A machine that takes care of your finances? Sounds futuristic. However, you can do that with a robo-advisor. For whom this form of investing makes sense and why, read here.
Robots have long fascinated people: not only in Hollywood films – we also meet them again and again in reality. In industry, for example, robots help screw cars together. And self-propelled vacuum cleaners help us with house cleaning. What many do not know: Robots can also give investors a hand in investing.
Admittedly, these so-called robo-advisors are not ready-to-film robots. Rather, they are digital, personal investment advisors. Read this overview for whom robo-advisors are suitable, what they cost and what pitfalls they have.
What is a robo-advisor?
A robo-advisor is a type of digital investment advisor that works individually for you. The name is a suitcase word and is made up of “robot” and “advisor”. That means: A robo-advisor invests money for you – in stocks, funds, ETFs or commodities.
But how exactly does a robo-advisor work?
After you have opened an account with a robo-provider, you have to identify yourself – as with other depository providers – using the Post-Ident or Online-Ident procedure. So that your robo-advisor knows which investment products to invest your money in, you must first answer several questions before investing.
Possible questions are:
- Do you value personal advice?
- How long do you want to invest?
- What is the maximum amount of money you could lose?
- Would you classify yourself as a risk taker?
- Are income more important to you than high risk?
- Do you want to invest a small sum on a regular basis or a larger one-off sum?
If the robo knows your answers, it will calculate a portfolio for you, i.e. an overview of the investment products in which it will invest your money. Commodities like gold can do that, shares or property be.
What are passive or active robo-advisors?
Robo-advisors can basically be divided into two categories: those with an active and those with a passive management of your money:
- active: This robo-advisor regularly adjusts the portfolio on its own in order to take advantage of possible price gains. However, this usually makes active robots more expensive, less transparent and more risk-prone. Because it often deviates from your originally calculated portfolio. It is also questionable whether this restructuring of the portfolio actually benefits you any more Income, called returns, brings in.
- passive: A passive robo also reallocates the investment properties in your portfolio, but only if the focus has changed significantly. This can be, for example, when a certain investment object, for example, shares fall or rise sharply in price. In this case, the passive robo-advisor will buy or sell stocks to ensure that the mix of your portfolio that you originally specified is retained. Balancing out these fluctuations is also called “rebalancing”.
Robo-advisors can also be divided into “full-service robos” and “half-service robos”. An overview:
- At “Full service robos” you can lie back completely. Because the robo doesn’t ask you every time it buys or sells stocks.
- At “Half-Service Robos” however, you have to agree before the robo wants to reallocate the portfolio. However, you are in control.
Which providers are there?
The selection of robo-advisors is large and it continues to grow. The market leader in Germany is Scalable Personal-Financial.com, which alone manages more than two billion euros. Other well-known robo-advisors are Quirion, Fintego, Growney or Whitebox. Other providers include Fidelity, Liqid and Solidvest.
What do robo-advisors cost?
Those who seek advice from a robo-advisor when it comes to investments are cheaper than taking advice from a bank or a classic asset manager. But the machine is also free Investment advice Not. With a robo-advisor, you should therefore pay attention to various costs. The main ones are the following:
Advisor fees: These fees are the biggest expense – and one that you could save yourself (see below). Because the Robo charges a surcharge for taking care of your investment. If you choose a robo-advisor anyway, you have to pay for its services. As a rule, the advisory fee is based on the amount of your investment. Sometimes these fees can amount to more than one percent of the investment amount – and reduce your return considerably in the long run.
Deposit costs: As with a conventional investment, you have to pay for a securities account that you can think of as a kind of bank account. Often the robo-advisor does this for you. The depots often cost little or nothing.
Administration fees: These are the costs that a fund company charges for offering a fund. These costs are often summarized in the “Total Expense Ratio”, or “TER” for short. In contrast to active funds, ETFs cost much less money. This is because there is no need to pay a manager who chooses which products to buy or sell.
Who are robo-advisors for?
Robo-Advisors are particularly suitable for people who have already dealt with the topic of investments a little, but are not yet familiar with all issues – or are do not have the leisureto deal with securities on a regular basis.
Basically, a robo-advisor is cheaper than the investment advisor of a branch bank. This often requires a high one commission, or broker an actively managed mutual fund, which is often far more expensive than an investment in passive index funds (ETFs), on which many robo-advisors rely.
However, a robo-advisor also costs money. Sometimes robos charge more than one percent of your investment amount. It is therefore advisable that you take care of your investment yourself – or with the help of family or friends. Because in this way you can save yourself these costs – and prefer to spend the money saved on something else.
|Lower costs than banking advice||Higher costs than investing in your own hands|
|Robo takes responsibility for the investment||Possible loss of control (especially with “full service robos”, see above)|
In a nutshell: Robo-Advisors are suitable for you if you are still unsure about investing your money – but still don’t have to start from scratch, i.e. need comprehensive, but very expensive, banking advice. Because only in this case can you also rate the portfolio proposed by the robo. You can also find all the information you need to know about investing at t-online.
How do I compare robo-advisors?
If you have come to the decision to invest your money using a robo-advisor, you should definitely compare several providers. Various criteria are important here. An overview:
- Costs: The most important point. Pay close attention to fees – and possible hidden costs. If you have the impression that a robo-advisor’s website is not transparently listing all fees, keep your hands off it. Some providers also lure with promotions, but these are often only valid for a short period of time. After that, the fees are significantly higher than before.
- Selection: Notice how many possible investment strategies the robo-advisor suggests based on your answers. The rule is: the bigger the selection, the better. In this way, you have more options to choose the investment model that really suits your risk appetite.
- Minimum investment / savings rate: It is also important how much money you at least at once – or how much you need to invest monthly using a savings plan. The amount of the necessary one-off investment varies greatly: While providers such as Quirion only require a starting amount of at least 1,000 euros, with Scalable you have to invest 10,000 euros in one fell swoop in order to be able to use the services of the Robos (see below).
- Administration: The question here is whether an advisor is actively or passively managing your money. Active advisors shift the amount invested more often, but are therefore less transparent and usually more expensive than passive robos. (see above).
What are the risks with a robo-advisor?
Niels Nauhauser, financial expert at the consumer advice center Baden-Württemberg, assesses digital asset management critically: “A technology that works completely without personal communication is easily presented as neutral, objective and free of interest.” However, they are by no means: Robo-advisors always aim to sell you certain investment products.
In addition, robots are not omniscient – and can only make predictions about the future market situation. So you shouldn’t blindly rely on these.
The question of liability is also a crucial one: the money that you invest via a robo-advisor is not at risk up to an amount of 100,000 euros for singles and 200,000 euros for life partners as part of the state deposit insurance. So if the bank the Robo is working with goes bankrupt, you have nothing to worry about.
Whether you do Right to compensation if a robo-advisor does not invest your money in the agreed manner or if you experience unexpected price losses, is still legally controversial. Some advisors explicitly exclude such liability. You should therefore read the fine print carefully and answer the questions about your portfolio truthfully.