolio, but financial managers are also enlisting them on their clients’ behalf.
Is There Anyone Who Won’t Benefit From a Robo Advisor?
At present, robo advisers won’t directly benefit those who aren’t transferring money into their accounts regularly. Although they are often one of the cheapest methods for getting a foothold in the markets, the management fee will likely eat up much of the return in very small accounts where the investor only adds £10 at a time.
These customers can use the product, but they might be better suited with cash savings options that feature no-to-low fees until they build up a cash nest egg for investment. Investing with a robo advisor is a long term proposition and therefore customers looking for short term gains on their money would be better off placing their money in a high interest, easy access, cash savings account.
Do Robo Advisors Beat the Market?
The simple answer to this is that it would rarely happen for even the best robo advisors to beat the market, however, even matching the market can lead to strong returns and beating the market isn’t always realistic. The index fund investing strategy that is followed by most robo advisers will often match market performance, but more importantly, offer investors a less volatile portfolio during economic upheaval. A financial advisor will also struggle to beat the market, and in some instances a robo advisor has actually out performed its human counterpart at less cost.
Are Robo Advisors Suitable for Wealth Management?
Many of the best robo advisors both in the UK and in the global industry generally tout themselves as being perfect for small investors. Their low management fee combined with low investment thresholds do cater to that group.
But are robo advisors also suitable for investors with £200,000 or more to transfer into an account or is traditional wealth management still a better option? While some robo advisers exist to cater to small investors, there are products available for investors with accounts worth six-figures or more. What’s more, industry experts say that robo advice products are becoming more popular across wealth levels, with many high-net worth individuals choosing to split their money between wealth managers and computer advisors. The practice is more popular among Asian and Latin American investors than North American and Europeans, who are slightly more cautious.
The sector’s willingness to expand its core market is important not only for gaining today’s wealth customers but also because as the global Baby Boomer generation begins to pass away in greater numbers, younger generations will inherit £1tn in wealth.
It’s important for robo advisers to be ready for a generation of investors who are already comfortable with using digital services rather than traditional wealth managers, but who don’t yet have a high net-worth.
Can You Trust a Robo Advisor?
“Can we trust the robots?” It’s a good question. After all, they are asking for your money, and investing cash automatically carries some investment risk. While the robot’s won’t make emotional decisions, you are at the mercy of an algorithm you can’t see (nor would you necessarily understand). The answer is “yes, you can trust the robots.”
Why? In part because you can trust the theory powering the average robo advisor. Many are modelled based on Nobel Prize-winning economic theory, which makes them both smart and cutting-edge. The use of an algorithm to make an investment strategy also means that there won’t be any sort of emotional decision making. Your portfolio won’t suffer because someone is having a bad day or because they hit the wrong button.
Further evidence of the value of robo advice comes from the fact that they are increasingly used as a “white label” practice. Traditional advisors are increasingly using them for client work to streamline the asset selection investment process and free up their time for more valuable work. So, these products aren’t just for those locked out of the market: they have value for industry professionals, too.
Finally, any trustworthy robo adviser will have authorisation from the Financial Conduct Authority (FCA) and participate in the Financial Services Compensation Scheme (FSCS). Thus, if anything goes awry, these programs mean your investments and money are protected up to £50,000 (Financial Conduct Authority) and £85 000 (FSCS).
Look for approval from both bodies before you provide your details to any start-up.
Can Robo Advisors Make You Money?
Whilst robo advisers have caused much scepticism among professionals as to their effectiveness when compared to traditional investment methods, they rely heavily on complex algorithms which are based on sophisticated economic research and therefore represent the best economic models of investing.
Competition within the robo advice market has led to low fees, which in turn means an increase in investor returns. Of course there are variables and any fees can erode away at small investment amounts, however, they can effectively make you money in line with your risk appetite.
Does the Robo Advisor Hold onto My Money?
The answer is probably not, particularly among start-ups. Many of the independent robo advisers aren’t investment banks. They offer software and serve solely as a platform offering robo advice. Your money will likely be held by a custodial broker. For example, Wealthsimple is a leading robo adviser in the UK. It partners with SEI Investments (Europe) Ltd., which is Wealthsimple’s custodial broker and both executes trades and holds customer money on behalf of Wealthsimple.
It’s worth doing research on the custodial broker or partner bank before opening an investing account with the best robo advisor for you and investigating where your money will be held so you can ensure the safety of your money should the robo adviser go bust.
