Table of contents:
- 1 How to proceed
- 1.1 How do Robo-Advisors work?
- 1.2 Service costs extra
- 1.3 How do Robo-Advisors differ?
- 1.4 Robo-Advisors do not protect against losses
- 1.5 For whom are Robo-Advisors suitable?
- 1.6 First choice: Self-made investment
- 1.7 Automated financial investment
- 1.8 Which Robo-Advisors come into question?
- 1.9 Active Robo-Advisors not part of the analysis
- 1.10 Passive Robo-Advisors tend to implement financial tip investment recommendations
- 1.11 Which Robo-Advisors recommends Finanztip?
- 1.12 What should you know about the recommendations?
- 1.13 What else do you need to look out for in Robo-Advisors?
- 1.14 This is how the account opening works
- 1.15 Securities account transfer possible
- 1.16 Flat rate withholding tax is paid automatically
- 1.17 Fund assets are secure
- 1.18 How we have analysed
- The most important facts in brief
- Robo-Advisors take over the long-term investment for you. They often invest in index funds (ETFs).
- The most important service provided by the digital investment assistants: they set up and manage a suitable securities portfolio according to your specifications.
- A good Robo-Advisor costs less than 1 percent of the investment amount per year.
How to proceed
- You know what you want and are comfortable buying and selling securities yourself? Then stick with it. This is and will remain the cheapest way.
- On the other hand, if you are looking for a little support, Robo-Advisors may be the right thing for you. If you want to follow the financial tip principles in the best possible way, we recommend Quirion, VTB Invest and Growney.
- Are you afraid of the technical implementation via Robo-Advisors, but already know how your investment should look like? Then we recommend the predefined portfolios of Weltinvest.
In 2014 the first so-called Robo-Advisors appeared on the Internet. The promise of the young companies: a low-cost investment according to fixed rules, which gets out as much as possible for savers and is available with just a few clicks. At the beginning of 2020, more than 30 Robo-Advisors are romping the German market, serving a total of more than one billion euros of German customers.
How do Robo-Advisors work?
Robo-Advisors comprehensively relieve savers of their financial investments. They ask how much risk a customer is willing to take, a software suggests a suitable investment and the provider then implements this technically for the customer. With “Advisor” an advisor or supervisor is meant. We also call the Robos digital investment helpers.
Determining the risk type – First, savers usually have to fill out a multipart questionnaire and provide information about their assets, for example. They must also indicate how many interim losses they could bear – for example, in the event of a stock market downturn. Ten or more questions could be enough.
Selecting asset classes – From the risk type, the investment assistants derive the asset classes to which they will allocate the client’s money. Asset classes are for example shares, bonds, commodities or real estate. They often use rules derived from capital market theory. Those who are prepared to take a greater risk of loss usually receive a portfolio that consists mainly of equity funds. Those who are prepared to take less risk are given more bonds. This asset class currently earns hardly any interest, but causes the portfolio to fluctuate a little less.
Technical implementation – If the customer agrees to the allocation of his money to the asset classes, the digital investment assistants will technically implement this portfolio: This means that they open a securities account for the customer, select cheap equity funds (ETFs) and buy and sell them. ETFs are funds that simply replicate lists (indices) of stocks and bonds – sometimes also commodity and real estate indices.
Service costs extra
Many Robo-Advisors invest in low-cost ETFs. Their management fee is often in the region of 0.3 percent per year. For the implementation of the investment, i.e. the service, fees are then added on top. The surcharge varies from provider to provider and can range from just under half a percent of the investment amount to more than one percent annually.
How do Robo-Advisors differ?
Once the initial portfolio has been determined, the digital investment assistants differ, among other things, in how they manage the investment for the customers.
Active Robo-Advisors – Some investment helpers take an active approach to asset management, with companies continually reallocating assets between funds based on stock market activity. The aim is often to ensure that losses very probably do not exceed a certain value. This requires simulations – which in turn requires assumptions about the distribution of returns. Some providers can rely on the opinion of in-house analysts.
Passive Robo-Advisors – Other investment helpers follow a passive approach to asset management: the goal is to maintain the initial global asset allocation. In most cases, the providers restructure assets a few times a year to restore the original weighting of the asset classes (rebalancing). For example, 70 percent of global equity ETFs and 30 percent of bond ETFs in order to absorb fluctuations in value. There are no simulations based on assumptions, nor do expert opinions play a role.
Investment helpers without risk rating – these Providers are not Robo-Advisors in the narrower sense, because they refrain from determining the customer’s risk type by means of a catalogue of questions. Rather, they are aimed at experienced savers who are themselves in a good position to judge how much risk they want to take. However, they want to hand over the technical implementation and management of the money. Savers can choose from several ready-made portfolios with different weightings of the equity and bond components. The investment helpers then follow a passive approach.
