Robo Advisors in Singapore

Science-fiction writers have long been predicting that robots will take over the world, and those predictions could soon come true in the lucrative investment advice market.

Recent years have seen the emergence of digital financial advisors – known as robo advisors – which take advantage of modern technology to offer low-cost investment management services.

According to a recent Legg Mason Global Investment Survey, Singapore leads the world in terms of the proportion of people using the services of a financial advisor – with an impressive 61 per cent of respondents consulting human financial advisors and many are open to robo-guidance.

In this guide, we explain how these robo advisors work and how can you compare the services offered by different providers.

Robo advisors in Singapore

What is a robo advisor?

Robo-advisors are digital platforms or investment apps that offer algorithm-driven financial planning solutions to consumers and automatically manage their investments.

The main difference that sets it apart from a traditional financial advisor is that a robo advisory platform relies heavily on technology and requires little to no human supervision. These platforms also utilise a host of other tools to digitise and streamline the entire investment process, from account opening to risk assessments.

How does a robo advisor work?

Most robo-advisor start off the process by collecting information from their clients, such as their financial situation and future goals through a detailed online questionnaire.

Once you provide details of your investment goals, investment timeframe and appetite for risk, the robo advice service generates a recommended investment portfolio, which is usually based on Exchange Traded Funds (ETFs). Once you’ve invested your money, the robo advisor manages your portfolio and re-balances it whenever necessary to ensure it remains in line with your risk tolerance levels.

Benefits of using a robo advisory service

Proponents of robo advisors say that instead of being influenced by emotion when making trades, digital advisors are more capable of bringing high-quality and more consistent investment advice to the masses by using algorithms and mathematical models to determine the right asset allocations for investors.

They’re also much cheaper than having a traditional financial advisor actively manage your investments, with robo advice available for as little as one-tenth of the cost of receiving advice the old-fashioned way. So for those who either cannot afford or are unwilling to pay the fees to receive traditional financial advice, robo advisors offer a convenient and affordable alternative.

In addition, investors can take a passive approach in managing their portfolios with limited investment knowledge.

Who are robo advisors best for?

Robo advisors are designed for those who fit the following investor profiles:

• Novice investors. Robo-advisors are ideal for inexperienced investors without strong investing knowledge or expertise. Navigating the stock market on your own can be intimidating and not everyone has the time or interest to monitor and study global stock market trends.
• Investors with low investment capital. Robo advisors don’t impose minimum trade sizes, so those with less funds to put aside for investments can start building their portfolio a small amount of money.
• Investors comfortable with technology. Investing with robo advisors means putting your money and trust in the hands of an algorithm.
• Investors who prefer a passive role. Robo-advisors allow you to take the backseat and build your wealth on autopilot. Simply deposit your funds, set your parameters and let the app do the rest.

Top robo advisors in Singapore

As robo advisory services grow in popularity and quickly becoming mainstream, investors today have rather a wide range of low-cost options to choose from.

Here are the most popular robo advisors available for investors in Singapore:

*Note: Information provided is accurate as of 4 May 2021.

How to compare between robo advisors

When researching for the best robo advisors on the market, keep in mind that each provider serves a different set of needs. Here are some aspects to consider:

• Flexibility. Some robo advisors provide a lot more customisability than others. Find out what are the plan options available and how they differ from the plans offered by other advisors.
• Management fees. Robo-advisors typically charge an annual management fee based on your invested assets, which can be as low as 0% p.a. to 0.8% p.a. and up. The type of portfolio you opt for can also result in different fees. To keep costs low, check if the robo advisor you’re considering offer a free introductory period, or even manage a portion of your assets for free.
• Minimum investment size. Most robo-advisors have account minimums ranging from $0 to as much as $10,000, so this can be a key component of your decision process.
• Access to a human advisor. If you prefer one-on-one personalised advice, in-depth financial planning and more customisation for asset allocation, look out for robo advisors that offer a hybrid approach. This means that you’d gain access to human advisory on top of algorithm-optimised solutions.
• Educational content. A good robo advisor platform also strives to keep its customers informed with extensive educational content, helping them make better investment choices and goals.

Pros and cons of using robo advisors

Here are some of the advantages and drawbacks to bear in mind before you sign up for a robo advisory service:

Pros

• Ease of use. Robo advisors allow you to play a passive role when investing. There’s no need to conduct your own research, deal with the ups and downs of the stock market, handle your own paperwork and execute the trade yourself. Simply sign up for an account, choose a profile that suits your risk appetite and let the app manage everything else automatically.
• Low barrier to entry. Minimum trade sizes and transaction costs can often make investing cost-prohibitive. With robo advisors, you can start investing and owning fractional portions of ETFs with just a small amount of money.
• Low fees. Robo advisors typically charge lower management fees (usually a percentage of the total you invest) compared to professionally managed funds. There are also no deposit or withdrawal fees to look out for.
• Minimal commitment. When you invest with robo advisors, you’re free to liquidate your investments at any time without having to worry about lock-in periods or penalties. All portfolio rebalancing is also done for you automatically so that you need not fuss over it whenever there’s a change in market conditions.
• Diversification. Maintaining a diversified portfolio essential in risk mitigation. Robo advisors offer a mix of assets that are carefully put together using algorithms and sophisticated investment strategies, instead of the judgement of human analysts.

Cons

• Lack of customizability. Investment choices with robo advisors typically offer minimal customizability. You may choose from a few portfolios with varying risk levels, but you’ll not be able to deviate from the algorithm’s parameters. For example, you’ll not be able to choose a specific ETF to include (or exclude) in your portfolio.
• Not designed for strategic financial planning. Digital advice services are based more on building and maintaining a portfolio than providing strategic advice.
• More expensive than DIY. While fees charged by robo advisors are generally much lower than investment managers, low recurring fees still constitute an additional cost you’d be incurring, as opposed to investing on your own and managing your own portfolio. When you DIY an investment portfolio, you’ll only get charged only per transaction – which is a cheaper option for buy-and-hold investors.
• Limited human interaction. Robo advisors usually don’t have an office for walk-in services and you’ll not have a relationship manager assigned to you. If you prefer a relationship with your financial advisor, or someone who can address any money-related concerns in-person, then robo-advisors is probably not suited for you.
• Currency exchange spread and risk. Currently, most local robo advisors tend to be heavily invested in US-based ETFs. This means that your money will subject to USD conversions at spot rates, plus any currency conversion fees that’d be charged by brokers.

Bottom line

Robo advice is changing the face of wealth management around the world and could offer a more affordable way for you to look after your investments. However, make sure you compare the benefits and features of a number of robo advisors before choosing the right service for you.