What Do You Need To Know About Robo Advisors In Singapore?
Robo advisors have cropped up in the past few years, promising an easy and accessible path to investing.
Do these promises hold up? Here’s what you need to know about robo advisors.
What is a robo advisor?
A robo advisor is a digital platform that uses algorithms to automate your investment portfolio. With these algorithms, robo advisors construct a portfolio for you based on your investing goals and risk tolerance, and periodically rebalance your portfolio in response to market conditions.
Typically, a robo advisor uses your money to invest in exchange traded funds (ETFs), which are groups of stocks, bonds or other investments.
However, each robo advisor implements a different investing methodology – the asset allocation of your portfolio will differ based on which robo advisor platform you invest in.
What are the advantages of investing with a robo advisor?
Diversification. Diversification helps spread your risk out among different investments, reducing your losses if a particular investment in your portfolio underperforms.
With relatively little money, a robo advisor can help you invest in a wide range of assets. For instance, when you invest just S$1000, a robo advisor will construct a portfolio for you, typically with several ETFs that each has an underlying set of assets.
Passive investing. Ever wish you could just hand over your money to someone and have them invest for you? Robo advisors do just that, with minimal effort needed on your part.
If you’re a beginner investor who is hesitant to make investing decisions on your own, or an investor who doesn’t want to (or can’t) devote a lot of time to researching, monitoring and rebalancing your portfolio, then robo advisors could a good solution.
Investing passively also helps you avoid emotion-based decisions. Some investors, for example, panic and withdraw their money in a downturn or pump in more cash when the market is rising. However, timing the market is incredibly hard, and can lead to smaller returns in the long run. With a robo advisor, you can take a dollar cost averaging approach to investing by setting up automatic monthly transfers. In doing so, you can avoid emotion-driven impulses to buy and sell based on market sentiment.
Tailored to your goals and risk profile. If you were going the DIY route when investing, you’d need to (1) know what type of asset allocation best suits your needs, (2) manually construct this portfolio, (3) periodically rebalance it over time and (4) occasionally review your asset allocation to make sure it still aligns with your goals.
Robo advisors will do this for you automatically. When you sign up for an account, you’ll typically complete a questionnaire that will gauge your goals, risk tolerance and investment time horizon. The robo advisor will then tailor a portfolio based on your responses.
Low fees. Robo advisors charge relatively low fees. They don’t have any upfront fees, but do impose an annual management fee (typically less than 1%).
By contrast, if you invest in unit trust funds you may need to fork out 0.5% to 2.5% per annum. Some unit trust funds also charge up to 5% upfront in sales charge, as well as up to 5% when you want to redeem your investment value.
What are the drawbacks of investing with a robo advisor?
Limited customisation. Robo advisors allow you to set certain things like your risk profile or investing goals, but that’s about it. You generally can’t tinker with the investment methodology, choose (or exclude) individual investments in your portfolio or adjust your exposure towards certain geographical regions.
Investing methodology may not be transparent. If you’re a savvy investor, you may be interested in the specific criteria a robo advisor uses to select ETFs, or how a robo advisor chooses to rebalance your portfolio. However, this information is not always made available.
Dividend withholding tax. Some robo advisors invest heavily in securities listed in the US. However, as a foreign person buying US stocks, your dividends will be subject to a 30% withholding tax, although your robo advisor platform may be able to seek partial reimbursement of these taxes for you.
What robo advisor platforms are there in Singapore?
|Platform||Launched||Methodology||Min initial investment||Fees per
|Autowealth||2015||Mix of Equity (Stocks) and Fixed Income (Govt Bonds), diversified across major geographical regions in the world.||S$3,000||0.5% + US$18|
|CGS CIMB eWealth||2018||Reviews hundreds of ETFs globally to select the best mix for optimal market (Beta) returns.|
Rebalances every 3 months or 6 months, depending on portfolio type.
|S$3,500||0.5% - 0.8%|
|OCBC RoboInvest||2018||Screens for suitable ETFs listed in the US using various qualitative and quantitative criteria. ETF-based portfolios are rebalanced semi-annually.|
Rebalances quarterly or half-yearly, depending on portfolio type.
