Any value in Robo Advisers in Australia?

I am 33% VTS 33% VAS 33% VEU

Simple and cheap. Like me.

 

I like it!

 

Analysing VAS, VAF, VGS
50/30/20 (because my cash is in an offset account)
using betterwealth

The portfolio is rated as Growth: 52%
Overall dividend yields: 4.26%

Analysing VAS, VAF, VGS, VHY
50/30/10/10
takes it out to Growth: 70%
Overall dividend yields: 4.83%

BetterWealth

 

I would look at this the same way as asking a robot to tell you which house to buy. No thanks.

 

I have spent some more time looking at them. I don't like. Sometimes simple is better. The analysis of this holding looks quite good...

 

Here is a good short cheap book comparing various asset allocations over time. From memory, the conclusion is that they all come out with very similar long term results, so focus instead on:-
- Choosing one strategy and stick to it, dont try chase performance.
- Focus on getting costs down as much as possible.
Amazon.com: Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies eBook: Meb Faber: Kindle Store

 

Personally I'm not a fan of bonds and even less so given they're at the end of a 30 year bullmarket. However for those who want a truely International portfolio then International bonds should perhaps be included in the mix.

The simple ETF Aussie Boglehead type portfolio is typically quoted as:
1. ASX 200 / 300
2. International developed markets
3. Aussie Bonds

A better allocation might be to also include:
4. International bonds

The following provides some example portfolios:
https://www.blackrock.com/au/indivi...portfolios-for-individual-investors-en-au.pdf

 

I need to do some reading about the rationale and will probably explore some weird and wonderful mixes but in the end most likely to end up with something simple like this. The only thing I don't like about it is that it is underweight on Industrials in Australia, which have performed well. That said, with Industrials at record highs, it may not be the best time to buy in. More thought required.

 

Throw in a mid / small cap Industrial focused active fund such as QVE (when at fair value) to not only increase Industrial exposure but also reduce concentration risk associated with the main index ETFs such as VAS / STW. Eg VAS 70% / QVE 30%.

And longer term Fund Surveys (eg SPIVA) have shown that the only sector where active generally beats index investing longer term is in mid / small caps:

Over 5 years 62% of Aussie active small cap Mgrs beat the index.

International, property and bond active Mgrs have a terrible record.

Not advice.

 

Makes sense @austing. Thanks

 

Arigato Mr Roboto..........What are the fees of each?

 

Bit hard to explain. Best have a look in the tables in this article.

2016 Australian Robo Adviser Roundup

As you accumulate a higher amount the fees increase a lot and I think not worth it for me. I am in between direct shares and robo management. I want to pick my own ETFs but I don't want automatic rebalancing for a fee.

 

Interestingly was speaking with my accountant this morning and Robos came up. The monthly management fee (as opposed to the ETF MER which is charged at fund level) is tax deductible...so depending on ones tax position, the Robo fee might be cheaper than you think after tax.

 

Interesting. That will make a difference to some I guess.

Since I started this thread, I wonder how the robo advisors are performing?

 

Out of the lot of them Six Park looks ok to me. If you could get them to flag account as "no sale" so that rebalance only occurs from inflows or portfolio income so as to avoid tax events, and the same for changes to strategic asset allocation whereby that would be discussed rather than fully automated then that would look a decent product to me. They might do that for large balance accounts. This would present a significant advantage over the other ETF/Fund based multi asset / SAA products like Vanguards at about a 15-20bps premium.

 

Out of interest had a look at their "aggressive growth" portfolio. MER is 28bps, + 30bps Management fee at +500k. So 49bps total cost for 30% bracket payer, allowing for deduction on management fee. AUD or Hedged vs Unhedged is 47.5% / 52.5%. Portfolio yield at 30% tax rate is 2.8% post tax. ASX200 (STW) 4.1% post tax as a comparison.

Tax burn (on income) is around 74bps at 30% rate. Compare this to Australia Market portfolio (ASX 200, STW.AX applied) which has tax burn of around 30bps at 30% tax rate ( 4.4% yield, 77% franking level). So total "cost" is approx 120bps vs. 50bps on the ASX200 portfolio implemented with single ETF STW. Having said that this is a much more diversified portfolio across assets, markets and currency and would (for my view) provide vastly greater SANF than a single market portfolio.

The advantage over a pooled vehicle is that ETFs are held under individual holders HIN, so redemptions or any other issues with one ETF does not effect the entire investment which has historically been a problem with Vanguard's multi asset funds.

 

To help... or hinder the conversation, I saw this article. Simply adding as food for thought... DDoR.... -

Do you need a personal financial advisor or will a robo-advisor do?
By Kevin Voigt*

A personal financial advisor may sound as out of reach as a personal chef, bodyguard or chauffeur — something only the ultrawealthy can afford.

But the robo-advisor revolution has changed the landscape of and, importantly, the cost for investment management and advice.

