What if one switched from a robo-advisor to Freetrade? šŸ¤– -> :freetrade:

Freetrade Chat šŸ”„
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Hey Community :wave:

I am quite curious whether it is possible for Freetrade to replicate the robo-advisorsā€™ portfolio management products, and how much users could realistically save if used Freetrade instead :thinking:

For example, Scalable Capital offers 18 ETFs in its universe, which they mix based on the clientsā€™ risk perception. Some of these Freetrade has already got on offer (the majority match word-for-word) and I am sure many others will be added over the course of a few years. In total, I see 42 various ETFs in my Freetrade app, not even considering that the universe will nearly double in the next month or so!

Here is a comprehensive list of some notable ETFs and a comparison on who offers what. I have omitted 7 ETFs offered by Scalable Capital and 18 ETFs offered by Freetrade to save some space.

ETF Sclable Capital Freetrade
Asia Pacific ex Japan :white_check_mark: :white_check_mark:
China :no_entry: :white_check_mark:
Developed Europe :white_check_mark: :white_check_mark:
Developed Europe Property :white_check_mark: :no_entry:
Emerging Markets :white_check_mark: :white_check_mark:
Euro Government Bond :white_check_mark: :no_entry:
Euro Stoxx 50 :no_entry: :white_check_mark:
FTSE 100 :no_entry: :white_check_mark:
FTSE 250 :white_check_mark: :white_check_mark:
FTSE All World :no_entry: :white_check_mark:
Gold :no_entry: :white_check_mark:
Japan :no_entry: :white_check_mark:
NASDAQ 100 :no_entry: :white_check_mark:
Nikkei 225 :white_check_mark: :no_entry:
S&P 500 :white_check_mark: :white_check_mark:
UK Corporate Bonds :white_check_mark: :white_check_mark:
UK Property :no_entry: :white_check_mark:
US Corporate Bond :no_entry: :white_check_mark:
US Property :white_check_mark: :no_entry:
US Treasury Bond 1-3Y :no_entry: :white_check_mark:
US Treasury Bond 3-7Y :no_entry: :white_check_mark:
US Treasury Bond 7-10Y :white_check_mark: :white_check_mark:

As it can be seen, the most popular ETFs are already on offer. However, what Freetrade does not have is the 0.75% management fee on the top of the existing fundsā€™ fees charged by Vanguard, Blackrock, State Street and the others. That is an additional Ā£150 per year after the fundsā€™ fees with a portfolio of only Ā£20,000. And that is just for the privilege to be a client (by the way, on their website it is called ā€œBest ISAā€!). Does 0.75% not sound expensive? Letā€™s look at some figures:

ISA Capital / Scalable fee (1Y) Scalable fee (3Y) Scalable fee (5Y) / Freetrade fee (1Y) Freetrade fee (3Y) Freetrade fee (5Y)
Ā£5,000.00 / Ā£37.50 Ā£112.50 Ā£187.50 / Ā£36.00 Ā£108.00 Ā£180.00
Ā£10,000.00 / Ā£75.00 Ā£225.00 Ā£375.00 / Ā£36.00 Ā£108.00 Ā£180.00
Ā£20,000.00 / Ā£150.00 Ā£450.00 Ā£750.00 / Ā£36.00 Ā£108.00 Ā£180.00
Ā£30,000.00 / Ā£225.00 Ā£675.00 Ā£1,125.00 / Ā£36.00 Ā£108.00 Ā£180.00
Ā£50,000.00 / Ā£375.00 Ā£1,125.00 Ā£1,875.00 / Ā£36.00 Ā£108.00 Ā£180.00
Ā£100,000.00 / Ā£750.00 Ā£2,250.00 Ā£3,750.00 / Ā£36.00 Ā£108.00 Ā£180.00
Ā£150,000.00 / Ā£1,125.00 Ā£3,375.00 Ā£5,625.00 / Ā£36.00 Ā£108.00 Ā£180.00
Ā£200,000.00 / Ā£1,500.00 Ā£4,500.00 Ā£7,500.00 / Ā£36.00 Ā£108.00 Ā£180.00

Scalable Capital is only one example, I looked at a few others (including the famous Nutmeg), all seem to have 0.75% as a baseline, with some price alterations at certain (rather abmitious) capital benchmarks, but nothing that would make me feel ā€œwow, thatā€™s a nice deal!ā€

I wonder if Freetrade could provide some blog-type guidance on similar to robo-advisorsā€™ portfolio compositions and thus let users invest in these combinations of ETFs themselves rather than rely on a third-party provider.

Very interesting if people consider robo-advisors good value in the first place. If not, would you be happy to see something like this as part of your Freetrade ISA?

  • Used robo-advisors before, they are great!
  • Used before but would be curious to consider Freetradeā€™s offer if there was one
  • Never used but would be curious to consider Freetradeā€™s offer if there was one
  • Not interested, I am happy managing my portfolio myself
  • Robo-what??

