If you want to invest for your future, but don’t know how to go about choosing the right investments, a “robo-adviser” could be a cheap and practical option.
Providing something of a middle ground between DIY investing and full financial advice, robo-advisers aim to make it easier for ordinary people to invest by taking the decision-making and legwork out of the process.
Here, Telegraph Money explains how robo-advisers work, and takes a look at some of the best robo-advice services in 2024.
“Robo-advisers are simple, online services which will help less confident people looking to manage a stocks and shares Isa, or a DIY pension,” explained Holly Mackay, CEO and founder of Boringmoney.co.uk.
“You don’t need a PhD in finance to get started, and this digital service will pick, choose and manage all of the investments for you, across a broad spread of regions, sectors and types of investment. Think of it like the ready meal of investing.”
The service will start by asking you 10 to 15 easy questions, typically covering areas including your attitude to risk and financial goals.
It will then use this information to allocate you a basket of pre-packaged investments which will be managed on your behalf.
The term robo-adviser is a little misleading. While the service is personalised to a degree, you won’t be getting actual advice in the same way that you would if you paid a financial adviser to manage your money for you.
“These services are really all about an easy way to get a diversified investment portfolio. So they suit people with pretty simple affairs who just want to save into an Isa or open a self-managed pension account online,” said Ms Mackay.
For many people this will be all the support they need, but for others there will be no replacement for independent advice from a regulated financial planner. Ms Mackay said it’s important to think about what help you need.
“If it’s just a way to save and accumulate, you may not need financial advice. But advice becomes invaluable when navigating retirement, going through a divorce, thinking about your estate, selling a business – all these complicated things when having someone focused on just you can make a significant emotional and financial difference.”
She added: “The minimum amounts needed to be a client of a financial adviser are edging up to over £150,000 in many cases, so robo-advisers help people with smaller sums to invest.”
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Low cost – you shouldn’t need to pay more than 1pc of your investment in fees
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Easy to access – some financial advisers won’t take you on unless you have substantial investments
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The hard work is done for you – you don’t need to research investments or manage your portfolio
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Diversification – your money will be invested in a broad mix of assets
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Choice – you can choose between general investment accounts, Isas and self-invested personal pensions (Sipps).
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You don’t get to choose individual investments – you might be able to get better returns managing your investments yourself
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Algorithms with minimal human intervention – while you might be told where to invest, you won’t get personalised advice or support around how much you should be investing
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It’s not suitable for everyone – robo-advice may be less suited for people with larger amounts invested or more complex requirements.
Our best buys have been picked by in-house analysts at Boring Money and take into account a wide range of factors including:
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Customer reviews (15,000 plus)
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Website analysis and testing
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Cost analysis
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Feature testing
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Customer service
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Boring Money rating: 4.5 stars
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Customer recommendation score: 80pc
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Cost: £6.20 (for a £1,000 investment)
Easy to use and you can speak to a human if you wish.
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Boring Money rating: 4.5 stars
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Customer recommendation score: 79pc
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Cost: £7.20 (for a £1,000 investment)
Wide choice of investments from a well-established robo-adviser, owned by JP Morgan.
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Boring Money rating: 3.5 stars
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Customer recommendation score: 88pc
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Cost: £19.50 (for a £1,000 investment)
You can start saving from £1 and automated round-ups can painlessly boost your balance.
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Boring Money rating: 3.5 stars
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Customer recommendation score: 76pc
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Cost: £7.20 (for a £1,000 investment)
Praised for its cyber security, but only available if you bank with NatWest.
Very easy to use and you can start investing with £1.
Has features where you can use artificial intelligence to boost your savings.
Elsewhere, analysis from Forbes Advisor and Finder.com dubbed InvestEngine as the best low-cost option. It charges 0.25pc in platform fees, and has a low minimum investment of £100. There’s no charge for setting up an account, and no withdrawal fees.
Finder.com considered Nutmeg best for portfolio choice, and found Moneyfarm best suited for larger portfolios. Incidentally, Forbes Adviser gave Moneyfarm the title of “Best for customer service”.
If simplicity is what you’re after, Finder.com tipped Moneybox, and said Wealthify is best for those with smaller portfolios.
Robo-advisers will offer access to cautious, balanced and aggressive portfolios.
Although aggressive funds will give you the greatest potential for returns, they are likely to
be more volatile, which means they are better suited to investors with a lengthy horizon – for example, those that are saving for retirement or on behalf of young children.
Cautious approaches tend to be a more sensible choice if you are likely to need the money within the next five years or so – for example, if retirement is approaching, or you’re saving for a house.
When you’re researching robo-advisers it’s always worth looking at customer reviews to find out what other investors think of the service. All of the providers listed in this article have a customer recommendation score of 75pc or more.
Any robo-adviser that is regulated by the Financial Conduct Authority (FCA) should be trustworthy, but it’s important to note that this doesn’t mean your money is “safe”. This is because returns are not guaranteed and the value of your investment could fall.
If you use a general investment account, you may become liable for tax on dividends and capital gains. However, this can be avoided by investing in an Isa or Sipp.
You’ll need to pay a fee to invest using a robo-advice service, but it’s usually pretty low-cost. Fees will include the cost of using the platform as well as investment management costs, but they shouldn’t exceed 1pc of your total investment (unless you choose more specialist investment approaches, for example thematic or socially responsible investing).
Not really – robo-advisers will ask you questions about your attitude to risk and financial goals to allocate you appropriate investments. They cannot offer you specific recommendations about how to manage your money, as a human adviser could.
The main risk of using a robo-adviser is that you might not end up in the right investments; a human adviser is likely to be much better at probing, nuance and reading between the lines about what you want than an algorithm. Likewise, a robo-adviser won’t be able to help you with your wider financial planning or help you cut a tax bill.
It’s always important to do your due-diligence when researching robo-advisers – website FAQs can be helpful for providing specific details on privacy and security. However, so long as a robo-adviser is regulated by the FCA, it should meet certain standards and you will have the backing of consumer protection. Wary investors, however, may feel more secure with a service that is backed by a larger corporate parent.
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