Roboadvisors vs GIA/ISA


#1

I rejoice the emergence of robo-advisers. They will give me access to a fully diversified portfolio across a range of asset classes across a range of global markets with a choice of risk appetite. All for a sub-1% transparent all in one fee with zero exit fees.

Robo-advisers (Wealthify, Moneyfarm, Wealthsimple et al) are cheap precisely because they are made up of ETFs and/or mutual funds. They are autorebalanced but not necessarily actively managed by my understanding.


ISA pricing
Revolut Wealth
(Calum McWhir) #2

This is certainly true, but it’s also just a fancy way of saying ‘ETF’ or ‘a few ETFs’. That it costs anything to do this other than the underlying costs of each fund is the problem. If you aren’t sure what to invest in, you’re better off paying someone once (or periodically to rebalance) to help you decide the relevant ETFs to invest in and target them in the cheapest form possible (e.g. Freetrade, but I’m biased). Good, free information is also available online but clearly this won’t be personalised to your circumstances.

The legitimisation of paying % ongoing fees for the privilege of accessing pre-existing ETFs is one of the most damaging trends of the last couple of years and reflects badly on fintech!


(Calum McWhir) #3

The legitimisation of paying % ongoing fees for the privilege of accessing pre-existing ETFs is one of the most damaging trends of the last couple of years and reflects badly on fintech!

Actually, their strong brands and investment in public attention has probably been the single biggest factor in 18-30 engagement in investment since roboadvice became trendy, so it’s not all bad. But - I maintain that it’s not an effective way to invest.


#4

Interesting perspective. To take Wealthify as an example who are already undercutting the incumbents, here is their fee structure and what the customer receives in return:


Are you of the opinion that that management fee of sub-0.7% is not worth it? Even if purely not for the convenience.

https://www.wealthify.com/why-invest/fees


(Calum McWhir) #5

It sounds attractive and cheap in isolation and pre-Freetrade and Vanguard’s proprietary ISA offering maybe there was no other good choice.

But I’m afraid once you’ve seen how the sausage is made you can’t unsee it, and ‘personal investment plan’ is simply one of circa 5 buckets of ETFs they put you into depending on risk appetite.

Aside from the fact that this may rebalance over time, charging a % ongoing fee for this is very expensive. It’s information after all, not an ongoing service. The rest sounds like what should be expected of any reasonable service platform.


#6

I really appreciate the responses… before I even knew Freetrade existed, Wealthify was my best option I’d set my mind on. This isn’t necessarily the case now that I’m a pledged investor, but I may take the approach I’ve done with Monzo&Revolut as seeing them as compliments. Undecided yet (this is probs a whole other thread in itself about whether Roboadvisers & FreeTrade are compliments/competititors so will leave it here for now)

This is a good point, however to ensure like-for-like comparisons, we must bear in mind the all-in-one ongoing fee is attractive because it includes the ISA which Freetrade will charge £36 per year for as an add-on. Why have you gone down the route of charging a nominal fee for an ISA as opposed to a %?

This is why I’ve suggested before in this forum that FreeTrade thinks about dilineating ISAs as being an “add-on” to Basic but a mid-tier option so as to simplify cross-platform comparisons.

P.S. this reply is a bit jumbled so apologies in advance. Trying not to stray off topic to help out the leaders.


#7

Sounds like it could be a interesting blog post.


(Jeff puckering) #8

Fair point but doing the math, it won’t take very long for even 0.4% to become more expensive than £36. And from what I can tell (newbie still learning here so I may be wrong!) for someone with an existing pot and investing enough each year need an ISA the % charge will already be larger that freetrade.

I’m assuming, there is no increase in cost to service this feature so no reason to charge people more for nothing. Give it a fair price and leave it at that to avoid confusion. But I’ll leave @freetrade_cal to give an official answer


#9

£9000 * 0.004 = £36. Millennial investors are unlikely to be starting with £9000 lump sum investment straight out the gate.