0 voters

Anyway, what is your own experience with this investment product? With some guidance, would you rather replicate their portfolio with Freetrade and save on the fees by managing your portfolio independently? :slight_smile:

And remember, you are responsible for picking your own investments with Freetrade hence robo-advisors are a little bit different to what is on offer here.

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Impressive work @Vlad. I agree the intermediation of robo-advisors is often really unfair to investors. Itā€™s kind of an arbitrage on information.

I also generally resent the idea of ā€˜roboā€™ - which suggests youā€™re getting access to sophisticated AI portfolio management (like Renaissance Technologies for 0.75%/year :laughing:) rather than just a fairly limited filtering into standard ETFs.

Of course, managing your own portfolio directly comes with extra responsibility so thatā€™s an important consideration.

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Nice post @Vlad

Unfortunately, my views are a little biased as I am a Portfolio Manager and my livelihood relies on active management! :joy:

Iā€™m going to refrain from criticising the robo-advising industry (and I agree with @Freetrade_Team that using the word robo is a joke in the industry because it is hardly AI and they donā€™t use "smart alogirthms to achieve alpha. Nutmeg still use an investment committee and thatā€™s hardly robo. Damn, I just criticised the robo-advising industry).

Freetrade could possibly be an enterprise solution for this industry, or better yet, do it themselves for 0.1%! Woot! :rocket:

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That is the exact point you got there! All they do is create a basic algorithm of portfolio allocations based on the ā€œrisk appetiteā€ you choose. Deadly Conservative - 99% cash / 1% US bonds | Risk averse - 70% bonds / 30% blue chips | Adventurous - 100% leveraged MU calls.

That sort of stuff is no way worth the fees!

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Nice idea Vlad, Freetrade comes out very well in this comparison because of flat fees.

It would be interesting to extend this comparison to other competitors like Nutmeg or Wealthify, as I feel like those are the more natural comparison point, because of their branding, advertising and apps, all of which are designed to appeal to a similar market to freetrade (those who havenā€™t up to now done much investing). This would also be an ideal offering for other channels :smiley:

I almost think this is a different product to the Freetrade ISA though - perhaps called Freetrade Managed ISA or something, the attraction after all is that it does everything for you, you donā€™t worry about investing at all after your initial choices. I think itā€™d be a really interesting idea for Freetrade, and if it was done with a fixed fee, would be far more attractive than these advisors with a percentage fee - your comparison makes this very clear. Freetrade would do very well out of that comparison.

Not sure you need such a choice of ETFs for managed products though, Iā€™d approach it as a simplified product offering a few simple choices as a mix (perhaps global, china, US, Europe), or perhaps even have freetrade make that decision for you and hide those complexities - people find this sort of choice bewildering at first. Interesting questions on this wealthify page for example indicate how you could ask people about this (risk is the dodgy bit that is very hard to actually measure properly, and perhaps it not very useful, not sure Iā€™d ask that question).

https://invest.wealthify.com/CreatePlan/RegularAccount

I find Greg Davies really interesting on risk perception (which is one of the main criteria these roboadvisors try to use):

https://oxfordrisk.com/our-insights/allocating-risk-requires-measuring-both-investments-and-investors

And on the perception of returns here:

These decisions to invest and perception of gains/losses are very emotional ones, and if a product could make the journey a little less volatile for beginner investors, that would be a big win. Not sure how youā€™d do that, perhaps present returns differently as yearly returns or something, and completely ignore fluctuations, and donā€™t invite them to try to quantify risk.

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Looked into it but really donā€™t see why anyone would pay when all the information is out there for free. The argument is someone does all the hard work for you but itā€™s a bit of reading, save on % fees and a pretty app if you do it yourself with Freetrade :woman_shrugging:

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I did not mention it explicitly but this is definitely an interesting venture to explore, simply for audience diversification reasons. Some people just do not want to read stuff and deem 0.75% low enough to remain uneducated. If Freetrade could in future utulise it to their benefit and provide some further easily-digestable information to those who do not like researching, it will serve very the company really well, add more users and potentially make them switch from auto-management to more independent investing.

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Shameless plug of my piece on this a few months back :sweat_smile:

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Great topic! Now Freetrade offers more ETFā€™s you can replicate Robo-Advisers saving on these fees. Itā€™s mad how much these fees add up, especially if youā€™re young and have many years to invest!

Below shows the impact of a 0.7% fee for a one off Ā£10,000 investment (assumed 6% annual return) (Check out this fee calculator!).

