Wealthify – In-depth UK robo-advisor review

Wealthify is a UK investment management service that uses cutting edge technology and computing power rather than men in suits to look after your money.

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 robots are coming. We don’t know where or when, but we do know somewhere out there there’s a robot with our job description written on it.

The where and the when has come earlier for some than others. It turns out some industries are already being invaded. All those wealthy financiers that caused the credit crisis 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.

That’s because robots have already began taking over their jobs. Well, maybe not actual robots more algorithms, high-tech systems and serious computing power.

The greatest Investors

More and more evidence shows algorithms and computing power beat humans hands down. Never has this been so true as with investing. Unfortunately, we humans 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.

Unbelievably, the best investors were either dead or inactive. I’m sure it goes without saying that you probably can’t use your emotions very effectively to make investment decisions when you are dead!

You maybe reading this thinking this might apply to somebody else but not to me. However, the data suggests otherwise. However strong we think we are, it is too easy to get influenced by the world around us.

Panic stations

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 do.

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.

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’s where Robo advisors come in. In fact, they are just about as strong as it gets. They don’t bother with the news, and even if they did they wouldn’t panic, they just 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 that the simple truth is machines do it better.

Data 1 humans 0

You see replacing human decisions with data is getting more popular all the time. 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 robots and algorithms are winning.

However, there is some light at the end of the tunnel. When you think about it, things might not be as bad as all that. In some aspects leaving stuff in the hands of computers can be beneficial. 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.

Wealthify

Which brings us to Wealthify. A UK robo-advisor, that uses computers to build investment portfolios. The team at Wealthify say:

We’re a group of like-minded investment experts, software engineers and entrepreneurs with a shared ambition to shake things up and make investing easy and affordable for everyone. We’re challenging people to think differently and do more with their savings.
Our promise is simple: No complicated jargon, no daunting fees, just straightforward, effortless investing.
Wealthify is backed by Aviva, one of the largest and most recognised financial services brands, who work with the brightest companies around the world to deliver innovative insurance and investment products and services.

Wealthify

Effortless investing with Wealthify

Wealthify use algorithms to make decisions so you don’t have to. They invest your money in exchange traded funds (ETFs) and mutual funds. What funds you actually invest in will depend on you and in particular your attitude to risk.

You tell Wealthify what kind of an investor you are: cautious, adventurous or somewhere in-between. Wealthify then use algorithms to build a portfolio for you.

After that, your plan is monitored 365 days a year so that it can be adjusted when required to keep everything optimized. It is easy to keep track of your investments through PC, phone or tablet and the Wealthify app and website is super easy to use.

You can invest with as little as £1 and there are no charges for opening or closing accounts. So even if you decided not to use the service in the end there is nothing stopping you trying it for a while.

You can also be happy in the knowledge that up to the first £50,000 of your money may be protected by the Financial Services Compensation Scheme (FSCS).

Opening a Wealthify account

You must be over 18 to use Wealthify. Currently, Wealthify accepts British residents and British expats who live in Italy. Expats who don’t live in Italy could consider Netwealth.

Opening a Wealthify account is relatively straight forward. First, you choose between general investment account, Wealthify Stocks and Shares ISA or a Wealthify Junior Stocks and Shares ISA.

Then you can build your portfolio, which couldn’t be simpler. You simply answer the following questions:

• Do you have a goal for your investment?
• How much do you want to invest upfront?
• How much do you want to invest monthly?
• How long do you expect to invest for?
• What kind of theme would you like?
• What’s your investment style?

The first 4 questions are pretty self explanatory but its worth talking about the last two.

Socially responsible investing

You can choose between ‘ethical’ and ‘original’ investing. Ethical plans will do their best to avoid putting your money in companies that associate with harmful activities.

Examples might be tobacco, gambling, weaponry or adult entertainment. Instead, Wealthify invest in companies that are more socially responsible using ETFs and mutual funds.

If ethical investing is extremely important to you, this maybe a good choice. However, if you are unsure about ethical investing it is worth reading up on it before you make a decision.

