Important information
Tax treatment depends on your individual circ*mstances and may be subject to future change.
Your capital is at risk. All investments carry a degree of risk and it is important you understand the nature of these. The value of your investments can go down as well as up and you may get back less than you put in.
Robo-advisers are websites and apps that make it easy to invest.
They can be a low-cost way of investing and allow you to manage everything through an app.
This article will cover:
- What is a robo-adviser?
- Robo-advice: pros and cons
- Top five robo-advisers
- How do I choose a robo-adviser?
- Are robo-advisers worth it?
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What is a robo-adviser?
The term robo-adviser conjures up images of robots sitting across the table from you and assessing your investment options.
In reality, it’s something of a misnomer – as robo-advisers don’t involve robots and don’t give financial advice.
In essence, robo-advisers are websites that help you decide which options are most suitable for you. The support on offer is very much guidance, rather than actual financial advice.
For example, many robo-advisers use questionnaires to help you work out your risk tolerance – and then show you the available investment options that fit your profile.
They tend to be best suited to people who are relatively inexperienced at investing and who don’t feel comfortable making investment decisions on their own.
Robo-advisers may also be a good option for people who don’t have enough money or assets under management to warrant paying for full financial advice from a human adviser.
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Robo-advice: pros and cons
Pros of robo-advisers
- They can be much cheaper than traditional advice and investment services
- They’re independent, and can’t be influenced by commissions or perks
- They’re convenient, quick and easy to use
Cons of robo-advisers
- You might end up in an investment category that may not be correct
- They cannot deal with complicated cases
- They do not take human factors such as your health into account
- Using in-house services will mean you only get offered a small selection of the options available
- They can’t beat the skill and experience of real financial advice
Top five robo-advisers
Wealthify
Invest with Wealthify and you could earn between £25 to £200 cashback
LATEST OFFER: Start investing and earn between £25 and £200 in cashback
As a new Wealthify customer, you could earn yourself between £25 and £200 in cashback. After signing up to the platform, you’ll need to set up a Direct Debit of at least £25 and make 12 consecutive monthly payments. Your cashback will then be determined by the average of these payments.
Don’t forget to check the terms and conditions*. Offer excludes pensions and ends 31 January 2024, you’ll have until 1st May 2024 to make your first payment. Use this link to open your account.
About Wealthify: One of the larger and more established robo-advisers, Wealthify has one of the slickest platforms for getting started with an investing account.
Unlike many of its competitors, you can explore without having to sign up and give away your details, which can help give you the confidence that it’s the right platform for your financial goals.
It offers investors a choice of five different risk levels to suit your risk tolerance, and two different strategies: original and ethical.
Wealthify charges an annual management fee of 0.6% a year. Its original portfolio costs an average 0.16% on top of this, while its ethical portfolio adds up to an extra 0.7%.
The platform allows you to hold your investments in a stocks and shares ISA, junior ISA, general investment account or pension.
It scores four stars in our ratings.
Capital at risk. The tax treatment of your investment will depend on your individual circ*mstances and may change in the future.
Evestor
Evestor offers a choice of three different portfolios – low, medium and high risk – which each invest in a selection of tracker mutual funds. Find out more here on how to choose investment funds.
Fees average at around 66%, which puts the company among the cheapest options for those looking to invest in ready-made portfolios.
It’s easy to set up an account, and once it’s up and running you can keep tabs on your investments through Evestor’s app. You can hold the investments in either an ISA, a pension or just a general investment account.
Evestor scores a top five stars in our independent ratings.
Capital at risk. The tax treatment of your investment will depend on your individual circ*mstances and may change in the future.
Nutmeg*
Nutmeg is one of the larger and more established robo-advisers.
It offers a choice of four different investing strategies which are labelled below:
-Fixed Allocation
–Fully Managed
-Socially Responsible
-Smart Alpha powered by J.P. Morgan Asset Management
Each of these accounts comes with an adjustable risk level to suit your goals. The Fixed Allocation and Smart Alpha (powered by J.P. Morgan Asset Management) strategies include five risk levels, while the Fully Managed and Socially Responsible investment styles include 10 levels.
Nutmeg is relatively competitive on price – particularly its fixed-allocation portfolios, which have total costs of 0.69% a year. Although its socially responsible investing portfolios are significantly more expensive at 1.10%.
All of its portfolios invest in exchange-traded funds, which track indices or asset prices. Like all good robo-advisers, you can manage your money through an app.
You can hold your investments in a stocks and shares ISA, Lifetime ISA, junior ISA or pension – as well as a regular general investment account. Nutmeg scores a top five stars in our independent ratings.
Capital at risk. The tax treatment of your investment will depend on your individual circ*mstances and may change in the future. Approved by Nutmeg on 26 October 2023.
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Plum
Plum allows you to invest in a range of different active and passive investment portfolios, as well as offering access to a competitive savings account.
Everything, including account set-up, is done through its app.
You need to be willing to link your bank account to the app – and set up a direct debit to allow Plum to regularly scrape off some money into your savings.
As a bonus, you can then keep track of all your banking transactions in your Plum investing account and analyse your spending behaviour.
Charges for investing start with a 0.15% platform fee, after which you have a choice of ten funds that vary in risk and focus and cost between 0.06% and 0.9%. In addition, you need to pay a monthly membership fee of £1 or £2.99 depending on which package you go for.
If you opt for one of its cheapest funds, it will be one of the lowest-cost options in the market – but there is not an enormous amount in terms of guidance to help you choose where to put your money.
