Robo-advice market starting to heat up

Up until now the UK robo-advice market has not taken off, but this could be set to change as more firms gear up to enter the market. Robo advice is seen as one of the most important ways for private investors to get access to low-cost wealth management.

Scalable Capital, which started operating in Germany last year, is the latest new entrant. The launch, planned for later this month, comes shortly after another robo-adviser, Wealthify, opened its doors to the public.

Other new robo advisers are set to launch later this year, including Evestor, co-founded by Duncan Cameron, the entrepreneur who co-founded Moneysupermarket.com.

Scalable Capital will offer ETF-based investment portfolios that meet a range of risk profiles, with the aim of providing investors with the best risk-adjusted return. The overall cost is 1 per cent, and of this figure 0.75 per cent is taken as a management fee by Scalable Capital. A minimum investment of £10,000 is required.

Scalable Capital's management fee works out at £375, based on a £50,000 investment. According to Boring Money rival robo-advisers charge the following: Moneyfarm (£240), Nutmeg (£375) and Wealth Horizon (£465).

The financial website Boring Money adds by way of cost comparison that DIY investing via more traditional fund platforms such as Barclays Stockbrokers, Fidelity or Hargreaves Lansdown would cost between £550 and £600 (including platform fees and fund charges) for a basket of actively managed funds.

Robo advice, which involves investors carrying out online risk assessment tests and then being placed into a portfolio that is designed and managed by algorithms, is very popular in America. According to Boring Money, robo-advice firms have a market share of $75 billion America.

In the UK the robo-advice market is much smaller, accounting for around £140 million of customers' assets. But this has not deterred an influx of new entrants over the past couple of years, including Moneyfarm and Wealth Horizon, who are all hoping to take on the market leader, Nutmeg.

Meanwhile, LV=, the insurer, has a tool called Retirement Wizard, which offers consumers a fully regulated retirement advice report for just £199. For an additional fee of £499, LV= will make the arrangements to set up a retirement plan.

Wealth managers can buy the tool, with Berkeley Burke the latest firm to do so.

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