That’s because when you choose ethical investing you are choosing a particular piece of the market and ignoring another one (i.e. companies that are less ethical).

Doing this may improve your returns, but it may also reduce your returns. You can read more about socially responsible investing here.

Investment style – how risk tolerant are you?

Your investment style is about your tolerance to risk. This is perhaps the most important aspect you need to think about with investing. So it is worth spending some time to think about it. It generally determines how much of your portfolio will be invested in cash and bonds compared to shares. You can read more about that here. Wealthify give you 5 choices:

• Cautious (Minimising loss is the priority. Small movements up and down in value are acceptable, with the aim of beating inflation).
• Tentative (Limiting loss is important. Moderate movements up and down in Plan value are acceptable, with the aim of achieving reasonable growth).
• Confident (Minimising losses is as important as making gains. Movements up and down in Plan value are acceptable, with the aim of achieving good growth).
• Ambitious (Making gains is the priority. The risk of large losses and large movements up and down in Plan value are acceptable, with the aim of achieving high growth).
• Adventurous (Maximising returns is the priority. The risk of substantial losses and substantial movements up and down in Plan value are acceptable, with the aim of achieving the highest growth possible).

After you’ve given your answers Wealthify will give you a projection of how much you may have at the end of your investment time horizon.

In fact, they even give you an idea of how much you would have if markets performed poorly or similarly if markets performed well.

Investing with Wealthify

For example, based on investing £10,000 initially, and then £250 per month over 20 years in an ethical confident plan, I am projected to have £101,374.

However, if markets perform well this amount increases to £139,022. But if markets perform badly I’m projected to have £74,950.

The last amount is obviously a lot less than the other two, but it would still be higher than the actual amount I invested due to compound interest.

Investing £10K and then £250 per month over 20 years would only give you £70,000 without any compound interest applied.

You can see below:

What do Wealthify do with our money?

Once you click continue you are taken to your Wealthify plan summary. At this point you are shown how your money will be invested.

For example, my plan will be invested in 48.17% shares (stocks), 33.59% in government bonds, 11.04% in corporate bonds, 5.2% in cash and 2% in alternatives. You can see this below:

My investments will also be spread across geographies 7.7% in Asia ex Japan, 7.7% in Emerging Markets, 7.54% in Europe, 25.21% in Global, 8% in Japan, 29.09% in the UK and 14.76% in the US. You can see this below:

It’s worth going back and tinkering with your plan to see how things change. For example, if I change my risk setting from confident to adventurous my percentage of shares jumps up to 87.87%.

Wealthify fees

Wealthify provide a tiered fee structure. The annual fees range from 0.4 to 0.7% depending on how much you invest:

• £1 to £15K – 0.70%
• £15K to £50K – 0.60%
• £50K to £100K – 0.50%
• £100K and above – 0.40%

On top of those, you also need to pay fund providers fees and transactions costs. When you are putting your plan together you will be given a complete fee estimation for the first couple of years of your investment.

For example, based on investing £10,000 initially, and then £250 per month over 20 years in an ethical confident plan my total fees come to 1.29% annually which equates to £148.84 in year 1 and £184.48 in year 2.

Wealthify present the fees as shown below:

Wealthify Alternatives

As reasonable as those fees are, there are other robo-advisors out there that come with cheaper fees. And in fact, some investors won’t be prepared to pay for a robo-advisor at all. Choosing instead to take a DIY approach.

At the end of the day, platforms like eToro offer commission free trades and no platform fees these days.

DIY investors can skip just about all fees except ongoing charges on the funds themselves i.e. the element Wealthify charges 0.55% for.

There are a wealth of index and exchange traded funds for investors to chose from. For sure most investors will be able to put together a globally diversified portfolio of stocks and bonds for less than 0.30%.

Who should invest with a platform like Wealthify?

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 you think you fit into one of these groups then Wealthify might just be the right option for you.

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 platform like Wealthify, 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 it goes down it takes a lot of discipline to keep your emotions in check.

With robo-advisors like Wealthify 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.