What are the Benefits of Choosing a Robo Advisor?
Robo advice comes with a long list of available benefits, which is no surprise given their stratospheric success.
Cost Effective with Good Returns
The biggest benefit offered is their premise: they offer quality investment tools at low cost, which is a proposition that’s difficult to execute. As mentioned above, robo advisors accomplish this by using a MPT theory and relying heavily on index-based ETFs, which provide low-cost performance. Although this benefit often speaks to new investors, it’s a helpful tool for those with mature wealth who want to further diversify their portfolios.
A robo adviser is a low-maintenance place to park a portion of your money and watch it grow and enjoy the cost savings compared to typical asset management fees.
Easy to Use
What attracts everyday savers who don’t have a wealth of investing experience is how easy they are to use. All you have to do is open an account which is usually very simple. Though, you can expect to provide a list of essential details to ensure compliance with HMRC and international law. From there, you can link your bank account and set up a direct debit to invest as much money as often as you like. Additionally, robo-investors allow you to choose a portfolio based on your financial goals and your preferred investment risk tolerance, which means there’s no research involved.
Quality providers also provide enough easy-to-digest information on their websites to educate all their customers on what’s happening behind the scenes. Their resources can be a good starting point for further investments and diversification as your cash grows.
Once you’re set up, you can largely forget about it. Though, it is good to check in on your investment and update your risk tolerance and goal preference as required. The best robo advisors even automate the rebalancing process, which ensures that your investments and mix remain constant even as markets change.
Low-to-No Minimum Balance
Another benefit is the ability to keep a low minimum balance both as you start out and if you need to withdraw your cash. You won’t lose access to your account even if it sits empty. Not all accounts offer this feature. Start-ups are more likely to allow this compared to legacy banks.
Are There Any Disadvantages?
While the list of benefits is long and attractive, there are some drawbacks associated with robo advisors that are worth considering. The biggest of these is the lack of personalisation (at least so far) in the robo advice they offer. These providers shuttle everyone into one of a handful of portfolios based on some general questions. While this approach has some merit (and there’s sound science behind it), it’s important to remember that there’s more to your financial goals than a basic risk profile.
Some robo advisors are increasingly offering greater personalisation to address this. You can also switch your risk levels and change your investment goals among some providers. A second disadvantage is that you won’t get any financial advice when there’s a big market swing. For example, when the potential of a new pandemic sent the markets into free fall in early 2020, investors were on the phone with their money managers wondering what to do next.
If your plan is strictly run by a computer, you won’t have anyone to tell you not to sell up — or what to do next. You’ll need to make the decision for yourself and hope it’s the right one. Finally, it’s important to remember that while some robo advisors offer lower fees than financial advisors, not all do.
There are many products and advisors out there. Avoid following the assumption that even the best robo advisor will save you money in every instance because that’s not true.
The bottom line is there are many things the best robo advisors have the potential to do better or cheaper than a human.
The key is to remember that they have the potential: not every product or platform will live up to it.
How Much Will You Make Compared to a DIY Approach?
There’s no way to say just how much you’ll earn via the best robo advisor compared to a mutual fund or buying stocks and bonds individually. Every part of the robo advice process is unique, and of course, the stock market changes in ways that are not always predictable.
It’s worth noting that you won’t necessarily earn as great a return with the best robo advisor compared to a DIY approach. The portfolio building process combined with the prevalent use of ETFs means that your portfolio will match risk with reward. When might you earn more by choosing to build your own portfolio? You’re likely to see better returns when:
- You already have investment experience and knowledge of the stock market
- You have the time to manage your own investments
- You have time to seek out and manage low fee investment platforms
But if you’re a new investor, have little time to dedicate, or just want to watch your money (hopefully) grow steadily over time at a rate that should beat a savings account, then you are more likely to prevail with a robo advisor.
Robo Advisor UK Fees Comparison
We recommend that you fully understand the fees before signing up to a UK robo-advisor, so we have put together this handy robo advisor comparison table for you.
Some of the fees you need to understand that will apply when investing with a UK robo advisor include:
- Platform Fee* – The fee charged to use the robo advisor UK platform you have chosen. In most cases this is shown as an annual percentage fee and is charged against the total amount you invest each year. As an example, a £1,000 investment with a robo advisor that charges 0.6% means you would pay £6 per year to use the platform.
