Best Robo Advisors UK

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 adviser 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?

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
• SIPPs

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.

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.

Robo advice can help manage your tax-deferred investments, like your stocks and shares ISA and your SIPP, and then a general investment account once you max out your annual contributions.

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 adviser. 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.

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.

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.

Automated Rebalancing

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.

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
• Services
• 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 questions about robo-advisors

Are robo-advisors good for beginners?

Yes, robo advisors are good for beginners because they automate the allocation of stocks, shares and funds usually in an exchange traded fund (ETF). Some robo advisors like Wombat offer themed ETFs where beginners who are new to investing can choose themes like ‘The Battery Room’ and ‘The Techie’, amongst others.

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. For more information, take a look at our robo advisors vs financial advisors guide.

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.

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.

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