One of the perks that Australia has is a very diverse and competitive offering in the personal finance space. Banks are not necessarily any cheaper than with anywhere else on the globe (in fact it was claim that Australian banks are the most expensive in the world in 2009), but non-bank services are readily available, and offer a variety of services for Australian citizens. We have touched the topic of foreign exchange transfer to Australia as well as small business funding and now we would like to review an alternative way to invest money through commercial “investment companies” named Robo Advisors.
With each year that passes by, these advisors become more and more sophisticated and allow for much better customization. When Robos first hit the market (Betterment in the US back in 2010), they were seen as mostly a “hands off” investment tool for small time investors who are mostly focused on low fees and commissions. Most trading platforms require an extremely low minimum balance to start using this particular service, so naturally it attracted mostly young professionals who were only starting to amass capital and were also more comfortable with using online tools.
Nowadays, Robo Advisors have evolved and target a much wider audience. You have much more control over your portfolio even if the process is “automated” – there is still a lot of human involvement. With larger portfolios, you don’t only get to choose the general risk factor you’d like, but can also get feedback and analysis of each specific component, and manually select which ETFs, mutual funds and even real estate or commodities. Moreover, there will always be a human expert available to review your portfolio for free and offer his advice, to help you make sure the specific investments you have selected truly fit your investing style and will yield the best possible returns.
If you came from countries like the UK, USA or Canada you probably know what a robo advisor is. It’s true that each country has different robo advisors (examples: USA has Wealthfront and Betterment, UK is leaded by NutMeg and in Canada you have Wealthsimple and Modern Advisor), but the concept is 100% similar. A robo advisor will manage the money based on your indications (the level of risk you want to take, for how long will it be invested before you use it, and other parameters) but unlike with Financial Advisors or banks, this investment portfolio will be created automatically and will cost you absolutely nothing. The Robo Advisor will be able to buy the assets (ETFs mostly) on your behalf for lower fees than offered by banks and most stock brokers, and you will get a low-fee high-impact savings account backed by high end technology.
The costs of using a Robo Advisor in Australia are absolutely ridiculous and low in comparison to any other alternative. If you have a small portfolio you could use QuietGrowth which charge a $0 on all accounts below $10,000 (and as little as $450 annually for accounts of $100,000).
Robo Advisors have less overheads than competing services. There is no huge staff or expensive branches you can approach. It’s all done online! Additionally, Robo Advisors are trying to make a name for themselves and recruit as many people as possible to use their services, which leads to a very competitive landscape in terms of fees. Other Robos than QuietGrowth offer similar setups. Six Parks costs 0.3% to 0.5% per year, that is in comparison to hedge funds that may charge up to 2% of the assets annually.
The market is steaming globally and Australia is no different. There are more Robo Advisors that have already announced they are working on fresh products and plan on entering the Australian market. Two fine examples are Plenty and FirstStep, who seem to be putting in great efforts.