- Fund Fee** – The fee which is charged by the underlying fund or ETF that you’ve invested in. This fee is passed to the Rob Advisor and subsequently onto you.
Robo Advisor Comparison Table
|Robo Advisor UK||Platform Fee*||Fund Fee**||Min. Investment|
|eToro||0%||0%||£200 for trading|
|Nutmeg||From 0.75%||Average investment fund cost from 0.19%||£500 for GIA|
|Circa5000 (tickr)||30 days free, £1 a month thereafter||Included in platform fee||£5|
|Moneyfarm||From 0.75%||From 0.20%||£500 each portfolio|
|Moneybox||0.45% + £1 per month||0.12% – 0.30%||£1|
|Wealthsimple||From 0.70%||0.2% average||£0|
|Fidelity||From 0.35%||From 0.05%||Savings £25, investment £1,000|
|EXO Investing||From 0.75%||Average 0.25%||£5,000 Stocks and Shares ISA|
|Vanguard||Average 0.20%||Average 0.15% capped at £375||£500|
|Evestor||Average 0.49%||Included in platform fee||£1|
|IG Smart Portfolios||0.50%||Average 0.14%||£500 each portfolio|
|Plum||From FREE||0.08% – 0.90%||£1|
Which Robo Investor Has The Best Returns?
Knowing the historical performance of the robo advisor you are considering is of course important before making your choice, however, historical returns cannot guarantee future performance so I would urge investors to consider other factors such as minimum investment, management fees and the products on offer before making their selection.
The other thing to consider is that investing is a long game and generally investors are encouraged to leave their investments for a minimum of five years in order to see any real gains on the original amount of money. This is due to the ebbs and flows of the stock market, with some years proving particularly volatile.
Because many of the robo advisors have entered the market within the last five years, it makes it very difficult to quantify which of the current offerings is performing best, however, my research has shown that Wealthify are one of the top performing robo advisors on the market with a 25.5% return on their adventurous plan between March 2016 and March 2019. This is a great result over just three years. Of course when measuring returns it is important to factor in fees as high fees can seriously erode any potential gains.
Are All Robo Advisors the Same?
No, each UK robo advisor operates according to its own proprietary software as well as its own platform rules. Robo advisors may assess different fees, offer unique funds, and may provide a different array of services.
Is a Robo Advisor Worth It?
The market for robo advisors has grown substantially over the course of recent years, largely as they provide access to the financial markets to new investors and people with a small investment pot. They also offer a low cost alternative to traditional financial advice and adherence to the latest research for investment performance means they are often a high performing option. That being said, robo advisors are not in any way personalised, and therefore cannot take your unique circumstances into consideration when it comes to investing. However, if you are after a simple, time and cost efficient means to investing then robo advice is an excellent choice.
How to Choose a Robo Advisor
Because robo advisors largely offer the same value propositions and use the same technology, choosing between them comes down to the smaller details, like pricing and investment service offering. Some of the things to consider include:
- Management fees
- Investment options
- Access to human advisors
- Types of accounts
- Minimum lump sum investment
The same rule applies to robo advisors as it does to any other financial account: the management fees don’t tell the whole story. It’s helpful to sit down and determine what’s most important to you. Are you looking for a place to dip your toe into the water? Or are you looking for somewhere to start growing your wealth in earnest? Robo advisors can offer both, but you’ll need to assess each platform’s offerings against your own financial goals to understand whether they’ll work for you.
What Happens If a Robo Advisor Goes Out of Business?
A robo advisor effectively acts as an intermediary between you, the customer, and the custodian which is where your money is actually held. This means that in the event that your robo advisor goes bust, your money will still be safely held with the custodian and will remain untouched. It is then up to the customer as to what you would like to do with your money. As well as this, most robo advisors will be part of the Financial Services Compensation Scheme (FSCS), protecting your assets to the value of £85,000 should your robo advisor go out of business.
Common Robo Advisor Terms Defined
What is an Investment Portfolio?
An investment portfolio is a group of financial investments, predominantly made up of stocks and shares, bonds, commodities, cash, funds and ETFs. Historically a portfolio would be built by a financial advisor, however, with a robo advisor an algorithm is used to provide an asset allocation of diversified investments grouped together within robo advisor portfolios that meet your financial goals and your risk profile.
