While figuring out where to invest your money may have seemed difficult, help is on the way. Robo-advisers offering customised advice, which had for many years been offered almost exclusively to private banking clients, are becoming available to everyone from average investors to the ultra-wealthy.

HOW ROBO-ADVISERS OPERATE

The term “robo-adviser” refers to digital investment advisory services that offer customised advice or portfolios developed using algorithms or other software, rather than relying on people. Investors usually start by filling in an online questionnaire that asks about their investment and risk 
preferences.

The robo-advisers then use these details to deliver customised advice on where and how to invest.

A key advantage of robo-advisers is that investors can receive independent investment advice and more choices at a fraction of the cost of traditional financial advisers. Fees are often well below 1 per cent, compared to the 2-3 per cent that traditional advisers often charge.

Whereas traditional portfolio managers may have personal or behavioural biases that affect their advice, robo-advisers can provide unbiased advice.

As investment research firm Morningstar’s CEO Joe Mansueto describes them, robo-advisers “put people into sensible portfolios that are low-cost and diversified with regular rebalancing. They should produce reasonable, index-like returns over time”.

It is also important for investors to realise, though, that the downsides of using robo-advisers include not being able to talk with an actual person about your goals and not receiving in-person advice during a market 
downturn.

ROBO-ADVISERS IN SINGAPORE

Some robo-advisers are run by independent companies, others by banks, and still others by relationship managers at banks which use them to augment the advice they provide to clients.

Banks in Singapore have started using or developing robo-advisers over the past several years. Last year, for instance, Credit Suisse launched a digital private banking platform that enables relationship managers to gain deeper insight into their clients’ preferences and gives clients better access to expertise from across the bank.

This year, DBS leveraged IBM Watson’s cognitive computing technology to roll out Wealth Adviser, saying it can match research and analyst reports with clients’ risk appetites, objectives and preferences. OCBC went even further when it launched OneWealth, offering everyone, from beginners to seasoned investors, the ability to obtain investment suggestions on their phone, monitor their investments and receive personalised mobile alerts.

While companies such as US-headquartered Betterment that provide independent robo-advisers not linked to banks have been around for nearly a decade in other countries, regulatory and other constraints have resulted in few independent robo-advisers being available directly to consumers in Singapore. Soon, though, similar services are likely to become available to consumers here too. Smartly and Bambu are launching robo-advisers for average consumers, for instance, and Crossbridge Capital recently launched a robo-adviser for high-end accredited investors.

As one example of how these independent robo-advisers work, Smartly CEO Keir Veskivali said Smartly “takes you through a risk questionnaire, sets up goals, and asks questions”. It then recommends a portfolio of exchange-traded funds (ETFs) built on what it says is Nobel-prize-winning research. Investors can start by putting in small amounts, Mr Veskivali said, “investing for as low as 50 dollars”.

USING A ROBO-ADVISER

Investors who are comfortable with using automated services to obtain advice on investments and do not need to talk to financial advisers regularly may wish to consider using an independent robo-adviser to help them manage their portfolio by themselves.

Investors can use robo-advisers to establish their goals and risk tolerance and time horizon for their investments, then use the advice they receive to manage their investments or let the robo-adviser manage investments for them. They can also receive performance reports and updates to help rebalance their investments 
periodically.

Some robo-advisers also provide additional information or more customised services. Bambu, for example, says it “makes saving easy, quick and fun”. Smartly uses games, short videos and quizzes to teach consumers what they should know about fees, passive investing and ETFs, with a goal of eliminating complexity from investing.

Investors overseas fare even better, as they can select robo-advisers targeted towards specific needs. Ellevest, which is based in New York, for example, says it takes women’s unique lifetime salary curve into account, factors in women’s longer lifespans, and helps women plan for taking more career breaks and dealing with the gender pay gap. Motif allows American investors to choose from more than 150 portfolios that focus on everything from precious metals or online gaming companies to robotics or stocks for millennials. Similar options may well become available to investors in Singapore before long, through upcoming services such as Miss Kaya.

Independent robo-advisers can offer a multitude of advantages for investors who want to manage their portfolios and are comfortable with receiving automated advice. They are not for everyone, however, and may not work as well for investors who want to talk to an adviser frequently or who have complex portfolios.

Robo-advisers from banks may offer a middle ground.

If you want to manage your own investments, receive independent advice and perhaps save some money, you might want to consider an independent robo-adviser or ask your bank about assisting you in using one.