Ever got the feeling that robots could do your job better than you? Well, investment managers are crying about the same thing. More and more people are now using robo advisors in place of investment managers to invest their money. Simply put, these robo advisors use sophisticated algorithms to invest your money for you.
So, are the robo advisors in Singapore a scam or can they really help you make money? Let’s find out.
- What are robo advisors?
- What are the robo advisors in Singapore and how much are their fees?
- Which robo advisor should you use?
- Are robo advisors regulated in Singapore?
- Pros of robo advisors
- Cons of robo advisors
- What sorts of investors are robo advisors suitable for?
- How do you start off with a robo advisor in Singapore?
What are robo advisors?
Robo advisors are digital advisory services. They come in many forms, but one thing they all have in common is that they offer you investment advice through some kind of online platform and allow you to make investments directly through them.
Unlike flesh and blood investment managers, the term “robo advisor” usually means there is no direct human involvement in the advice rendered. Instead, advice is generated according to algorithms which have been devised based on the company’s own knowledge of markets and investing.
Robo advisors can let you invest directly through them by transferring money to an account you’ve opened with them. You might also be given limited ways to customise your investment approach to your needs. For instance, you can transfer regular sums at monthly intervals and follow a dollar cost averaging approach if you wish to grow your wealth steadily over the long term. On the other hand, if you just want to take advantage of market conditions to make as much money in the short-term as possible, transferring lump sums whenever the need arises is also an option.
You can also monitor your portfolio online with robo advisors, and rebalance whenever you need to.
Robo advisors typically invest in ETFs. These are funds that invest in a variety of assets, which might include stocks, bonds, gold and more. Most of the ETFs that robo advisors deal with are US or worldwide.
What are the robo advisors in Singapore and how much are their fees?
Here are the main local options available to Singapore investors right now.
|StashAway||19+ ETFs including government, corporate bonds, US Equities, Small-cap Growth index funds, Consumer Staple Equities, Asia ex-Japan Equities, gold, etc.
||None||0.2 to 0.8% depending on amount
0.1% per conversion by broker Saxo
|Smartly||20+ ETFs in equities, government and corporate bonds, commodities, real estate and cash||$50||0.5 to 1% depending on amount|
|AutoWealth||More than 8,000 stocks and 600 government bonds from US, Europe, APAC and Emerging Markets.||$3,000||0.5% per year + US$18 per year|
Which robo advisor should you use?
Depending on your situation, here are our recommendations:
StashAway: Your starting capital is small
The only robo advisor at the moment with no minimum amount needed to invest also charges the lowest fees if your balance is about $8,000 or less, at 0.8%. You can easily open an account by following their instructions on their online platform.
Fees vary according to the amount that you are investing:
- First $25,000: 0.8% per year
- Additional amounts > $25,000 to $50,000: 0.7% per year
- Additional amounts > $50,000 up to $100,000: 0.6% per year
- Additional amounts > $100,000 up to $250,000: 0.5% per year
- Additional amounts >$250,000 up to $500,000: 0.4% per year
- Additional amounts > $500,000 up to Additional amounts $1,000,000: 0.3% per year
- Above $1,000,000: 0.2%
There’s also a 0.1% currency conversion fee per year.
While it is a low-barrier tool, StashAway also manages several clients with more than $1m worth of investments.
Smartly: Fees are competitive for those with at least $10,000
Smartly works similarly to Stashaway, and its fees are lower than Stashaway as soon as you have $10,000 to invest. You can easily open an account in their online app and the fee structure is slightly easier to digest:
- Accounts under $10,000: 1% per year
- Accounts over $10,000: 0.7% per year
- Accounts over $100,000: 0.5% per year
AutoWealth: You want more control over your portfolio
While StashAway and Smartly are meant to be entry-level robo advisors for people who want the simplest possible way to invest their money, AutoWealth is designed for slightly more serious investors.
The minimum investment amount is much higher at $3,000, and the sign-up process is also more onerous. AutoWealth assigns each user a personal advisor who will be able to offer support via text.
It also offers a greater degree of control over your portfolio, enabling you for instance, to change your asset allocation, unlike the other two robo advisors, which are meant to offer a completely passive experience, with the algorithm making all your decisions for you.
One downside, however, is that AutoWealth only invests in stocks and bonds, while the other two offer more diversity in asset classes. Still, if you’re a control freak or serious investor, you’ll like the control AutoWealth gives you.
To apply, you need to open Saxo Capital trading account on the platform and meet a personal financial advisor in person.
- 0.5% per year
- US$18 per year
Are robo advisors regulated in Singapore?
In a nutshell, yes, robo advisors are regulated, but they get special leeway from the MAS.
MAS requires robo advisors be licensed under the Securities and Futures Act (SFA) and/or the Financial Advisers Act (FAA). Which one(s) apply depend on the robo advisor’s “scope of activities and business model”, but the point is that you should find it in either one or the other.
At the same time, MAS doesn’t want to be impede digital innovation, so in Oct 2018, they also loosened the licensing criteria:
Robo advisors can be licensed under the SFA even if they lack the usual corporate track record requirements, provided they have board/senior management members with relevant experience in fund management and technology, offer portfolios that comprise only non-complex collective investment schemes; and submit to an independent audit after the first year.