Investors have a broader array of choices, from advisors who personally manage and advise every aspect of their financial life, to automated portfolio management that allows investors to set their options and let the robots do the rest.

Companies also offer a hybrid mix of automated investing and human advice on an as-needed basis — but for a price.

Personal financial advisors vs. robo-advisors

Generally speaking, the more human touch required, the higher the cost for investment services, and the higher the account minimum required to start advising.

At the top end, some personal financial advisors charge an annual fee plus investing expenses as a percentage of your assets under management, typically about 1 per cent to 1.5 per cent.

As a result, these advisors often require that new clients have an account minimum of $250,000 in assets.

By comparison, robo-advisors — which use algorithms to build and manage a client’s investment portfolios and require little human interaction — charge fees from 0.45 per cent to 0.70 per cent of the amount managed.

Likely to come at an additional cost
And many will take on new clients with $0 to open an account.

The downside of robo-advisors: investment choices are more limited — often a small selection of low-cost index funds or exchange-traded funds — than the asset choices that full-service brokers and advisors may provide.

And while many offer financial advice via email, chat or phone consultations, those hybrid services are likely to come at an additional cost.

Where personal financial advisors fall short

Caution is required when choosing financial advisors who attempt to beat the market with their investing picks, also known as active investing.

“They charge a lot more and usually do no better — and often worse — than robo-advisors,” says certified financial planner Meg Bartelt of Flow Financial Planning.

“To a large extent, passive investing — the strategy to buy and hold a broadly diversified portfolio and don’t mess with it — that [investing philosophy] has won the day.”

The robo-advisor industry was built on passive investing: using low-cost funds linked to a preset index of investments, such as the Standard & Poor’s 500 index of large companies or others.

Rather than beat the market, these funds simply match whole market gains over time.

Also, there are no legal definitions of a financial advisor or planner — “I could call myself ‘Money Wizard to the Stars’ if I wanted to,” Bartelt says.

Avoid potential conflicts of interest
So it’s important to know the legal designations that do matter, such as a “registered investment advisor,” “certified financial planner” or “broker.”

How personal financial advisors get paid can vary, from fee-only advisors like Bartelt, who don’t receive commissions on products they sell — and avoid potential conflicts of interest — to those who do get a cut of products they sell to clients.

Fee structure and professional qualifications are among the important questions to ask when you hire a financial advisor.

Where personal financial advisors shine

Robots are great at using software to automatically buy and sell assets and rebalance your portfolio over time.

They aren’t as great at helping you and your family diagnose your personal financial problems and opportunities for improvement, Bartelt says.

“Where a human financial advisor really thrives is addressing the other 90 per cent of your financial life,” she says.

“The big questions like, how to buy a house, a car, quit your job and start your own business, or have a baby in the next five or 10 years.”

If a full-service financial advisor is outside your needs or income level, most fee-only certified financial advisors have hourly rates to help you create a financial plan, or give financial advice when a major life event is on the horizon.

“Financial advisors are great [at] understand[ing] your attitude on debt, what savings choices are important … and what your financial pain points are,” Bartelt says.

“A robo-advisor is not going to help you understand what you value in life.”

* Kevin Voigt is a personal finance writer at NerdWallet. He tweets at @kevinvoigt.

This article first appeared at www.nerdwallet.com.

 

Thinking about this more recently. I think that Robos at less than 50bps total are an ideal vehicle for the vast majority of investors for ex super exposure. The more time I spend on here the more clear that is to me . For many they will remove many behaviorial issues due to the education and reporting they provide and allow them to focus on income generation which will make a difference. The ones using separately managed account structure are way ahead of the pooled asset type. The only issues I see remain the tax consequences of asset allocation changes - there is a management risk issue here in that the manager may change asset allocation in an attempt to retain FUM after a period of underperformance without the option to opt out. I suppose that you could cancel the management agreement if changes are flagged in advance which it should be, and then transfer holdings (they are under HIN) to your own brokerage account if this was a concern.

 

The six park website mentions a 0.5% fee then another 0.25% etf management fee so total fees are 0.75%?

Also can someone explain the minimum requirements for top up means? Do I have to keep the account balance over 5k or do I have to keep adding 5k min funds to the account every calendar year?

Here are some notes from Six park:
1)So if you open an account for $10,000 we would look to re-balance you each year for one of a variety of reasons; 1) You have $5,000 in your CMA

2) Your assets have drifted

3) The Six Park investment committee make an asset allocation change





There are no trading fees (we absorb those costs)

However, once you're invested there are minimum requirements for top ups

And we won't re-balance your portfolio any more than quarterly

 

Not sure why a robo adviser should charge a % fee rather than a flat fee? A % fee could work well if your working with smaller investment sums. Though once you start getting into the 1mill plus portfolio even .5% is $5000 annual fee.

The value of your portfolio will play a big role in which option is better suited.