Face-to-face financial advice may still be the norm in South Africa, but times are changing, and the advent of “robo-advisers” has brought an interesting dynamic to the evolving financial services industry.
Robo-advisers arrived with much fanfare in the United States in 2012, promising to improve on the face-to-face model, in particular by providing advice at much lower cost.
Jaco van Tonder, the director of advisory services at Investec Asset Management, says robo-advisers are useful to clients who cannot afford to pay for face-to-face professional financial advice.
“Robo-advice tools can also help financial advisers to reduce the cost of signing on a new client, since the tool takes care of a large part of the information-gathering and client-education process. This enables firms to deal profitably with smaller clients,” Van Tonder says.
According to the Financial Services Board, companies operating robo-advisers need to be licensed financial services providers.
There are plenty of options available if the idea of entrusting a robot to grow your wealth appeals to you. Personal Finance looks at three offerings in the South African market:
1. Sygnia RoboAdvisor. The service was launched last year by listed asset manager Sygnia. Depending on your investment requirement and risk appetite, RoboAdvisor will expose you to unit trusts, exchange traded funds (ETFs), money market funds or cash.
The local index-tracking products are Sygnia’s. Other products, such as offshore and money market funds, “may be managed by third-party asset managers selected by Sygnia”.
The company says RoboAdvisor is not meant to offer comprehensive financial planning advice.
“RoboAdvisor is designed to offer a low-cost level of advice based only on the information disclosed by you. If you change any of the investment parameters (for example, your recommended risk profile), the advice given will no longer hold,” the company says.
• Minimum investment amounts: lump sum of R10 000 or a monthly debit order of R500.
• Management fees: 0.5% a year including VAT.
2. iTransactGo. This service is operated by Johannesburg-based exchange traded product investment platform iTransact. The company was established in 2010, and it launched its robo-adviser service last month.
Lance Holms, the head of iTransact, says the service looks across all asset classes and combines them to form a portfolio that suits your investment goals. With IntransactGo, you invest in ETFs that track the domestic money, bond, property, domestic equity and offshore equity markets.
“It will not favour one asset manager or fund over another; it will only pick the best funds for investors. It will automatically rebalance your portfolio so that you never have to worry about the mix of assets you have chosen. Investing in the market has never been this easy,” Holms says.
• Minimum investment: lump sum of R5 000 or a minimum monthly contribution of R300.
• Investment term: there is a minimum term of one year.
• Management fees: not more than 1.14% a year including VAT, depending on the size of the investment.
3. Bizank. The company is independently owned and has appointed Anchor Capital as the asset manager of its robo-adviser. The robo-adviser, which was launched last year, creates a portfolio to meet your investment goal (for example, retirement or buying a house) based on your responses to its questions.
A portfolio of unit trusts and shares will be designed for you, depending on the size of your investment and investment profile. The unit trusts are Anchor Capital, funds, and any share portfolio will be managed by the company.
“We carefully analyse your investment profile and appetite for risk in order to create a portfolio that suits your goals. Smaller amounts of money would be more appropriately invested into a unit trust, where costs are slightly lower. However, at over R250 000 it makes more sense to invest in individual ETFs and shares. Whatever your financial investment situation may be, Bizank will develop a tailored portfolio plan that will maximise your returns,” the company says.
• Minimum investment: a lump sum of R10 000 or a monthly debit order of R1 000.
• Management fees: between 1% and 1.5% excluding VAT.
HOW DO ROBO-ADVISERS WORK?
Robo-advisers are automated online financial advisers that use algorithms automatically to allocate, optimise and manage an investment portfolio on your behalf. You use them by entering your personal information and your investment goals. It will sort through the system and construct a portfolio that suits your requirements. Asset allocation is dependent on factors such as your overall risk profile, savings goal and time horizon.