Plum gets a top five stars in our ratings.
Capital at risk. The tax treatment of your investment will depend on your individual circ*mstances and may change in the future.
Moneybox
Moneybox has some similarities to the Plum model as everything, including setting up your account, needs to be done in the app.
The cost structure is a fixed monthly fee of £1 to use the platform and its service offered, plus a 0.45% platform fee.
It then offers three investment portfolios to choose from, and these cost up to an extra 0.3% on top, making it competitive but significantly more expensive than some of its cheapest rivals. Like Plum, it also offers savings accounts.
Moneybox scores four stars in our ratings.
Capital at risk. The tax treatment of your investment will depend on your individual circ*mstances and may change in the future.
How do I choose a robo-adviser?
When it comes to investing, the only certainties are the fees and charges – so it’s worth considering a robo-adviser that isn’t too expensive.
But cost isn’t the only consideration. For example:
- Some offer a greater choice of investments than others
- And if you’re looking for ethical or socially responsible investing options, not all robo-advisers offer that
So you will need to pick a platform with the right investment options for your needs.
If you are new to investing, try our first module of the investing for beginners course.
Is a robo-adviser worth it?
If you’re looking to get started with investing, robo-advisers can be a great consideration. They offer an easy way to get access to a diversified portfolio and providing a much cheaper alternative to paying for full financial advice.
But if you’ve got larger sums to invest, or more complex circ*mstances, they are unlikely to offer enough support – and you should consider finding a full-service financial adviser.
You can claim a free health check and have a phone call or meeting of up to an hour with a financial adviser courtesy of VouchedFor*. To receive further advice, you will likely need to pay a fee.
If you’re new to investing, have a look at our beginner’s guide to investing, or take our free investing for beginners course.
Regulation and robo-advice
Many sure the robo-advice company you are dealing with is regulated by the Financial Conduct Authority (FCA). This will allow you to:
- Complain to the Financial Ombudsman Service if something goes wrong
- If the company goes bust, the Financial Services Compensation Scheme can protect your money up to a maximum of £85,000
A robo-adviser’s website normally states if it is regulated by the FCA. However, it’s a good idea to search the online register to check.
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As an expert in the field of financial investment and robo-advisory platforms, I bring first-hand expertise and a depth of knowledge to guide you through the concepts mentioned in the article. My experience in the financial industry allows me to provide valuable insights into the world of robo-advisers and their pros and cons.
The article covers various aspects related to robo-advisers, including their definition, advantages and disadvantages, the top five robo-advisers, considerations when choosing one, and the question of whether they are worth it. Let's break down the key concepts discussed:
What is a Robo-Adviser?
The term "robo-adviser" might evoke images of robots providing financial advice, but in reality, these platforms don't involve robots and don't offer personalized financial advice. Instead, they are websites that assist users in making investment decisions. They often use questionnaires to assess risk tolerance and suggest suitable investment options.
Pros and Cons of Robo-Advisers
Pros:
- Cost-Effective: Robo-advisers can be more affordable than traditional advice and investment services.
- Independence: They are independent and not influenced by commissions or perks.
- Convenience: Quick and easy to use, often managed through user-friendly apps.
Cons:
- Potential Misclassification: Users might end up in an investment category that may not be entirely accurate.
- Limitations in Complexity: Robo-advisers may struggle with complicated cases.
- Human Factors: They may not consider human factors like health in their recommendations.
- Limited Options: Using in-house services may limit the range of available investment options.
Top Five Robo-Advisers
-
Wealthify:
- Offers a slick platform with different risk levels and investment strategies.
- Charges an annual management fee of 0.6%.
- Allows investments in various accounts, including ISAs and pensions.
-
Evestor:
- Provides three different portfolios with varying risk levels.
- Boasts fees averaging around 66%, making it one of the cheaper options.
- Easy account setup and monitoring through the app.
-
Nutmeg:
- Offers four different investing strategies with adjustable risk levels.
- Competitive pricing, with fixed-allocation portfolios at 0.69%.
- Various account options, including ISAs, Lifetime ISAs, and pensions.
-
Plum:
- Allows investment in active and passive portfolios with a competitive savings account.
- Charges start with a 0.15% platform fee, with fund options varying in risk and cost.
- App-based setup and transaction tracking.
-
Moneybox:
- Similar to Plum, everything is managed through the app.
- Fixed monthly fee of £1 plus a 0.45% platform fee.
- Offers three investment portfolios and savings accounts.
Choosing a Robo-Adviser
Considerations when choosing a robo-adviser include fees, the variety of investment options, and whether ethical or socially responsible investing is offered. The article emphasizes the importance of selecting a platform that aligns with your investment needs.
Is a Robo-Adviser Worth It?
For beginners in investing, robo-advisers can provide easy access to diversified portfolios at a lower cost compared to full financial advice. However, for larger sums or complex circ*mstances, seeking a full-service financial adviser may be more suitable.
Regulation and Robo-Advice
It's crucial to ensure that a robo-adviser is regulated by the Financial Conduct Authority (FCA). Regulatory compliance allows users to address issues through the Financial Ombudsman Service and provides protection through the Financial Services Compensation Scheme.
In conclusion, robo-advisers offer a convenient and cost-effective way for individuals, especially beginners, to enter the world of investing. However, users should carefully consider their specific needs and preferences when choosing a platform, keeping in mind the potential limitations and regulatory aspects.
