In this article we are going to take a look Netwealth Investments Limited.
They are a UK wealth management service that use cutting edge technology and computing power rather than men in suits. Well, that’s not strictly true, there are some men and women in suits in the background, but it is the algorithms that do the real leg work.
We’ve all heard the rumors that AI is taking over. That the robots are coming. We don’t know where or when, but we do know somewhere out there there’s a robot or piece of artificial intelligence with our job description written on it.
For how long we can avoid the inevitable is anyone’s guess. But here’s the thing. The where and the when has come earlier for some than others.
You see, it turns out some industries are already being invaded by digital this and AI that.
The fact of the matter is, all those wealthy financiers that caused the credit crisis with all that hardship and pain might not have gotten away with it after all!
Yes, they probably kept their sports cars and fancy offices while the rest of us entered austerity, but the good times might just be over for some of those greedy bankers.
Because for them its already began. That’s just to say robots have already began taking over their jobs. Well, maybe not actual robots more AI, algorithms, high-tech systems and serious computing power but I’m sure you get the picture.
One such center of computing power is Netwealth Investments Limited.
That’s Netwealth UK by the way, not to be confused with the Australian alternative.
This week, not only are we going to take a deep dive into the company itself but we’ll also cover why UK robo advisors in general are taking over finance.
Let’s get into it.
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The Best Investors
More and more evidence shows algorithms and computing power beat humans hands down. Never has this been so true as with investing.
When you look under the bonnet of us mere mortals it turns out we have a major weakness. Quite simply, we get let down by our emotions.
When Fidelity, one of the biggest investment companies in the world, did an investigation into which of their clients investments did best they found something very interesting.
It tuns out that the best investors were either dead or inactive.
It’s worth taking a moment to digest that one.
The fact of the matter is, those that have forgotten that they have investments, and those that are restricted from tinkering with theirs (due to deadness) trump people who mess around with their money.
You maybe reading this thinking this might apply to somebody else but not to me. However, the data suggests otherwise. However strong or clever we think we are, it is too easy to get influenced by the world around us.
When markets fall many investors panic and sell out of all their shares at just the wrong time i.e. when they are cheapest. Then in the good times when prices are going up they buy them back again.
It doesn’t help that there is a constant stream of financial information giving us advice about what we should and shouldn’t do twenty four seven.
If you make the mistake of watching CNBC or Bloomberg, there are always a multitude of reasons to start messing around with your investment portfolio.
If you read the FT you’ll have daily reasons to sell out of all your investments altogether.
Something important will have happened or is about to happen that means we should should buy or sell. “US stocks are over valued you better sell,” “Brexit means UK stocks are cheap you better buy!”, “the US China trade war is going to bring the whole system down. Sell everything!”
Investors need to be really strong to ignore all this and that is where Netwealth might just be able to help.
You see algorithms and the like don’t tend to bother with the news, and even if they did I’m pretty sure they wouldn’t panic. No, they are hard wired to simply stick to the plan no matter what.
There are still some people out there that don’t feel comfortable with the idea of handing over decision making to machines, but many more are beginning to accept a simple truth.
Machines just do it better.
British Expat Money
What does the data say?
My guess is, Michael Lewis has something to do with it. In Money Ball he writes about how the general manager of the Oakland A’s baseball team replaced men with metrics only to go on to achieve unprecedented success.
Perhaps, even more interesting was what he revealed in the Undoing Project, his book about the relationship between Daniel Kahneman and Amos Tversky.
In it he writes about work done at the Oregon Research Institute on radiologists and their x-ray diagnoses.
It turns out simple algorithms beat highly trained medical professionals too. There’s no doubt that the AI, robots and funky algorithms are winning.
Not so good for the people whose jobs are getting replaced, but pretty good for the customers of all the new improved services that have arrived.
Sports fans get better sports teams, patients get better medical care, and investors get better investment services.
Where there were once hedge funds, now there are quant shops. Where there were once banks, now there is fin-tech, and where there was once financial advisors, now there are robo-advisors.
Netwealth
Which brings us nicely to Netwealth Investments Limited. A UK robo-advisor, that uses computers to build investment portfolios.
Here’s what the team behind the company say about what they have to offer:
We believe wealth management should combine the best elements of a traditional discretionary service with the benefits of a technology-enhanced approach.
So we have brought together a highly qualified team, a powerful online service, a robust investment framework and access to experienced advisers if needed – all at a fraction of the industry cost.
Netwealth Investments Limited
Essentially investors can meet their financial goals with their “Three-Pot Theory.” This is an approach that separates your finances into three buckets which they call pots that attempt to represent the way we live our lives.
- Everyday money such as salary and cash sits in Pot 1.
- Low cost medium to long term investments sit in Pot 2.
- And more risky volatile assets like property, single stocks and direct investments sit in Pot 3.
Investors get help with Pot 2. They describe the funds in this pot as ‘sleep well’ money.
Here’s a little passage that outlines the company’s philosophy:
Bespoke objectives
Defining your objectives and planning for the future will help you choose the right combination of risk levels and account types.
These choices will always be the biggest driver of your portfolio outcomes. We have the team and tools to help you put a plan in place and check back in on a regular basis.
Centrally managed portfolios
Our centrally managed approach to investment ensures you always access the best thinking of the firm.
Netwealth’s experienced team have carefully combined different asset classes to provide you with globally diversified portfolios, with the aim of maximising return for your chosen level of risk.Netwealth Investments Limited
Improving the bottom line
We focus on the elements of investing that are within your control. By lowering the costs of investing and making use of tax wrappers and allowances where possible, you can significantly improve your net returns.