They can also be licensed under the FAA while being exempt from having to collect full data on a client’s financial status. However, they’re required to put in some form of data-gathering measure to prevent recommending the wrong types of investments.
Robo advisors also get special leeway to pass their clients’ orders to brokerages without having to obtain an additional capital markets services license under the SFA.
These relatively relaxed rules mean it’s fairly easy for robo advisors to operate regardless of their performance history, so be careful when choosing one.
Pros of using robo advisors
Just as online shopping has dealt a heavy blow to brick and mortar sales, an array of advantages have led to a surge in popularity of robo advisors, including the following:
Fees are lower
Because robo advisors offer advice automatically, based on algorithms and with the help of software, they can afford to offer lower fees than investment management professionals can. Robo advisors also often do not charge additional fees to deposit or withdraw money. That means you don’t need to worry as much about losing money to fees when depositing or withdrawing smaller amounts.
Low buy-in fee
Forget about investing with traditional investment managers if all you have are the coins in your piggy bank. Most traditional investment methods require a minimum trade size that can range from hundreds to thousands. You also need to worry about whether the fees you are paying will eat significantly into your investment agains if you’re not investing much. Some robo advisors let you invest if you only have a small amount of money.
Easy and convenient
Ease of use is one big reason people prefer using robo advisors. There is usually no need to submit documents to a brokerage or fund manager when signing up for an account, or relay your instructions to an investment manager. You can simply sign up online, create a profile and let the app do the rest. Some activities such as rebalancing can also be automated.
No lock-in fee
Most of the local robo advisors at the moment do not lock you in, meaning you can choose to liquidate your investments at any time. Therefore, while they advise against short-term speculation, there’s nothing stopping you from doing it, especially if deposit and withdrawal fees are not being charged. Conversely, some funds have lock-in periods.
Maintaining a diversified portfolio is essential to reducing risk, as you won’t go broke if one or two of your assets crashes and burns. Robo advisors operate like funds by offering a mix of assets, except that instead of human analysts managing the assets, it’s an algorithm doing the work.
Thanks to robo advisors’ algorithms, they can offer advice that is customised (to a limited degree) according to your needs. It can take into account details such as risk appetite, income/cash-out needs, financial goals and more, to offer advice fine-tuned to your needs. Of course, don’t forget that the efficacy of the advice given depends on the sophistication of the algorithm.
Cons of using robo advisors
Of course, it’s not all rainbows and unicorns when it comes to robo advisors. There are a few disadvantages, such as the following.
Inability to deviate from the algorithms
A human investment manager can do whatever you want him to, including make choices he doesn’t think are so smart. But with robo advisors, investment choices are only customisable up to a certain point, and cannot deviate from the algorithm’s parameters. If you want to be able to choose your own securities or have some very specific investment preferences, robo advisors may not be able to give you nuanced enough advice.
Fees and taxes
While robo advisors generally charge lower fees than investment managers, you might still end up paying quite a bit in fees and taxes. For instance, if you are investing in American ETFs, you are going to lose money in the form of currency conversion fees and US dividend taxes. Also look out for other costs such as subscription fees. Robo advisors might be marketed as a cheaper alternative, but they’re still not as free as DIYing your own portfolio management.
What sorts of investors are robo advisors suitable for?
As you can see, there are some disadvantages mixed in with the advantages. So what kind of person are robo advisors ideal for? Well, you might want to consider using one of the following apply to you:
You don’t know how to invest
One reason robo advisors have become so popular is that they offer an “investment for dummies” experience for those who have no idea how to get started They’re easy to use and require no knowledge of how the market works. You just transfer your money, let the robo advisor invest using their algorithm and hope your wealth grows.
You are lazy and want a completely passive system
No matter how much or how little you know about investing, if you’re so lazy that you wouldn’t lift a finger to invest if someone didn’t do it for you, robo advisors can manage your investments for you with almost zero effort. Rebalancing can also be done automatically. Just know that you’re paying a price for the convenience.
You’re looking for a cheap and easy way to start investing
Don’t have much capital or know-how, but want to start investing anyway? Instead of waiting years till you finally earn enough money or read enough books to qualify as an investment expert yourself, it can be a lot easier to simply use a robo advisor. Putting off investing all your life because you don’t know how can leave you worse off in the end.
You’re looking for a lower cost alternative to your investment manager
If you’re already using an existing investment manager and haven’t been too pleased with their performance or think their fees are too high, you might want to consider switching to a robo advisor.
How do you start off with a robo advisor in Singapore?
1) Download the application on the internet
2) Sign up for an account and answer the questionnaire which is designed to find out as much as possible about your investment needs and preferences.
3) Wait for your account to be approved.
4) Transfer money to your account. You might also be able to arrange for transfers at regular intervals.
5) Let the robo advisor purchase assets with the money you’ve transferred.
6) Over time, the robo advisor can also do housekeeping such as portfolio rebalancing and keeping an eye out for market trends.
Have you ever used a robo advisor? Share your experiences in the comments!
Personal finance tips delivered to your inbox!
Receive news, subscriber-exclusive promotions and guides on how to become smarter with money.
We promise never to spam you!