Are RoboAdvisors Hot or Not?

I get questions and comments all the time about roboadvisors like SixPark and StockSpot (Australia) and Betterment and Wealthfront (USA). It doesn't really matter WHICH roboadvisor... the point is most of them are very similar. This episode lifts the veil on how they work, what they do, what it's really costing you.

Unfortunately there is a huge misunderstanding from most people that they are some sort of special Nobel prize winning fund managers putting together something new. All they're doing is investing in about 4 ETFs and calling it a fund. Yes, it's a fund of funds. It's basically a middleman between the fund and you... with a hefty fee on top. To be clear: you are paying fees for them to buy a few ETFs, when you could just invest in those ETFs yourself. 

Or better yet, invest in the already done-for-you funds that have been around WAY longer than these middlemen and at a much cheaper price... oh and you'll also end up with better returns too. I talk through these options in this episode.

xo
Simone

P.S. Have you watched the free investing webinar yet? Head here to get access: https://go.mswealthy.com/investingbootcamp

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 You're here because you want more out of life, more money, pleasure, flow, freedom, luxury. Here we are all about an unwavering self worth and a net worth. You love to talk about. My name is Simone Mercer-Huggins. I'm your resident unapologetic wealth queen. So far I've built seven figures from the ground up. And this community is now doing the same. The Ms. The movement is here to help you be more of the bad-ass queen. You were born to be so tune in for everything, investing money, energetics, millionaire, mindsets, and everything in between. If you want to be a powerful player in the money game, you are in the right place. So welcome to the kiss, my money podcast. Ooh boy. Do I have a bone to pick today? You guys are getting the inside scoop. So let's get started. I'm going to dive straight into this. This is the episode that is going to pull back the curtain on what robo advisors want you to think. And here's the low down

There. Okay. But then not great.

And that is a controversial opinion because they gaining a lot of popularity. There's a lot of kind of quote unquote pros to doing it. And I don't mean like professionals. I mean, like positive things to doing it, but I want you to know, because if you're here and you're listening, then that means that you actually want to get the inside knowledge. You actually want to have the information to make a correct decision for you. And unfortunately, and I really don't like that. I have to say this, but it's absolutely true. Unfortunately, most robot advisors, aren't completely transparent about what their benefits are, what they actually do, or what you actually get. And I have done a deep dive on a bunch of them to give you some insight. And for some of you, it's going to be massively shocking. And I have done so much research on this because I wanted to be a hundred percent sure in my conviction, essentially on my position about whether I think robo advisors are hot or not, and I'm just going to cut straight to the chase.

You know, I'm usually pretty upfront. The answer for me is not. And I'm going to tell you why. So whether you are looking at Wealthfront or betterment in the U S or something like six park or stock spot in Australia, it really doesn't matter. I've looked at these four intensely and I've looked at a bunch of others. You can set up pretty much any other rubber advisor name or company. And, you know, even if you're in the UK and you have a different robo-advisor there, then you can insert that company name. The methodology is the same. What I'm going to show you and talk you through and explain to you is exactly the same. So I get so many DMS about what do you think about this company? What about this robo-advisor? And they're all pretty much every time I look at the new one, that's the new kid on the block.

It's pretty much just like an identical, um, brother or sister or cousin to, you know, the current ones out there. So I've looked at these four companies and I'm going to talk to that exactly like the, the inside info on all of them. And it really, again, is kind of irrelevant about where you are in the world, but I'll talk to specifics about Australia and us, but you're going to hear that the, basically the same, um, because you know, global investing is, it works regardless of where you are. The same methodology is, should I invest in stocks and how much should I put in? And, um, what's my risk profile and what's my risk tolerance. And what's my goals. That's pretty much it. So first start, what is a robot advisor? If you haven't yet artist, or if you're new to the field, then you might have started to pick up that people are cluing on about financial advises being extremely high in fees and therefore detrimental to your app, actual back pocket and how most financial advisors don't actually beat the market, or they use fund managers that can't beat the market. So you get less returns. And most of them are just giving like pretty much stock standard, same advice, like invest in the stock market and put 80% in stocks and 20% in bonds. And that's pretty much it like does doesn't it not really