|Smartly||2015||20+ US-listed ETFs in equities, government bonds, corporate bonds, commodities, equities, real estate and cash.|
Rebalances as often as once a month.
|S$50||0.5% - 1%|
|Stashaway||2016||Uses proprietary investment strategy that reacts to economic fundamentals. Portfolios are a mix of up to 19 differentiated and global asset classes.|
Stashaway’s algorithms check client portfolios daily and perform rebalancing when allocations deviate from targets.
|S$0||0.2% - 0.8%|
|UTrade Robo||2018||Uses mean-variance optimization based on the Modern Portfolio Theory to allocate assets. Selects tax-efficient and low-cost ETFs to build a globally diversified multi-asset portfolio.||S$5,000||0.5% - 0.88%|
|MoneyOwl||2018||Has a Global portfolio through Dimensional Fund Advisors (DFA) & uses the iFAST platform. Its Bionic system combines human and robo capabilities.|
Rebalances quarterly in March, June, September and December, and upon review of the asset allocation of the portfolio.
|S$100 for one-off investment and S$50 for monthly investment||0.83%|
|endowus||2017||Global portfolio through Dimensional Fund Advisors (DFA) and PIMCO funds.|
Independently owned and paid solely by clients.
|DBS digiPortfolio||2019||Combines expertise of portfolio managers and robo-technology that is coded to automate processes such as back-testing, rebalancing and monitoring.|
Provides 2 main portfolios; Global Portfolio and Global Portfolio Plus. Only available to DBS Treasures customers.
|Kristal.AI||2016||Uses robust and forward-thinking advisory algorithm that applies Behavioural Economics concepts, Artificial Intelligence, Data Science and Machine Learning.||S$13.57 (US$10)*||0.3% (for portfolio over S$67,868.75/US$50,000)*|
*According to currency exchange rate at the time of publication
Comparison of robo advisor fees
|Platform||Fees payable on a S$10,000 portfolio||Fees payable on a S$50,000 portfolio||Fees payable on a S$100,000 portfolio|
|Autowealth||S$50 + US$18|
(0.5% + US$18)
|S$250 + US$18|
(0.5% + US$18)
|S$500 + US$18
(0.5% + US$18)
|CGS CIMB eWealth||S$80|
*Calculation is based on Global Portfolio
- With 0% fees per annum Kristal.AI has the most competitive pricing model for small investment amounts (i.e, below S$100,000).
- For large portfolios, Stashaway offers the lowest fees, up to 0.2% per annum.
- While most robo advisors have a tiered fee system (the more you invest, the lower your fees), OCBC RoboInvest charges a flat rate of 0.88%, making it the priciest for large portfolios.
Points to consider before you choose a robo advisor platform
- Backtested performance and asset allocation. All these robo advisors invest in ETFs, but your asset allocation will vary depending on the platform you choose. Check out Financial Horse’s article detailing each platform’s asset allocations and backtested performance (keep in mind though, that past performance is not an indicator of future performance).
- Stashaway allows you to invest your SRS funds. Topping up your SRS contributions to claim tax relief? Stashaway is the only robo advisor (thus far) that lets you invest your SRS funds.
- If you want more flexibity…CGS CIMB and OCBC RoboInvest offer thematic investing, which allows you to choose a portfolio based on a certain ‘theme’ (such as REITs or the US tech sector).
What are the alternatives?
If, for whatever reason, you’re not comfortable putting your portfolio in the figurative hands of invisible algorithms, but still interested in a “set it and forget it” approach to investing, alternatives to consider are Phillip SMART Portfolio and FSM MAPS.
These are both digital investment platforms that build and monitor your portfolio based on your risk assessment. Instead of completely relying on algorithms, however, these platforms use human investment managers to structure and monitor your investments.
However, do note that the drawbacks of conventional robo advisors still apply to these platforms: you will not be able to customise your portfolio past a certain degree, and the exact investment methodology used by these platforms’ investment managers may not be transparent.
Savvier investors who prefer more control over their portfolio – or who simply don’t want to pay annual management fees – can even look into directly buying ETFs to mimic the portfolios suggested by these platforms (robo advisor or otherwise).
This article was first published in January 2019 and has been updated for freshness, accuracy and comprehensiveness.