South African robo-advisors, compared

The robots have arrived. Robo-advisors are becoming increasingly popular in markets such as the United States and the appeal is obvious, especially for younger investors. Essentially, robo-advisors rely on automation and algorithms to offer low-cost financial planning advice on the web. This won’t help you create a completely custom portfolio in a way that a (good) professional financial planner would but for most people – especially younger investors who’d prefer to do it themselves – these types of online services are good enough.

They’ll typically ask a few questions designed primarily to understand risk tolerance and time horizon. Once the platform has some sense of your circumstances, it will be able to suggest a personalised portfolio to help you achieve your investment goals.

The two better-known robo-advisor startups in the US are Wealthfront and Betterment (with around $5 billion each in assets under management), but established players like Vanguard (the world’s second-largest money manager) and Charles Schwab & Co who have launched automated platforms lead the market by some margin in assets under management. At the end of 2015, Vanguard had over $12 billion under management on its automated platform (called ‘Personal Advisor Services’). But, this pales into insignificance when compared to its total assets under management of more than $3.4 trillion.

Importantly, none of these services market themselves explicitly as ‘robo-advisors’, rather they describe the problem(s) being solved as well as the cost benefit of automation.

Locally, three services which can be categorised as ‘robo-advisors’ have launched, although none of the larger asset management players have entered the space yet. Here’s how the three stack up…

SmartRand

Launched: 7 March 2015

www.smartrand.com

Who’s behind it?

Galileo Capital, with the well-known tag team of directors Theo Vorster and Warren Ingram.

Underlying investments

SmartRand recommends one of the following funds, depending on your investment profile:

Ashburton Money Market (target returns: CPI)

RMB Cautious Fusion Fund (target returns: CPI +2%)

RMB Moderate Fusion Fund (target returns: CPI +3.5%)

RMB Growth Fusion Fund (target returns: CPI +5%)

Ashburton SA Equity Fund (target returns: CPI +7%)

The RMB Fusion funds are index trackers.

Minimum investment amounts

Investment plans (or tax-free savings accounts, subject to the R30 000 annual limit)

Lump sum: R5 000 (with minimum additional single premium amount of R20 00)

Monthly debit order: R500

Retirement annuity

Lump sum: R25 000 (with minimum additional single premium amount of R2 000)

Monthly debit order: R500

Costs

Ashburton Money Market: 0.59% per annum (excluding VAT), of which 0.29% is the annual advice fee to Galileo Capital

RMB Cautious/Moderate/Growth Fusion Funds 0.75% per annum (excluding VAT) , of which 0.29% is the annual advice fee to Galileo Capital

Ashburton SA Equity Fund: 0.79% per annum (excluding VAT) , of which 0.29% is the annual advice fee to Galileo Capital

Bizank

Launched: 28 April 2016

www.bizank.co.za

Who’s behind it?

Founded by Adam Oberem, with Anchor Capital appointed as the asset manager (it also owns a minority stake).

Underlying investments

A portfolio of unit trusts and shares will be designed for you, depending on the size of your investment and investment profile. These are Anchor Capital funds and any share portfolio will be managed by the company.

Minimum investment amounts

Lump sum: R10 000

Monthly debit order: R1 000

Costs

Management fees are between 1% and 1.5% per annum (excluding VAT), depending on which funds you are invested in. Those funds with performance fees will levy these on top of the annual management fee.

Sygnia RoboAdvisor

Launched: 16 May 2016

www.sygnia.co.za/roboadvisor/sygnia-roboadvisor

Who’s behind it?

JSE-listed Sygnia owns and manages its RoboAdvisor platform.

Underlying investments

The underlying products are unit trusts, exchange-traded funds, money market funds and cash. The local index-tracking products are Sygnia’s own. Other products (such as offshore or money market funds) “may be managed by third-party asset managers selected by Sygnia”.

Minimum investment amounts

Lump sum: R10 000

Monthly debit order: R500

Costs

Sygnia does not charge a fee for the advice given on its RoboAdvisor platform. Management fees are 0.5% per annum (including VAT), which it argues are the “lowest” in the country.

***

Out of the three, SmartRand probably has the most limited distribution reach. While both of its founders are well-known in the investment space, it lacks the clout that Sygnia has (even though it remains one of the less well-known asset managers, for now) and Bizank would have because of its link with Anchor Capital. But, Anchor doesn’t specifically punt Bizank to its clients. It seems to see it simply as an additional part of its distribution.

In terms of complexity of underlying investment product offering, SmartRand is the simplest with its segmentation into (only) five different funds. Sygnia’s relies primarily on its ultra low-cost index funds (a broader range), with some augmentation from partners who offer products which it doesn’t (e.g. a money market fund). Bizank moves a step beyond unit trusts and, depending on your risk appetite, time horizon and amount invested may include a direct equity portfolio (i.e. shares) managed by Anchor (effectively its private clients offering).

All three are very simple to understand and use, with well explained step-by-step processes. They all attempt to illustrate how much you’d need to save to reach a (given) goal as well as expected returns. Curiously, Sygnia decided to explicity label its offering ‘RoboAdvisor’ which is strange given that most people won’t be familiar with the term (or actually care).

Because they’re automated by definition, all three of these offerings don’t require any offline interaction/intervention. The entire process, including forms, Fica documentation and signatures is electronic. However, because SmartRand opens an Ashburton investment account for you at the end of its risk/needs assessment, it does not have direct control over this part of its process (e.g. Fica documentation, etc.).

Sygnia’s RoboAdvisor is the most attractive based on cost alone, and Bizank probably the least appealing on this basis. I’d argue that these offer commoditised products – both in the underlying funds as well as the investment ‘advice’ based on risk tolerance segmentation – and costs should be the only determining factor when making a choice.

On balance, there are no material differences between these three platforms. And this basic financial advice (even if its automated) is better than no advice.

None of these robo-advisors are material yet (even in the realms of their owners’ traditional businesses), but they do offer access into hard-to-reach segments of the market (especially younger investors) and they’ll continue to chip away at inflows being attracted by the more established players. Expect more to enter the market. But the real question is which of the larger (traditional) wealth managers will move first….

* Hilton Tarrant works at immedia. He can still be contacted at hilton@moneyweb.co.za.

-Brought to you by Moneyweb