Netwealth’s service can add to your investment results with our wide range of account types and helpful automation features
The Team Behind Your Investments
The investment team at Netwealth all come with a wealth of experience from the big names in investment banking.
The company was founded by Charlotte Ransom and Thomas Salter. Both of whom have a wealth of experience in the finance industry.
Prior to starting the company, Ransom spent over 25 years in private wealth management and investment banking and was a Goldman Sachs partner for ten years. And Salter has over 15 years experience in financial services and was a managing director at JP Morgan.
The rest of team all come with similar resumes, but perhaps the most notable is their Chief Economic Strategist, Gerard Lyons. A pro-Brexit economist and writer, and former economic advisor to the then Mayor of London, Boris Johnson.
As important as the team maybe, front and centre, at least as far as I am concerned, is the cutting-edge technology used to keep your UK robo advisor on his toes and your portfolio firmly on the rails.
There are two reasons for this. Not only do algorithms and advanced computer systems make better decisions than humans, but as an added bonus you don’t have to pay them as much as highly educated financiers.
Netwealth will of course benefit from these cost savings themselves, but as an investor I’m more interested in the cost savings passed on to us. Netwealth annual fees range from about 0.70% to 1%.
More details on fees below, but suffice to say costs are reasonable.
Investing
If you do decide to invest with Netwealth they have a range of products for you to choose from. These include, General Investment Accounts, Junior Investment Accounts, Pensions, ISAs, JISAs, Charity, Trust and Corporate accounts.
Any expat or non resident readers take note. General Investment Accounts should be open to us (hurray!).
Opening an Account
Opening an investment account is relatively straight forward. First, you provide your name, email address and password and then you are taken to a screen where you can “design an investment.”
You then choose between five investment goals. These are:
- Retirement
- Regular withdrawals
- Significant purchase
- Rainy day
- Just invest
Once you’ve made your choice you then choose an investment type, your method of contributing money (i.e. lump sum or regular contributions) and then your level of risk.
After that, you get to see historical returns and best and worst returns over a 12 month period for your choice.
When all that’s done and you’ve added your money you can sit back and let the algos do their thing.
It’s probably worth noting at this point that there are various things in place to keep you money safe.
In fact, clients can relax in the knowledge that all investors’ assets are separately custodied and ring-fenced. Additionally, your money is held according to applicable FCA rules and protected under the Financial Services Compensation Scheme.
Fees
According to Netwealth the total cost of investing with a traditional manager is 1.86%, where as the fees for their offerings are estimated to start at 0.7% all in.
These are estimated because they include a management fee and underlying fund costs. Though the management fee is fixed, the underlying fund costs may change depending on exactly what portfolio you put together. On top of that there is an estimated trading cost – the cost of buying and selling shares within the fund.
The Management fee depends on how much money you invest. The more the merrier in this case.
Below £250,000 you pay 0.65%. Between £250,000 and £499,000 you pay 0.5% and over £500,00 you pay 0.35%. When you add on the fees for funds and trading you get 1%, 0.85% and 0.7% respectively. The fees are shown in the table below:
Those fees are individual. It is possible to reduce them in certain circumstances.
Basically, to get a cheaper deal, Netwealth offer group benefits through what they refer to as the Netwealth Network.
This is a service where investors can club together with family and friends to reduce fees. Fees are then calculated on the total invested amount of all members, rather than on an individual basis.
For example, if you look at the above table, you would pay approximately 1% if you invested £50K on your own. However, if you joined four of your friends and each of you invested £50K you’d have a grand total of £250K which would enable your fees to be reduced to 0.85%.
If the four of you had even deeper pockets and each invested £100K then fees would be reduced to approximately 0.7%. A total of 0.3% saving. Whilst that doesn’t sound like much when you say it out loud, rest assured, over time it would make a big difference.
Alternatives
As reasonable as those fees are, there are other robo-advisors out there that come with comparable fees. Wealthify, Nutmeg and Moneyfarm being three of the bigger ones.
That said, I don’t think they will be the only competitors.
Instead, its my guess that the biggest alternative will come in the form of index funds and ETFs.
The fact of the mater is, some investors won’t be prepared to pay for a robo-advisor at all. Choosing instead to take a DIY approach with one or two index trackers. Even global index tracking ETFs come with ongoing fees below 0.3% these days. Anybody with an investment account can take this approach.
Who should invest?
That said DIY investing isn’t going to be suitable for everyone. Some of us lead busy lives and are too busy to mess around with investing. Others just don’t have the confidence to go it alone, but perhaps more importantly, some investors wouldn’t be able to control their emotions when the going got tough.
If that’s you then Netwealth might just be the right option.
If you are too busy to deal with investments or think you might be one of those people who panics and sells everything when the markets go down, the additional amount you pay for a robo-advisor might actually save you money in the long run.
Set it and forget it with a UK robo advisor
With a robo-advisor, all you need to do is set it and forget it. Just automatically add money every month and don’t think about it until the time comes to take your money out.
If you do it yourself you can’t avoid looking at your balance every month when you purchase new shares. Sometimes your investments have gone up and sometimes they have gone down. I’m sure it goes without saying that when prices goe down it takes a lot of discipline to keep your emotions in check.
With robots making the decisions you don’t need to even think about your investments. You can just view them like taxes or national insurance that you don’t see.
This kind of mindset should see you well. In fact if you can restrain from looking at your balance until the day you withdraw your funds you are likely to be pleasantly surprised.
It is amazing what monthly contributions over a sustained time period, with a little help from compound interest can do.
Contact Information
Tel: +44 (0) 20 3795 4747 (8-6 Monday to Friday UK time)
Email: clientservice@netwealth.com
Two Fitzroy Place, 8 Mortimer Street, London, W1T 3JJ