A whole lot of

Difference. Yeah. What it comes down to the only difference for most people that it does come down to is the difference in tax decisions. And for that, you do not need a financial advisor. You need a really good tax accountant, that's it. And I highly encourage everyone to get their own really great tax accountant. If you don't have one, then send me a DM. If you're in investing boot camp, then you know, the people I recommend. And, and I also recommend you to not worry about knowing the ins and outs yourself of tax law, because it changes constantly. And there are massive, massive, massive books on it that are always evolving. So there's no way unless you're at an actual tax accountant for you to be up to date and know everything about it. So the real, only difference is things like tax, which affect decisions should I max out my retirement account, which is by the way, next week's episode, um, other questions like, should I have a trust account?

Should I have a custodial account? Uh, should I have my own personal brokerage account? What about investing for my kids? All of those things around tax, after tax accountant, then not for a financial advisor or planner. And the reason I say that is financial advisor plan. And we'll just say, Hey, this is what you invest in based in universe tolerance and goals, which is a very, very simple formula. Uh, and outside of that, everything is tax-related, but I would never go to someone like a financial advisor or planner for tax questions, because I'm not there for that. The person who knows the most about tax is a tax accountant. Get it. So putting that aside, a robo advisor that they've come on as the new kid on the block, as a cross between just a standard low cost brokerage account, where you can just buy stocks and it doesn't actually have a person that you can talk to and a financial advisor.

So it could across between the two, what isn't really clear, I guess most people don't really understand is that robo advice literally just means you fill out a 10 question survey when you set up your account and they go, here's what we think you should invest in. That's it guys, that's literally it. And yes, some of these services do have an optional, uh, person that you can speak to. But so do a lot of the fund providers and I'll explain what that is in a minute. Okay. So that's what a robo-advisor is. That's basically, it's just like automated advice. They've put a bunch of things into a computer system and spat out. If this person are answers these 10 questions, then they get this allocation. And there's basically only kind of five allocations of funds that you can invest in. Really. And this is irrelevant, whether you're with betterment wealth, front six park or stock spot, or any of the others, basically just insert robo-advisor company name with any of the other names I've just mentioned.

And it kind of varies from conservative to high growth. And then in the middle is moderate. So there are three funds. And then in between is like in between moderate and high growth is growth. And in between, you know, conservative and moderate is conservative to moderate some of the robo-advisor companies. Um, I just really great at marketing and kudos to them because people are getting interested and people think that they know what they're talking about. And these websites say things. We use this Nobel prize, winning methodology. Guess what the Nobel prize winning methodology is not theirs. It's not something they came up with something they developed. It's not something that the quote unquote team of professionals advisors came up with. It is literally what I've just explained with your risk tolerance. And with your goals, you match up to get your asset allocation, which is conservative, moderate, or high growth, or, you know, the two in between.

And that's it. So if you're like a 60 year old, that doesn't mean that you're a conservative investor. I've mentioned before that we have a couple of people in their late fifties or even early sixties in investing boot camp. And they have a high growth risk tolerance because they have no intention of retiring. Anytime soon, they love their job. They want to see high growth. They're happy to continue to dollar cost average. So it's not just based on your age, but some of these robo-advisors do, uh, heavily weight age rather than goals or literally personal preference. So your personal preference and like feeling about how you feel about risk and the stock market movement and volatility and how much it moves. It goes up and down, does play into your risk tolerance. Other things are like goals. Do you want to buy a house in the next five years?

Um, are you investing with no intention to touch it for the next 30 years? So that plays into it. But again, it's really pretty simple. We just look at those couple of factors and we go, okay, this is, this is the ads, a few knowing too, that as you evolve, grow up, your lifestyle changes things in your life changes, then your risk tolerance and therefore asset allocation is going to change too. So you might have a kid and you might decide that you want to be more conservative, or you might decide that actually you want to go all for it and like really increase your, um, performance and return and therefore invest in a high growth fund. And that might be different to how you invested before, like in a conservative way. So this is also going to change depending on, you know, your life.