Robo-Advisors do not protect against losses
Even if the Robo-Advisor takes care of services such as buying and selling the securities for you: The automated investment is not a protection against price losses and other investment risks!
If, for example, the stock market goes down or interest rates rise significantly, the price changes of shares and bonds will also be reflected in your portfolio. Depending on the focus of the investment model, the short-term performance can also deviate significantly from a self-made investment with equity ETFs, call money and fixed-term deposits.
However, the investment assistants are liable for ensuring that the recommended securities are suited to your personal circumstances and your investment goals – always provided that you have answered the questions on these topics correctly and completely.
For whom are Robo-Advisors suitable?
One thing is certain for Finanztip: A good investment does not need many tools. It does not have to cost much either. Therefore we actually recommend that you take care of it yourself. However, if you cannot or do not want to bear the responsibility for the investment yourself, you should take a closer look at the service of a good Robo-Advisor.
First choice: Self-made investment
The basic recommendation of Finanztip is to invest part of the money long-term in inexpensive, broadly based equity index funds (ETFs) and – depending on the risk appetite – another part in fixed-term deposits or overnight money in order to cushion the fluctuations on the stock market to some extent. This self-made investment is unbeatably cheap.
You will need
- a favourable securities account
- a good call deposit or time deposit account and
- the necessary staying power on the stock market.
- Our calculations show: Anyone who has held a portfolio for any 15 years in the past, which initially consisted of 80 percent world stock index and 20 percent overnight money, has never lost money.
Automated financial investment
You can think about a digital investment helper if you would rather hand over some of the responsibility for investing. The Robo-Advisor
supports you in deciding how much risk you want to or can bear when investing money,
makes a concrete proposal on which ETFs to buy and how to combine them to reflect your risk appetite,
implements your investment technically and
helps you to maintain a portfolio once selected for the long term – without any emotions.
For this service of “taking hands” you pay a surcharge in comparison to a self-made investment. It can range from a few tenths of a percentage point to a whole percent per year on top of the investment amount.
Weigh up whether the additional benefit of the Robo-Advisor is worth the extra charge: especially for a portfolio with a low equity component, the Robo-Advisor is considerably more expensive than a home-made portfolio of overnight money and fixed-term deposits. If you have been advised by your bank on your investment so far, a Robo-Advisor should almost always be an improvement in terms of costs.
Which Robo-Advisors come into question?
In April and May 2020 we identified the most important providers in the field of Robo-Advisory and digital asset management on the German market. Among them were more than 15 providers that actively intervene in asset allocation on an ongoing basis and ten that retain a portfolio once it has been determined (passive approach).
Active Robo-Advisors not part of the analysis
The actively acting Robo-Advisors does not evaluate Finanztip at this time. In order to be able to assess the risk of loss and actively counteract it, the providers have to make many assumptions. The exact procedure can hardly be understood and evaluated from the outside.
The active approach must therefore first prove itself – over longer periods of time, at best over an entire stock market cycle (downturn followed by recovery). The largest active Robo-Advisors are Scalable Capital (by far), Cominvest, Liqid, Truevest and Whitebox.
Passive Robo-Advisors tend to implement financial tip investment recommendations
Robo-Advisors, which follow a passive approach, are closer to the financial tip principles of investing: They spread the equity investment worldwide exclusively via low-cost equity index funds (ETFs). To cushion portfolio fluctuations, money ideally flows into low-cost bond ETFs – the substitute for overnight and fixed-term deposits.
In addition, the passive Robo-Advisors determine only once at the beginning into which asset classes the client’s money should flow and automatically bring the portfolio back to this initial distribution, usually once a year (rebalancing). Otherwise, however, the portfolio follows the development of the market; there is no further intervention.
We therefore only recommend providers who follow a passive approach. You can read more about the selection criteria in the section “How we analysed”.
Which Robo-Advisors recommends Finanztip?
Finanztip recommends four digital investment helpers: Quirion (variant “Regular”), VTB Invest and Growney as classic passive Robo-Advisors. Investors, on the other hand, who already know how they want to divide their investment amount between stocks and bonds will find a good solution at Weltinvest.
What should you know about the recommendations?
The Robo-Advisors recommended by us differ in some points. In addition to the length of time the Robo-Advisor has been in the market, the costs and the minimum investment, the providers also have different numbers of portfolios and have different focuses when investing in stocks.
No provider invests purely in the global stock index MSCI World. In the short term, the portfolio can therefore also develop significantly differently in value than a simple home-made investment.
The following table shows the differences at a glance:
The most important features of the recommended Robo-Advisors
What else do you need to look out for in Robo-Advisors?
When it comes to online money investment, three questions come up quickly: How can I open the account/custody account and how long does it take? What do I have to pay attention to in terms of taxes? And: What happens if the provider – in this case Robo-Advisor – goes bankrupt?
