The Rise of the Virtual Advisor – Which one Would You Choose?
The use of virtual advisors has been popular in the United States and they’ve started to make their way across the Atlantic to the UK. There are currently three British wealth management firms that are offering virtual advice as a service. Here is a review of the pros and cons of each platform.
One of the new services that make use of virtual advisors for wealth management is Wealth Horizon. This Bristol-based platform charges an initial fee of 0.25%, plus a yearly charge of 1% for an investment portfolio; this is reasonably priced and is comparable to competing investment advisors. The advantage with this platform is that it brings low level savers into the market. You can sign up with a figure as low as £1,000 to start a portfolio.
The robo advisor provided by Wealth Horizon offers an in-depth analysis of why the portfolio it has chosen matches the circumstances of the investor. However, a disadvantage of the platform is that it is geared towards passive funds; there are no active funds available and a prospective investor could create their own fund at a DIY service for a much lower cost.
Invest Your Way is a similar service that uses algorithms to create a portfolio to match an investor’s risk appetite. Invest Your Way is funded by IG and therefore all investments are protected by the FSCS. This makes it a much safer bet than directly investing in ETFs. The minimum required is £2,500, which is comparable to what is offered by Wealth Horizon. However, they also charge a 1% fee, which is higher than directly investing in ETFs.
The one difference with Invest Your Way is that your portfolio is bet on CFDs rather than invested in ETFs. This can lead to a higher level of risk, as Invest Your Way does not tell you what your spread levels are.
Zen Assets offers virtual advice for a professional clientele, tired of paying huge fees to underperforming human consultants. The service has an advantage over Wealth Horizon and Invest Your Way. It charges a lower fee – only 0.5%, which is below the industry average. They are also protected by the FSCS, giving peace of mind to any investors with a portfolio size of less than £85,000.
Zen Assets does not compromise the quality of their advice. The firm’s investment executives have over 30 years’ combined experience in wealth management and have advised the world’s wealthiest at Goldman Sachs and Morgan Stanley prior to founding Zen. The only drawback is that advice is fully automated for investors with portfolios of between 10K and 100K. You need to have at least 100K to get a personal human advisor and take advantage of the truly customized approach.
Why use a Virtual Advisor?
If you are new to investing or you don’t have time to take proper care of your investments, then virtual advice might be a great option. Automated consultants will find investments that match your level of risk tolerance and then manage your portfolio for whatever time period you specify. You’ll also benefit from cost-effective investment advice, which means getting higher returns.
Another considerable benefit virtual advisors offer us is rationality and consistency. You won’t fall into emotional traps along the way, and thus will avoid deadly investment mistakes. Algorithms remove emotion from the equation and won’t falter when markets are rising or falling quickly.
Virtual advice is still a relatively new concept, but it’s gradually rising in popularity. With the big firms like Wealthfront and Betterment already posing a threat to traditional wealth management incumbents in the US, the trend will soon affect Western Europe as well.