And you get to change your mind. You get to invest differently as you evolve and as you continue to grow up and as you earn more, as you earn less, um, so it's totally normal for that to change to an asset allocation basically just means how much are we allocating to different assets, like a percentage to stocks and a percentage to bonds. That's, that's it, it's no more complicated than that. So something like a high growth fund would have like 90, sometimes a hundred percent. Like I would call it a hundred percent stocks aggressive, but a high growth fund probably have like, you know, some of them. And it varies depending on the fund provider, it be like 80 to 90% stocks and the rest are like bonds. And in that stocks are like local international emerging markets. Local means if you're in the U S local stocks for you, U us stocks, if you're in Australia, local stocks to you are Australian stocks and an asset allocation for conservative is something like, you know, it can easily be like 30 to 40% stocks and the rest in bonds, again, it's like a, there's a range in different funds, kind of look at it differently, but usually it's in that range.

And then moderate tends to be about 50 50. So that's kind of the background info of how funds are made up, but these robo-advisors make it sound really like cool and interesting, and like, oh, it's called diamond. And this one's called Topaz. And this one's called Emerald. Like I said, they're just really good at marketing. And Hey, if this is the thing that gets you into investing and crosses the bridge and gets you started then great, like honestly clapping my hands, patting on the back. Amazing. If the marketing is what crosses you over the line, I'm, I'm, I'm happy. I want you to keep listening though, because I'm going to give you the low down of what you're actually charged for and why it matters because you actually end up with less in your back pocket. So there's three components. I want you to think about here.

One is phase two is what they're actually investing in so that you understand it. And then three is performance. Now all of these things, three things are going to determine how much you end up with when it comes to the middle thing. What they're investing in. They're literally investing in ETFs. They don't have their own funds. So robo-advisors like Wealthfront, betterment, res acorns, stock spot six park. They do not have their own funds. All they're doing is investing in a few ETFs, packaging it up and calling it something attractive. So that the marketing sounds really great. I'm so sorry that it's not more special than that, but that's literally it. You go on the website or any of these companies, and they'll say things like expert guidance, smart technology, better performance, lower costs. And I'm here to tell you, please cover the is of your kids. If they're around, it's all total.

Ah, the expert

Guidance is they've chosen a couple of ETFs. The smart technology is, uh, I actually don't know what that is. I'm not sure what they're doing. That, that, that they're just balancing the mix up of the ETFs. I've chosen. The better performance is complete crap, which I'm going to run through in a minute and lower costs. Also total too, because they're more expensive than the funds that they invest in what they're comparing themselves to. I'm guessing that don't really explain it is lower cost compared to an individual financial advisor, which in that case, yes, but in their case, most of them are providing like literally automated fill out this 10 question survey. And here's the result. Not actually, you can speak to a person about your investment decisions and that might be true for something that you want, but it's still going to be literally here is the formula.

This is what we would suggest. So when it comes to actually making that decision, it's still all comes from you. It might not feel or sound like it comes from you, but at 100% does. Because whenever anyone asks me the question or any, any good expert, is that the question of what should I invest in? It should always be, here are five questions to ask you, what are your goals? What are your risk tolerance? What does it look like? How much money do you have? What's your debt? What's your situation? How much money do you want to keep investing? What's your target? Like, they'll always be like all these questions, which is normal and standard, but it still all comes from you. That's all information that exists with you. So it's pretty easy to get that end result, right? So when it comes to what they actually invest in, they're just investing in an ETF or an index fund and that she was a couple of them.

So you know how I spoke about asset allocation of stocks and bonds. That's literally what they're doing. They show you on their website. They take you through exactly what they invest in, in every single made up name of fund that don't have their own fund. They just invest in other funds and they package it. There are middlemen, they're a glorified middleman, that's it? So on their website that will show you, we invest in this Vanguard fund. We also invest in this other Vanguard fund. And then we invest in this Vanguard fund. Sometimes they mix it up and go where you invest in shares, ETF, and again, a fund or a state street fund or a Goldman Sachs fund. They're all very, very similar. They all kind of do the, basically the same thing here is the difference. And here's what I want you to get and fully understand.

They break down these whatever, three to five different allocations from conservative to high-growth right, as I explained, and then all they're doing is just, we invest more into this Vanguard share fund and less into this. I shares or state street bond fund. That's it or more if you're a high growth into the share fund and less into the bond fund, that's it it's a combination. So they just choose low cost ETFs that choose about four or five of them. And they go, this is what we're calling it. That's it. I know, I know I keep repeating myself, but I really want you guys to get there. Yes.

