A new variation on a theme, several pension providers now provide what is known as a guided investment path. These are following a trend started in the USA and are known as guided architecture platforms in the pensions industry or ‘robo advisers’ to every one else . Essentially, these platforms automate the basic investment requirements of planning (customised solutions tailored to client needs), execution (asset allocation, portfolio construction), and feedback (monitoring, portfolio evaluation). Their USP lies in the application of technology to deliver the execution part of the equation – algorithms determine the optimum risk profiling and asset allocation, and do so, in many cases, using low cost exchange traded funds (ETFs).
In simple terms, you indicate your level of risk you are prepared to accept and the experts (or their algorithms) bundle your funds up with other investors and then invest in a range of low cost portfolios that should match your desired risk level. You still get access to see how they are doing but the day to day investment picking is done for you by their experts and technology.
Robo advisers are increasingly common in the USA and it can surely only be a matter of time before they start to proliferate over here.
- A useful Financial Times article on ‘The Rise of the robo-adviser‘ looks at some of the benefits, not least of which is the reduced cost to investors of using a robo-adviser.
- To see how the market might evolve over here and how sophisticated it might become, you may be interested in looking at two of the leading Robo Advisers in the USA, Betterment and Wealthfront. This BBC.co.uk article How ‘robo-investing’ is managing money for the masses also discusses the rise of robo advisers in the USA.
- These two articles from Professional Adviser on why the emergence of robo-advisers here in the UK is unstoppable and the nature of robo-advisers in the US provides a good insight on the industry views of robo-advisers.
- Adam over at Moneybulldog.co.uk looks at the three companies offering robo-adviser services here in the UK – Wealth Horizon, InvestYourWay and Zen Assets.
Some Hybrid Platforms to Consider
Stopping just short of full automation, there are a number of innovative new platforms that might best be described as hybrid platforms. Some are born out of the UK’s emerging technology start-up world, where entrpreneurs see the opportunity to shake up an industry model that is increasingly seen as slow and unresponsive to the modern vision for pensions. Others are attempts by some of the established players to haul themselves into the 21st Century. One thing is certain – as the Government continues to innovate in the field of pensions we can expect to see many more hybrid models come to the market – we will do our best to review new entrants as and when they emerge.
Nutmeg is a new breed of investment platform that sits neatly between the traditional pension provider and execution only fund platforms. It is probably the first of many similar robo-advisers we will see evolving here in the UK.
It is innovative in a number of ways – Nutmeg is a platform where you set up a fund – there is no real limit to the number of funds but the initial investment per fund must be at least £1000. You set the level of risk that you are prepared to accept for each fund on a 10 point scale, your investment timescale and that’s it. You pay in your money and leave Nutmeg to it. It seems simple – and reports would suggest that it is.
Maria, a fellow finance blogger at the Money Principle has tried out the Nutmeg platform with her own money and has written a very comprehensive report on it. You can see her initial review of the Nutmeg platform on her Money Principle blog and her subsequent review having invested some money in the platform and analysed the results. Definitely a platform to consider when assessing your options.
Retiready by Aegon
Aegon has its roots in the adviser led sector and Retiready is their first foray into the direct to consumer sector. It’s a simple to use service designed to help consumers consider their retirement plans and better prepare for it. Users can access the website via any online device, establish their retirement readiness score and actively plan for their future.
You start by entering some basic information about your circumstances to get a Retiready score out of 100 which is supposed to determine your readiness for retirement. You then have the option of playing with the criteria to look at different outcomes for your annual retirement forecast payment. The whole interface is rather similar to those car insurance comparison sites where everything is in big writing and you can choose options that will change your premium. If you then decide to go ahead and buy a pension through Aegon you have to register first. As Aegon are also trying to move their group pension clients over to Retiready, the sign up also has to take account of their sign up requirements so can seem slightly complicated. Once registered however you are presented with just five funds, available as either a pension or an ISA.
Once you sign up and start investing an intuitive ‘coach’ apparently helps you stay on track by informing you of your fund performance and suggested ‘next best actions’. We didn’t try this out as we have not invested with Retiready
In summary, the Retiready interface is attractive and easy to navigate, although the site felt rather simplistic and is probably best for those who just want to set up their pension and forget about it. I couldn’t see any examples of the fund performance reports that are presumably sent out or how frequently these are distributed, so Retiready is probaly not suited to those who wnat to keep a regular eye on their investments.