When choosing your best robo advisor it is important to ensure that you are happy with the portfolio choices. A well diversified portfolio can help mitigate your exposure to risk with a vast range of asset classes. Whilst the exact construction of each portfolio will vary, you should look beyond simple portfolio construction and understand the type of investments within.
What Are Ready Made Investment Portfolios?
Ready-made investment portfolios are a staple of the robo advisor universe, and they’re increasingly used by traditional financial planners as well. A ready-made portfolio is the equivalent of an ‘off-the-rack’ suit. You try one on, and if it fits and you like it, then you walk away with it that day. You don’t need to decide the details of the collar or the cuffs. It’s ready to go. Another person can come in and buy the exact same thing, if they like it. In most cases, the portfolios are designed by the investment team behind the company. They do the research to ensure the portfolios minimize risk and maximize return in each instance. Most ready-made portfolios contain a diverse combination of investments contained in a single fund.
You might also find that some providers offer ‘themed’ portfolios. For example, ‘green’ or ‘sustainable’ portfolios are a trend. If you prioritise investing only in companies that are environmentally-friendly, then choosing one of these portfolios means you won’t be a shareholder in a company that doesn’t align with your beliefs. While there’s usually a team of people behind the curation and maintenance of each portfolio, they don’t do the trading.
Guide to Best UK Robo Advisors Conclusion
Robo advisors initially made their mark as a low-cost, low-barrier product that allowed a new generation to invest in the financial markets. However, as these products have grown both in scale and scope, they now appeal to more than the new saver. Even those who can and do afford wealth management consultants are increasingly using robo advisors to manage some of their portfolio.
The benefit of using a robo advisor is that these products typically use tried-and-tested theories to create robo advisor portfolios. Each portfolio is optimised for long-term growth and a suitable amount of risk. What’s more, good products will have all the appropriate backing from the Financial Conduct Authority and FSCS, which means your initial investment is protected should the provider go bust.
Robo advisors aren’t a one-size-fits-all solution. Indeed, so many products now exhibit meaningful differences. However, if you are interested in using a low-maintenance form of investment, the time spent researching providers will likely be worth your while.
Robo Advisor FAQs
How do I choose a Robo Advisor?
Before choosing a robo-advisor you should consider the following:
– Set your financial goals whether it’s advice on choosing a portfolio or setting a savings goal
– Understand the minimum investment and fees
– How easy is the advisor to use and is it easy to access?
– Understand what types of ETFs are available
– Check which robo-advisors have the best new account deals like Nutmeg as an example
Which is the best Robo Advisor?
The best robo advisor for you will largely depend on your circumstances, however, these are the advisors that have stood out to us whilst conducting my reviews:
Nutmeg – Great for cost, good track record, complete transparency.
MoneyFarm– offers access to a human investment advisor, simple low-cost fee structure.
Do Robo Advisors beat the market?
It is very unlikely for a robo advisor (or even a human financial advisor) to beat the market on a long term basis, however, the index fund investing strategy will often match the market and the cost to you will be less than if you had engaged the financial services of a financial advisor. With the additional cost savings this means all things being equal a robo advisor can beat active management returns
Are Robo Advisors any good?
In short yes! Robo advisors offer entry level investors a great starting point and construct portfolios that are just as good (sometimes better) than human financial advisors at a significantly lower cost. The cost savings the translate into more of your being invested which improves your returns
Are Robo Advisors safe?
There is always a certain amount of risk involved when investing, and you must be prepared to get back less than your original investment. However, as an investment vehicle, robo advisors are regulated by the Financial Conduct Authority and many also offer protection from the FSCS.
Can I invest in a stocks and shares ISA with a Robo Advisor?
Yes. Nutmeg for example lets you invest into a stocks and shares ISA account which means you can utilise the tax benefits as well as their low fees
Is there human support available with Robo advice?
Yes, robo advisors always provide their account holders with support, however, this is usually not in the form of financial advice. Whilst there are a small number that can provide you access to a financial advisor, on the whole the level of support offered is in relation to account queries.
Who would be better investing with a human advisor?
Investors with complex financial situations, including tax planning, real estate, and inheritance planning may benefit from the more personalised approach that a financial planner can provide. I can connect you with a Independent Financial Advisor if you feel you need the extra support
Antonia is the Financial Editor at InvestingReviews.co.uk and brings a wealth of experience, having written for various industries over the past 10 years.
Her investment platform reviews, news, blogs and guides are meticulously researched, fact checked, and updated on a regular basis.