And what they,

Uh, basically doing is the exact same thing that already exists from the actual fund provider. I'm speaking really slowly because it can be difficult to understand what that means. When I say the fund provider, I'm talking about those same funds that they invest in, like Vanguard, I shares state street fidelity, Goldman, Sachs, whatever. So for example, most of them, I really looked at all of them and what they invest in, in each of their funds. And they just choose a bunch of different ETFs. They're all the same, literally betterment wealth front. Yeah, six bucks, all like they're all very similar. They just choose a bunch of different funds. A lot of them are from Vanguard, but Vanguard provide their own already allocated fund mix. That's done for you already. So why is my, my question is to you, why would anyone use a middleman when you can just go direct?

You can just go straight to Vanguard and get a high growth fund, or you can go straight to manga and get a balanced fund where you can go straight to Vanguard and get a conservative fund. You pay less fees. And from everything that I've seen, I haven't seen anyone yet, nor robo-advisor yet has outperformed Vanguards equivalent fund because what these robo-advisors are doing, they're just, they're like taking, you know, the purely shares ETF from Vanguard, for example, and then the purely bond ETF, for example, and then calling it themselves rather than just going well, you can just invest directly in Vanguard fun. That's already done for you and Vanguard, from what I, from the research I have done. And obviously it's a caveat because I haven't looked at every single and every single one of that individual fund that they have decided to make up.

Um, but from what I've seen, no one has actually beaten Vanguards returns and you're paying for that privilege. Meaning you are paying sometimes 0.2 to 0.3 to 0.4% for these robo advisors. And you're getting not as good performance and you're paying fees. So this is where I start to go. Why, why is this happening? And the only conclusion I've come down to is, well, they're just really good at marketing. Vanguard is not, they are not great at marketing and I am not an affiliate for Vanguard. I don't get a commission. I literally, there's no value to me who you go to does literally it doesn't change my life. It has no impact on me whatsoever.

Only has an impact on you and Hey, how much money you keep and how much money. Um, so let's run through a couple of the examples. I'm going to look at stocks bought. They have things, get this. They call them really pretty names, which kudos to them. Great marketing amethyst, Sapphire, turquoise, Emerald Topaz. So Topaz has an investment mix of about 78% growth and 22% assets, you know, um, sorry, defensive assets, which is just bonds. Basically. You know how I said, the asset allocation can be about 80 20, sometimes this is exactly it. Uh, so it says, we invest in, it literally tells you on the website, we invest in this ETF. Then some I shares bonds and I shares emerging markets. I shares global ETF and Vanguard Australian shares fund. That's it, it tells you which ones. So you could just go and invest in these five yourself, or you can pay stock spot the fee that they charge, and they just do it for you.

Or you could invest with Vanguard in a fund that already has that same equivalent asset allocation. Now looking at another company, betterment, they're a little bit different in how they decide to name them. They, they named them based on what you want to name it. So you can call it dream retirement, kitchen, renovation, whatever. And they even say on their own website built on Nobel prize, winning research. It's again, it's not their research. It's, it's just, this is how we asset allocate based on what you want, um, with a diversified pole, a diversified portfolio designed to help you earn more and achieve your goals. Exactly the, as a diversified portfolio with Vanguard, that's already done for you with less phase and higher returns. So I'm going to look at the returns. Now, if we look at, for example, the growth fund with Vanguard, and we look at the 10 year return, it's at 9.3, which is kind of on par you like, we tend to expect, um, you know, over the last 40 to 50, or kind of really since inception of the stock market, what you can expect from the stock market in terms of returns is between nine and 11% year on year.

Now that'll depend on exactly when, and it doesn't mean that you get nine to 11% every single year, some years you'll get 20%. Some years you'll get minus five. Sometimes, you know, you'll get 10%. Like it obviously fluctuates because the market fluctuates, but for the last 10 years, annualized, meaning on average, you've received 9.3, uh, with Vanguards, what they call that life strategy growth fund. This is in the U S so they're called slightly different depending on where you are, same methodology, regardless of what country though. So the live strategy growth fund is, has a fee of 0.1, four. And I, if you can just stay with me here and during the, have your eyes glaze over when I talk about fees and it may not seem like a lot, uh, zero point something percent in fee, but it adds up. So if you understand the basics of compound interest and how, you know, a 10% return year on year can make you millions of dollars by you only contributing a few hundred dollars, you know, a week to a month, depending on how long you're invested in, then it's the same principle when it comes to fees, just a point percent in fee can mean tens of thousands of dollars.

If not hundreds of thousands of dollars that you end up paying. The reason why so many people end up paying a crap ton of fees is because you don't actually physically pay them. They just come off your returns. So if you earn 10% and the fees are 0.5%, it means that you get 9.5. Again, it seems like it's not that big of a deal, but it adds up to tens of thousands, if not hundreds of thousands of dollars. And you can just type this into a compound interest calculator. I run through this in a little bit more detail in my free investment class, uh, which she can get access to for you. Just go to Ms. boldy.com. It has the link there. So you can get an understanding of the impact of this, what it means over a period of time. Okay? So with Vanguard's growth finance 0.1, but the difference with when you're paying a, when you're investing with something like betterment, is that you're actually paying additional fees with them so they can be wherever I got.

I've got them here, depending on how much money you have, uh, how, like how much you're investing with it'll, they'll charge you between 0.2, five and 0.4%. But the wealth fund it's around about 0.2, five, but here is what you would need to understand. You're paying that fee. And then you're also paying the fees of the, the ETFs, the funds that they invest in for you. So it's not like you get away, like you avoid paying those fees. They pass those fees on. Trust me. So you're paying the standard, whatever 0.1, 4% in fees. Plus the 0.2, five to 0.4%. Now why this matters is because you're paying double to three times the amount in fees and the performance is worse than Vanguard. So what are you paying for exactly. Basically how they're positioning. It is. Well, you get to speak to someone if you want to, but you can still do that with a fund like Vanguard.

And this is where it gets really confusing. Why would you pay two to three times the fees ongoing like this? Isn't like, it's not like you just pay it one time. It's you paying it consistently year on, year on, year, on year on year, but you're not speaking to someone every day or every week, probably even every year. And why would you, you don't need to, you don't need to change your investment strategy every month, every six months, every year, you probably need to change your investment strategy only if, and when you feel like your life changes and therefore it needs to change, but you can have lifestyle changes that don't need to change your investment strategy, or you just decide that your risk tolerance is different and you want to change it. At which point you can just decide reassess your goals and your risk tolerance, and then shift it slightly.

And that's it. So I'm not saying don't speak to someone. I'm not saying don't get the knowledge. I'm not saying don't get advice. If that's something that you want, but if you haven't guessed already, if you've been hanging around here for a while, my whole point is that I want people to get the knowledge themselves. They can make this decisions themselves, because then you're empowered. I don't want you to have the power sitting in someone else, sitting with someone else, because how can you be fully a hundred percent confident if you don't understand it yourself, how you be a hundred percent I'm. So in this, I know exactly what's happening. I know. And I'm confident about where my money is invested, why it's invested that way. If you don't have the knowledge yourself, if you don't know exactly why it's done that way, because that person that tells you is reading off a script, that's been developed based on a bunch of questions that everyone else uses in the industry.

So I've explained a little bit around assets and risk tolerance and that location, and yes, it's just the tip of the iceberg. And yes, there's a lot more to know. And if this has been overwhelming, then that's okay. You're setting somewhere. If this is still new and you still like, what did you even say? That's still okay. It's all right. You're still starting somewhere. It doesn't mean you suck up money. I just want you to have all the information. And if you decide to pay two to three times more than you actually need to so that you can speak to someone every couple of years, then do that. I would still want you to have the knowledge yourself. And at least if you're going to do that, then I want you to go into that decision with eyes wide open, knowing that you're paying tens to hundreds of thousands of dollars.

