During the financial crash of 2008, banks, building societies and investment management firms, lost some of the public’s trust. But paradoxically, these difficult times also managed to drive change in the industry and disruptors started to emerge, one of the most telling innovations to emerge from the aftermath of the financial crisis was undoubtedly robo-investing – also known as robo-advice. Before 2008, you had to hire a wealth manager to have an investment plan created on your behalf and you couldn’t invest unless you had a significant amount available to invest. Fast forward to today and you can become an investor with just a few taps on your phone and you can start with small sums – this is robo-investing for you. However, despite increasing popularity, there are still many misconceptions about it.
‘Robo-investing services are robots’
It’s often assumed that robo services employ robots to do the hard work – blame the name! Robots, or shall we say algorithms (a set of rules that needs to be followed in a calculation), have a role to play, but in Wealthify’s case, they’re not making any investing decisions, such as what investments to buy and where to invest. In fact, they’re just a tool used by our investing experts to process large amounts of information, enabling them to call the shots. And last time we checked, our experts aren’t some replicants straight out of Blade Runner, they’re reassuringly human.
‘Robo-investing services give advice’
One common myth is that robo-investing platforms give advice. Commonly referred to as ‘robo-advice’ in the US, the term ‘advice’ means ‘we do it for you’, but it hasn’t travelled very well because in the UK it’s taken as financial advice. Some services will recommend things like how much you should invest or what investment risk you should take – it’s known as simplified advice. But other platforms, like Wealthify, will not provide any advice and you’ll be able to choose how much to invest and your investment style. One thing to keep in mind though, we won’t invest for you if we think you’re not suitable for it.
‘Robo-investing services are riskier than traditional services’
Robo-investing services have only been around for a decade, so naturally, they can be perceived by many people as riskier and less stable than more established financial institutions. Well, this is again a rmyth – the risk you’re taking with a robo-investing platform is the same as it would be with a traditional investment provider.
Also, robo-investing services are regulated. Just like their counterparts, robo-investing platforms cannot operate unless the Financial Conduct Authority (FCA) allows them to do so. The FCA monitors how robo-investing services are doing and ensures they abide by the rules and regulations. What’s more many robo-investing services are covered by the Financial Services Compensation Scheme (FSCS), which protects investors’ money up to £85,000 if their investment provider goes into liquidation.
‘Robo-investing services are difficult to use’
Robo-investing platform rely on new technology to function and for people who aren’t tech-savvy, investing online or via an investment app can feel quite intimidating. However, there’s nothing to be scared of. Robo-investing services aren’t just designed for the gadget-loving and digital addict millennials, they’re for everybody since they’re easy to use. With Wealthify, for instance, all you need to do to get started is choose how much to invest using our sliders and click on the investment style of your choice. Once your Plan is created by our experts, you get access to your very own dashboard where you can see how your money is performing. And if you have any struggle with our service, don’t hesitate to contact our customer support team.
‘Robo-investing services cost the same as traditional providers’
For many people, there isn’t much difference between robo-investing platforms and traditional investment services in terms of fees. And yet, using a ‘robo-advice’ service is typically cheaper than hiring a wealth manager. Why you ask? It’s simply due to the way robo-investing platforms invest your money. The majority of these services will favour passive funds. These are like hampers full of tasty investments (e.g. shares, bonds, commodities, and property) and they’re designed to track the ups and downs of financial indexes, like the FTSE 100. As a result, they don’t need much management and are cheap to buy, which means lower fees for you! On the other hand, a wealth manager will typically pick individual investments in the hope of beating the market. Requiring extensive research and data analysis, this method can incur higher fees, typically over 2% (all costs and charges included)1 and you get to keep fewer of your returns.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.