Additional edit: £5142.86 * 0.007 = £36. Even in the worst case scenario… the hurdle point of £5142.86 initial capital is still high for those who want a Stocks&Shares ISA wrapper as a comparable rate.


(Vladislav Kozub) #10

Why would you need an ISA with that capital size? If you are starting in early 20s, get a basic account and end up paying £0 for the entire scope of brokerage services until your portfolio reaches £15,000 - £20,000.

Then convert it into ISA. You will not be expected to report any gains below £11,700 per annum and there is no way you can obtain those with less than £10,000 capital.


(Jeff puckering) #11

I think @Vlad understood my point if I’m right, as someone in that exact position(less than 5k to invest) I just won’t be using an isa until I have probably a 20k pot anyway. Rendering the 0.4% charge outdated once freetrade lands


(Rob Nicholson) #12

I think a free account is perfect for people with less than £10k to invest. When this has grown enough to warrant an ISA you can open one and have the ISA alongside the general investment account (GIA).

It’s quite normal to have multiple accounts with a broker (e.g. GIA, ISA, SIPP). I can imagine Freetrade will have a very nice way of presenting these portfolios consolidated or separated :+1:t3:


#13

Just for brevity, given we’ve discussed this elsewhere before: for many people an ISA is just a want and, especially, when it’s constantly in the news to use the ISA allowance - be it cash or otherwise - it’s simply prudent learned behaviour to prefer an ISA. Convenience has value and inattention is real in the economy: consumers simply don’t want to have to think about frictions such as the CGT etc. An ISA is a good option simply for peace of mind alone.

Furthermore, ISA allowances are split across the number of ISAs one has which is another factor.

Whilst unlikely, it isn’t out of the realm of possibility. Take OCADO that jumped 70% this week. There are many examples of stocks doubling… so whilst ill advised to go all in on a few stocks, when doing so market-beating returns are possible.


#14

Don’t get me wrong, I agree with this in theory. But in practice, the consumer must be educated that this is the case. Right now, the expectation is to have an ISA.


#15

Your original point was it wouldn’t take long for the management fee to outstrip £36. I proved this wrong.

Bear in mind, the charge isn’t for the ISA wrapper alone but I get the point.
I’m looking to go full Freetrade once I’m onboarded provided I don’t have to forego the value added that the 0.7% fee provides.


(Jeff puckering) #16

I’m afraid you diddnt, my point was made up of 2 premises which vlad picked up on. I did the exact same calculation as you.

Premis 1: It wouldn’t take long for the fee to increase to more than £36 p/m (I see 5-9k as not taking long)

Premis 2: to make an ISA worthwhile you need a pot of 15-20+k

Conclusion: by the time it’s worthwile taking out an isa your already over the hurdle point. Rendering a 4-7% charge never useful for an isa and outdated once freetrade exist


(Vladislav Kozub) #17

Jeff, I guess the point @Diversify was making is many people are not assertive about very basic things, those who are not acquainted with finance in any shape or form.

For them, the acronym CGT and many other tax areas are freaking so they are happy to pay whatever it takes so they do not have to spend 5 minutes reading about it. So their question is not “shall I pay at all?” but “I will pay regardless, but what is cheaper for me?”

And this is when they invest £1-£5,000 and benefit from 0.XX% ISA fee with Wealthify and other boring robots, missing all the thrill and enjoyment of real investing.


(Jeff puckering) #18

I guess I see 1-5k as a lot of money, and would have enough interest to understand exactly how it is being used. @Diversify I do concede there will be people out there not like me! I think that market will be getting smaller and smaller but there will always of course be those that want someone else to do the perceived ‘hard work’… I just hope it’s sooner rather than later that people realise this isn’t hard work in a world with freetrade!


(Tommy Lowe) #20

Split into a new topic as went a little off the Revolut Wealth conversation :+1:


(Vladislav Kozub) #21

Thanks Tommy! :smile: