From a platformās perspective, the key to avoiding crossing the line in terms of financial advice / personal recommendations is to not input any specific information about the client into the suggestions for what might be appropriate to invest in.
If we know virtually nothing about you or your financial situation (much more than your holdings with Freetrade), we canāt advise you (which also means we wonāt charge you!) - and I think thatās a good thing.
What this might look like then, is a series of pre-selected ETF buckets described as adventurous / conservative / or whatever depending on their make up, with suggested % allocations within each but editable by the user. As long as itās clear that these are suggestions only and not advice, this is a good way to educate the user as to what long-term, passive investing looks like.
(And per my post above, this is basically what robo-advice is, but they gather enough information about the client to cross the personal recommendation line and then charge 1% for it!)
@Diversify here is another way of looking at the fee including a performance metric, as this also does reduce fees over the longer term. In some cases 4000 pounds at 3 pounds a month is still less than 1% which makes great value. Also dont forget most ETFs and mutual funds also run a small fee. I know allot of the robo advisors in the states setup their own 5 ETFs and white label it with a broker at additional costs where I think Freetrade will purely just give you the cheapest US index for example from vanguard. I dont know how wealthify does this. Freetrade is not selling their own product ācontentā so there is no advise given and therefore dont have to take counterparty performance risk. @rob_h correct me if im wrong this is how it should be done. First you gain distribution, then you curate it very well through a very easy to use platform and options of stocks and add to watchlists, and only then after you have gained insight of users needs, only then do you possibly create your own ETFs. The roboadvisors, I think, as the whole IFA industry for years, have it backward, as they never had enough data to make this call in the first place
My Roboadvisor account is free at the moment and then itās 0.4% + the fund fees which is bigger than going direct but the 0.4% is small it enough to be worth paying for to save time. I did look at the fees again for a few of these services and some are confusing as they have a headline figure and then they āaddā the underlying fund fee.
Really looking forward to
having something like this could really boost the number of users.
Yeah I agree, people dont understand fee % of AUM, a monthly fee is so much easier to explain and relate. Its like just paying your monthly netflix bill, everyone understands what they are getting and they dont feel screwed over, over long periods of time.
We looked at it this way further up in the thread with more simple numeracy and assumptions.
Ā£5142.86 * 0.007 = Ā£36. In the worst case scenario where Wealthifyās management fee is 0.7%ā¦ the hurdle point is Ā£5142.86 of initial capital for those who want a Stocks&Shares ISA wrapper.
The major ones are all transparent. All you need to do is go to the relevant āfeesā page, which everyone should be doing as due diligence and for comparative purposes. Headlines are just thatā¦ headlines.
Personally I prefer %s and itās the norm in the industry, so switching it up with a monthly fee just makes it harder to compare. Also, a lot of the websites that use %s also have online calculators that convert %s into specific monthly and yearly fees depending on the size of your account balance. Very convenient if you ask me.
This becomes incredibly important when you get to higher amounts, then Ā£36 a year becomes a bargain compared to any percentage fee. Having a flat monthly fee is going to be one of freetradeās key advantages as I see it.
Agree % charging is the norm in the industry. Thankfully industry norms are exactly what is trying to be avoided by freetrade!
Not to say industry norms should be avoided for the sake of it but % charges turn me off generally. unless the service your providing increases in complexity with the amount of money your spending itās just extra charges for no extra effort. My (basic) understanding is that, with the services mentioned in this thread, if you have 100,000 or 1,000,000 invested the effort from the supplier is the same, but they get to charge extra for the latterā¦
Not necessarily, because the 0.7% fee is the worst case scenario.
The higher the amount you hold with a robo-advisor, the smaller the fee becomes. Edit: @Jeff this reply applies to your comment too.
Iām all for Freetrade but Iām not going to be suddenly of the opinion that robo-advisors are the scourge of the investment earth. Before I knew of Freetrade, these platforms were the best way of affordable investing with great T&Cs. They practically run at a loss to provide rates thatās undercut the incumbentsā¦ fortunately a lot of them have big backers & are bankrolled by firms such as Aviva and big investors like Woodford.
I donāt think theyāre necessarily who Freetrade are directly competing with anyway so both can coexist to change the game in general.
Mentioned only a little while ago that the top roboadvisor fees Iāve seen are all transparent. Same way Freetrade has a āPricingā page, they all have dedicated āFeesā pages.
Robo-advisors are not a service Iād use, but I completely understand why people would want to go with them - I think they have identified a big gap in the market which freetrade wonāt address in the short term, but could go after in the long term (investors who want zero hassle investing and donāt want to pick stocks).
Fees though are incredibly important for return over the long term and are typically what less experienced investors get fleeced by. Percentage fees are particularly pernicious, even if on a sliding scale, and there are often hidden fees. Taking the example you cite, of wealthify, it seems to me their worst case is in fact 0.88%, going down to the fee of 0.58% of your capital removed every single year you keep money with them once you get to 100k. Thatās a lot of money when you get to near Ā£670 a year for 99k as opposed to Ā£36 with freetrade. Once you get up to 200k itās Ā£1,160.04 per year, which is really significant.
After being with HL for quite a few years I still have no idea how all their fees are calculated because of all the different percentage rates interacting, so I prefer the simple flat rate approach of freetrade, because itās simpler, but also because it is far better for the customer in the long term.
Just to be clear, weāve been on the understanding that weāre talking about their management fee which is 0.7% excluding the ETF fee. This is so we could evaluate the value added of Wealthify as a service provider.
But on fees, Iām in agreement, the less the better but I also understand that companies must make a profit. A declining % business model can be successful/fair the same way Freetradeās freemium model can.
Just to be clear, weāve been on the understanding that weāre talking about their management fee which is 0.7% excluding the ETF fee.
Sure, I see why wealthify present it that way (another industry standard!), but thatās not the total fee youāre charged as a customer - that total fee includes any fund fees, and I assume they only offer funds?
A declining % business model can be successful/fair the same way Freetradeās freemium model can.
Certainly, itās not evil and good luck to them, but I prefer the lower and flat rate fees
this is how it should be done. First you gain distribution, then you curate it very well through a very easy to use platform and options of stocks and add to watchlists, and only then after you have gained insight of users needs, only then do you possibly create your own ETFs. The roboadvisors, I think, as the whole IFA industry for years, have it backward, as they never had enough data to make this call in the first place