Years: 10 20 30 40
With 0.7% Fee Ā£16,694 Ā£27,868 Ā£46,521 Ā£77,661
Without Ā£17,908 Ā£32,071 Ā£57,435 Ā£102,857
Difference -Ā£1,215 -Ā£4,204 -Ā£10,913 -Ā£25,196
Average Annual Fee -Ā£121 -Ā£210 -Ā£364 -Ā£630
Freetrade ISA Fee -Ā£36 -Ā£36 -Ā£36 -Ā£36

And the below is my actual Moneyfarm portfolio (high risk) which consists of just 5 ETFā€™s. There arenā€™t direct replacements for the bond funds but there are alternatives.

Moneyfarm Fund % Allocation Freetrade Equivalent
Global Developed Markets Equities (MSCI WORLD) Sterling Hedged 47% MSCI World (iShares is hedged)
Global Equities (FTSE All World) 23% FTSE All World (Vangaurd is $ base currency)
Emerging Markets Sovereign Bond local currencies 10% ?
Cash 8% 8%! Iā€™m paying fees on this amount!
Emerging Markets Equities local currencies 8% FTSE EM (Vangaurd)
Global Sovereign Bonds Sterling hedged 5% ?

Overall I like having the example portfolio structure, itā€™s useful to have some guidance. Interactive Investor used to offer model portfolioā€™s of 6 funds like this, without it constituting advice. So I think the option would be amazing for Freetrade!

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Good topic Vlad :slight_smile:

Fees are fine in my opinion so long as they provide some kind of value: access to restricted markets, outperformance/alpha, or other (tailoring to the individual etc).

Most ā€˜Roboā€™ ā€œadvisersā€ donā€™t offer good value in my opinion. The idea of risk tailoring is a good tool and useful to an individual, but I donā€™t think it is worth 0.5% + (ETF fees = ~0.1%, Robo charge = 0.75%+, therefore they pocket the difference). Some do supposedly, your example with Scalable is good as they supposedly readjust and provide a more active portfolio management and risk tailoring.

Freetrade could replicate this simply within the execution only space with the addition of portfolio analytics tools. Examples such as showing the volatility/risk of your current portfolio and some additions that would add diversification or reduced volatility would work.

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Great Article - recently closed my Nutmeg savings to move to Freetrade so will have some extra cash in the app soon!

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Excellent article! I currently use Nutmeg and will be looking to move entirely over to Freetrade when I can either transfer ISA or next tax year (whichever is sooner). I have a Socially Responsible portfolio with Nutmeg (which features a few rather pricey ETFs - AWSG has an Total Expense Ratio of 0.48%!!!) and would love to replicate some of those in Freetrade once they are available.

This is my current Nutmeg high risk (8/10) portfolio. I have to say looking at it it seems far too complex, but I think this is down to the fact that all the ETFs are SRI so the portfolio is a little more fragmented.

|Ticker|Name|%|
|ā€”|ā€”|ā€”|ā€”|ā€”|ā€”|
|AWSG|UBS MSCI ACWI Socially Responsible UCITS ETF|40.1%|
|SUUS|iShares MSCI USA SRI UCITS ETF|16.6%|
|UKSR|UBS MSCI United Kingdom IMI Socially Responsible UCITS ETF|16.5%|
|BSUS|UBS Bloomberg Barclays MSCI US Liquid Corporates Sustainable UCITS ETF|6.7%|
|IBTS|ISHARES USD TRSRY 1-3Y USD D|6.5%|
|UBTP|UBS Bloomberg Barclays TIPS 1-10 UCITS ETF|4.8%|
|GILS|Lyxor FTSE Actuaries UK Gilts UCITS ETF|2.2%|
|SUJA|IShares MSCI Japan UCITS ETF|2.0%|
|GIL5|Lyxor FTSE Actuaries UK Gilts 0-5Y UCITS ETF|1.1%|
|UB39|UBS MSCI EMU Socially Responsible UCITS ETF|1.0%|
|UB45|UBS MSCI Pacific Socially Responsible UCITS ETF|0.9%|
|UC79|UBS MSCI Emerging Markets Socially Responsible UCITS ETF|0.9%|
|CASH|CASH|0.8%|

The majority of the investment is in AWSG (All world Socially responsible), SUUS (USA Socially responsible) and UKSR (UK socially responsible).

Hopefully these or equivalent ETFs will be avaialable on FT soon.

EDIT: Writing this post caused me to do a little further research and I am rather alarmed that 40% of my investment is in AWSG - an ETF that is only worth about EUR43mā€¦.

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Iā€™m also waiting for more SRI ETFs to be available in Freetrade before moving my Vanguard ISA to Freetrade. Iā€™ve still got a socially responsible SIPP with Nutmeg, and would move that to Freetrade if they had more SRI ETFs and the ability to hold SIPPs.

I think the part of the complexity, is so that Nutmeg can manage the proportion the portfolio to various regions and between bonds and equity. The alternative is an ETF equivalent to Vanguardā€™s Global SRI Mutual fund, which gives global exposure, with a socially responsible aspect.