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A Little Overview on Robo-Advisor fees

The Dividend Experiment

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On the man vs Machine project I am comparing the progress of a bunch of roboadvisor portfolios with the almost daily dividends portfolio to see how they compare with each other.

It's also important to see how they compare in terms of fees so I made this post (video will be out later) to give an overview


Trading212​


So first up is trading212, they originally didn’t have any kinds of fees but have slowly been introducing various fees.

They currently have a card processing fee but that only kicks in after you have deposited £2000 in total. From their own words:

Funding via Credit/Debit Cards, Google Pay, Apple Pay, Skrill, iDeal, DotPay GiroPay and Sofort, will remain fee-free until you have deposited £2,000 in total. A fee of 0.7% will apply thereafter. Please note we do not profit from this fee. Its purpose is to cover the costs levied by payment providers and card companies.

I already had the money in the account, it's only a one-off fee rather than an ongoing fee and the portfolio totals are under £2000 anyway so this won’t have an effect on the man vs machine challenge but is something you should bear in mind if you are looking to get a trading212 account.

One fee that will affect us on these Trading212 portfolios is the fairly recent foreign currency exchange fee.

This fee isn’t huge at 0.15% and is lower than closest rival Freetrade however it will still eat into our portfolio as many of the companies in the portfolio are US listed companies and so are in US dollar currency which involves currency conversion on buys and sells. Importantly though, trading212 have said that this does not apply to dividend payment and the currency conversion for that so that is very good news for us investors in the almost daily dividend portfolio.

This means the most relevant fee for us on Trading 212 is the currency conversion fee. We have paid that already when we started the portfolio and will pay if we need to rebalance at any point.



Ok next is nutmeg let’s see what fees we are paying for their services.


Nutmeg​



They have a breakdown of their fees per portfolio type and it allows you to input how much you are investing. I have got £100 in my nutmeg portfolio so I inputted that at the top and it came back with this rough estimate.

We have chosen the smart alpha portfolio for Nutmeg just because I thought it was an interesting variation, also it actually has lower fees than their standard product. It seems like socially responsible have the highest fees here so this time it doesn’t pay to be a good person.

It looks like we are faced with an annual estimated fee of 0.97% for the nutmeg portfolio which is still under 1% so that’s acceptable as far as mutual funds or managed to invest goes really.

Nutmeg.jpg

This is broken down with a 0.75% fee that just goes to Nutmeg itself. The £0.14 pence a year goes to the fund managers that nutmeg invests with and the 8p is the spread between buying and selling on the exchange.

Let’s see if it's competitive with the other Robo-advisors we have in the project so far:


Wealthify

Wealthify, we have opted for something different with the ethical plan so like the Nutmeg Socially responsible portfolio - this kind of do-good funds come with higher price tags. If you are cynical you might say that that is because these fund managers are trying to take advantage of honest people trying to do good in the world but it's more likely that organising a fund in this manner will take more resources and more work goes into it leading to higher costs.

Wealthify has a similar calculator where you can work out the fees of either of their two portfolio types. I opted for the ethical plan just for variety compared to last year and that comes with a fee of 1.31% per year. Wealthify takes a 0.6% cut here but invests in much more expensive funds on your behalf than nutmeg or so it appears, making the overall deal less competitive. They estimate average investment costs (which includes fund manager fees and spread whereas nutmeg differentiated between these two) will come to 0.71%.


Wealthify.jpg


Interestingly if you were to put the same amount of money, £100, in the standard original plan then fees would much more competitive at only 0.76% for the year so it’s a case of how much you value ethical investing as over the long term these fees can add up.

Also, this is a direct % rate so it doesn’t actually matter if you put £100 or £10,000 you are still paying the same % fee on your holdings. Nutmeg does it slightly differently when you reach certain levels of assets under management but the thresholds are so high it is irrelevant for our little man vs machine project.

Ok let's move onto the last of the current so-called competitors (and it's important to remember that they aren’t strictly competing because as we can see there is a big difference between ethical investing costs and the standard fees so results have to be taken into account there)

And we can see what InvestEngine offers in terms of fees


InvestEngine​



The first thing to note is that unlike Trading212 their DIY account offers completely zero costs. This means that there is currently no fee comparable to trading212’s foreign exchange fee. For that reason, I am thinking of also making future ETF based Pies on InvestEngine just as it seems like a great option with lower costs.

InvestEngine.jpg

For managed portfolios, the fees that InvestEngine takes are very competitive at only 0.25% that’s just 1/3rd of what nutmeg charges and less than half of what wealthify charges which are pretty great value really.

That’s just the fee they charge though so to be fair we need to include the average costs of the ETFs they invest in as with the other providers. We went for income portfolio as I thought it was cool that they offer an income-based portfolio and I haven’t seen that elsewhere. This is slightly more expensive than the growth-based portfolio but still incredibly reasonably priced at 0.57%.


investengine total.jpg

Ultimately I am pretty glad InvestEngine reached out to me to ask if I wanted to be an affiliate as I hadn’t heard of them before and wouldn’t have included them but they are looking like great value as a Robo-advisor platform compared to the bigger names and they also gave me £50 for free to add to my holdings. I will put my link in the description and pinned comment so that’s a market-leading fee structure and market-leading reward for signing up too.

This is true at the time of making the video at least, if you are watching this for many years in the future all of this could be changed but hopefully, I will have made an updated version by then anyway.

So just to recap here is the TL;DR

  • Trading212 is the absolute cheapest portfolio as long as you don’t keep rebalancing all the time and that is because I did all the hard work for that upfront already and unlike a fund manager I can’t charge you a monthly fee for using that portfolio.
  • InvestEngine is the second cheapest with our portfolio costing an estimated 0.57%, good value for a managed portfolio aiming to give you a 4% yielding income portfolio. They will also give you £50 to your account straight after you sign up and the link to them is in the description.
  • Nutmeg’s Smart alpha portfolio has estimated fees of 0.97 which is decent but not great so we are hoping that they can use JP Morgan’s algorithms to generate some great growth. They will give you a few months with no fee payments if you sign up with my link. If you are interested then you are welcome to message me directly for an invitation
  • Finally, the ethical investment from Wealthify is for those with more expensive tastes as it is the least competitive rate at 1.31%. They will also give you £25 if you keep a £500 so that’s a pretty nice bonus but it's only half of what InvestEngine is offering and stricter conditions.


Sign up to InvestEngine

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Smart Finance

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I am quiet interested to see how the ethical fund performs. I know with my work place pension that the Sharia fund has performed the best by a fair margin so be very interesting to see. I've tried out the InvestEngine and its surprisingly good! Always sceptical about opening new accounts to give things a try and honestly its really good.