And guys, I'm not exaggerating. When I say this, I am not exaggerating. Like I said, watch the free investing class. If you want to get a more of a visual breakdown on an understanding of what I mean by this, but let's look at the performance. So if we look at Betterment's performance over the last 10 years, their compound annual return was 9.15. So that was with the robo advisor, 90 portfolio, they call it, which is exposed to 90% of the stock market. Uh, the equivalent return with the Vanguard fund of the, the growth that life strategy growth. Uh, if I look on their website

Is

9.3. So it's, Baten, Betterment's 9.15, and you have significantly less phase. And it's pretty much except you're investing in very much the same thing. And you can look at all of this on each of their websites. Um, betterment, isn't very clear. Wellfront gives you a little bit more information, stocks, pot, and six park, a pretty like transparent. I think, you know, the rules and regulations at different, depending on the country, once you log into an account like betterment den, it tells you some of the phase, but if you do some digging and confined it out. So basically this, this is across the board. This is pretty much exactly saying when I look at almost every single company in comparison, very few beat it. So when I look at, uh, for example, portfolio performance of six park, over three years, the aggressive growth is about 9% and the benchmark, which is the, if I compare it to the high growth, which you would say, is it on par in terms of their asset allocation over the last three years, it's been 11%.

So what that means is Vanguard has beat six park by 2%, 2%. And if you think that's not a big deal, holy boy, trust me. It is 2% is giant in terms of performance difference. Like that is huge. We're talking a lot of money and you add this year on year on year, oh boy. And you're paying more fees to six park for the benefit of what exactly. So six six-pack on, not as creative with their marketing names, they just call it conservative, conservative, balanced, balanced, balanced, growth, or aggressive growth, which is pretty much what Vanguard calls them, uh, as well. And if you look at their fees, it's 0.5%, half a percent is freaking huge guys. Huge just to invest in a few ETFs. Thank God do for you already. And that's 0.5, just to six-pack, that's not all of the fees. You pay 0.5 PLAs, the ETS that they invest in.

So that can be 0.1 0.2 0.3% extra. When you could just invest in a Vanguard point fund for 0.29, and that's it. And you're done and you get 2% better returns. Like, I mean, I know what I'd be choosing, right? So I know that there's a lot to consider. I know that I've covered a lot. I know that I've thrown a lot of facts and figures and information, and this can be really hard to take in, particularly without the visual of it. So if you've stuck with me and stuck through this, like well done, because the nitty gritty can have a lot of people being like tapped out, not into it. And this is unfortunately will, all of knowledge is like where you actually get the power of, oh. Now I'm making smarter financial decisions. So if anything, I just want you to be going in to whatever decision you're making, being really clear about all of the information.

Because like I said, at the beginning, a lot of these companies don't actually tell you the full picture. Like they'll say that their fears, you know, point, but they won't actually tell you that, oh, also we charge you the base for the funds that we invest in. So I want to know what your thoughts are on this. Send me a DM on Instagram. If this has been eye opening, I just want you to be more empowered around you, stepping into the next decision that you're making for you. And again, zero shade. If you want to use one of these companies, just do it with the full knowledge that these fees are costing a lot. It is costing you a lot. And if, if you know, tens of thousands to hundreds of thousands of dollars is worth it to you, then you're the only person that can make that decision.

It's really up to you because no one is going to care more about your money. Then you do the only person this is really going to impact is you. So I hope this has given you a bit more information and insight about making a clearer, smarter decision for you. If you need more information on anything, there's a bunch more episodes on this podcast. Obviously there's the free investing class has a crap ton of content over on Instagram. Uh, and send me a DM if you're unclear about the next steps. Obviously I also have my full program investing bootcamp that goes into even more detail, obviously for you to be fully empowered, to make your own decisions around how to invest for you. So that regardless of what happens in your life, you know, that you can change it in an instant, and you can be fully confident about what you're doing with your money, because you have total ownership, you know, that you're getting the best performance, you know, that you're getting the lowest fees, you know, that you know exactly where your money is invested and you know, the ins and outs of the industry.

Whew. Okay. That was so much. Thank you for being here. I love you. I'll see you next time. [inaudible] If you are not part of the Ms. Wealthy movement yet, make sure you head over to Instagram and hang out with me. There I am at Ms. Wealthy official, and if you need anything else, Ms. wealthy.com and get all the info that you need. Find us on Facebook as well. I'd also love if you can drop a review on iTunes, it supports us massively, and it means the freaking world!