IF you do not have the time or know little about investing but want to accumulate wealth, then Robo Advisory investing may be an option for you.
However, nothing comes free. There is a fee you pay for its services; in comparison to other forms of investment, though, Robo Advisory experts claim to charge the lowest.
Robo Advisory is essentially a software that uses algorithms and data to invest on your behalf. With the data you key in, it creates a portfolio based on your investment goals and risk appetite.
It is somewhat an autopilot financial planning service, or some call it, a digital fund manager that has little or no human supervision. It rebalances your portfolio periodically.
Robo Advisory services are not new as it first emerged globally as a result of the 2008 global financial crisis. A decade later Malaysia issued several licences for such services.
There are several Robo Advisory platforms in Malaysia including Akru, Best, MYTHEO, Raiz, StashAway, UOBAM Invest and Wahed Invest.
There are several ways for the adviser to get their returns for you once you invest with them. The underlying asset is often local and foreign ETFs (exchange traded funds). However, some Robo Advisory firms create and manage their own funds.
“While the way of accessing it and how the money is managed is digital, the investment exposure is very similar to a fund,’’ StashAway Malaysia country manager Wong Wai Ken said.
Robo Advisory for a long time seems to appeal to the younger generation but the Covid-19 pandemic has attracted others, including older investors.
Wong said its typical clients are those in their early thirties earning around RM10,000 monthly. They mostly work in financial services, consulting, oil and gas, law and tech sectors.
He said the spread between men and women investors is also about evenly distributed.
“This is to be expected as a young Malaysian professional entering their 30s, they will have more financial goals such as weddings, down payment for homes, having children and planning for their retirement.
“During the pandemic, we also saw an influx of older investors who were looking for digital means of investing,’’ he added.
Before you invest, you need to know your investment goals and risk appetite. Either invest directly into markets yourself, or via Robo advisory services, or use a combination of both.
But do your research first. Find out the best deals in terms of returns, fees, the app user interface as to how friendly it is, and the underlying instrument, before investing.
This is necessary since each Robo Advisor implements a different investing methodology.
“The underlying investments and allocation of your portfolio will differ based on the Robo Advisor platform you invest in, so will the returns,’’ said BIMB Investment CEO Najmuddin Mohd Lutfi.
He said BIMB’s Best Invest app systematically assesses investor’s investment risk profile and goals by automatically allocating their investments through diversified unit trust funds managed by BIMB to maximise returns and manage investment risks over time.
He said Best offers nine funds across geographical boundaries and across asset classes.
As for StashAway, it has 12 portfolios to choose from depending on your risk appetite.
Wong said the annual management fees for Robo Advisory start from 0.8% which is significantly lower than the unit trust industry’s fees and each portfolio consists of ETFs that together represent a multi-asset portfolio, which is important for diversification.
“Why buy three to four products when you can just buy one which has exposure to equities, bonds, real estate and precious metals,’’ he adds.
He said StashAway also offers a cash management portfolio that allows investors to invest spare cash or emergency funds with no lock-up period to earn a projected rate of 2.4% per annum.
Najmuddin said unlike most investment platforms in the marketplace, the Best app gives investors the ability to create their very own socially responsible investment portfolio via its Syariah-ESG (environment, social and governance) funds without sacrificing performance goals.
Investors can start investing in its ESG and syariah-compliant funds with as low as RM10 and zero sales charges applies, he added.
“There is also no minimum balance required and no lock-in period, no upfront sales charge, while the annual management fees are kept between 0.2% and 0.8% depending on the funds,’’ Najmuddin adds.
Since Sept 9, he said there have been 46,000 app downloads and 35,000 users that signed up for Best. It has captured RM20mil in sales since its launch in April 2020.
Wong said their system monitors an investor’s portfolios daily and re-balances them regularly to precisely manage their portfolio’s risk level.
“Our trading system constantly monitors prices and economic indicators, and updates your portfolio allocation or re-optimises it, helping you to navigate through changing economic cycles. We select United States-listed ETFs with very stringent criteria and this helps us ensure that the fees are cost-effective for the quality of the ETFs that our users are investing in. By leveraging technology, we can be both time and cost-efficient. We pass these cost savings on to you in the form of low fees.’’
Wong said StashAway is one of the few wealth platforms in the world to incorporate fractional shares into its portfolio management strategy.
Dividends earned are automatically reinvested and they do not have a minimum deposit balance and do not charge any fees for deposits or withdrawals, he said.
While Robo investing takes away the emotion out of investing and offers low cost, it has its limitations too. A report said you are not likely to be able to choose or exclude individual investment in your portfolio or choose your exposure to certain geographic regions.
The report said lack of transparency may be an issue with the selection of ETFs, and if you are investing overseas, beware of withholding taxes. There is also little or no face-to-face interaction and as an expert puts it, it is not a “one-size-fits-all’’ offering.