This is how the account opening works
At Quirion, VTB Invest and Growney you will answer questions about the financial background and the risk tolerance directly at the registration. Since 2018, savers have to indicate at one point in the registration process how much experience they already have with securities. Anyone who wants to become a client of Weltinvest as a self-decider must register with Weltsparen. This is the corresponding platform for overnight and fixed-term savings.
In order to complete the registration, you must prove your identity. This can be done either in the traditional way at a post office (Post-Ident) or online via Video-Ident. A few days usually pass between registration and the time when you can actually invest money. To invest money, you transfer it from a defined current account, the reference account, to the clearing account of the digital investment assistant. Alternatively, you can issue a direct debit mandate. The Robo-Advisor then debits the desired investment amount from the reference account within a few banking days.
Securities account transfer possible
Asset accumulation only works if you invest your money long-term. However, if you decide to manage your savings yourself again one day, you can also arrange for a portfolio transfer. In this case, the shares will not be sold and you will not have to pay taxes.
All recommendations offer the custody account transfer free of charge. Only fragments of a fund unit can often not be transferred. Fragments occur when fixed euro amounts are invested that cannot be divided smoothly by the value of a fund unit.
For two of the four recommendations, parents or guardians can also save up for their children. The deposit would then be transferred as soon as the child reaches the age of majority.
The most important features relating to opening a securities account
Flat rate withholding tax is paid automatically
Savers should also think about the tax for a moment. Income from funds and ETFs has been subject to a flat rate tax on a pro rata annual basis since 2018. In addition, capital gains from sales are taxable. Such gains may arise if the Robo-Advisor switches between asset classes within the portfolio once or several times a year. However, the Robo-Advisor pays the taxes directly to the tax authorities.
Investors can avoid the tax deduction if they set up an exemption order. This is because the first EUR 801 of investment income is tax-free (EUR 1,602 for married people). With our recommendations, savers can easily set up such an exemption order in the customer area. At Growney, the order can be set up online; Quirion and Weltinvest provide a form that savers have to fill out and send by mail to the provider.
If your investment income is subject to the so-called If you exceed the lump-sum saver’s allowance of 801 euros, you must declare these gains in the KAP attachment of your tax return. Robo-Advisors will issue you an annual tax certificate for this in the spring of each year. Details on the tax on ETFs can also be found in the guide to the investment tax reform.
Fund assets are secure
Many Robo-Advisors have not yet collected as much customer money and are very small. Some customers wonder what happens if the provider becomes insolvent. In such a case, the money invested in funds will still belong to you. It belongs to the so-called special assets and does not flow into the insolvency estate of the company.
The funds are stored at a separate custodian bank, which is responsible for managing the assets. If the custodian bank also experiences financial problems, a trustee will take care of the fund assets. At Quirion, the fund assets are stored at the parent company Quirin, at VTB Invest the Baader Bank is the custodian bank, at Growney the Sutor Bank. Weltinvest works together with DAB BNP Paribas.
How we have analysed
Analysis by Robo-Advisors in April and May 2020
In April 2020, we identified Robo-Advisors/digital asset managers who were among the top 100 and 50 results of Google searches for the keywords “Robo-Advisor” and “digital asset management”. We also included all providers that were listed on the finanzen.net data portal or known to our experts at the same time. In the end we identified 30 providers.
We then selected the best Robo-Advisors according to the following financial tip criteria. The Robo-Advisors should first:
- and be suitable for newcomers to the stock market. We have thus excluded providers with minimum investment amounts of more than 10,000 euros.
- offer the technical implementation of the investment online and from one source. Thus, for example, fund-of-funds solutions or providers acting in cooperation with financial advisors are excluded.
- act passively, i.e. constantly adjusting the initial allocation for the customer depending on market developments.
- keep the fees for an investment of 10,000 euros below one percent per year. In doing so, we add the ETF costs to the service fees of Robo-Advisors.
- allocate client funds to asset classes that best follow the financial tip principles for a good and simple long-term investment In other words, you should invest money in global equities (funds) and only add bonds for stabilization. We exclude providers that use other asset classes (commodities, gold, real estate), as these asset classes may make the portfolio unnecessarily defensive.
Furthermore: In the area of investment helpers without a risk rating, there were three providers in April 2020: Weltinvest, Fairrobo and the global portfolio of the ETF platform Just ETF. As all portfolios are closed via the Raisin/Weltsparen platform, we recommend the provider with the lowest costs.
The Weltinvest recommendation takes on a special position, as it deliberately does not query the risk appetite of the clients. The provider is therefore only suitable for investors who already know how they want to divide the investment amount between shares and bonds and only want to hand over the technical implementation of their investment. The investment itself corresponds to the Finanztip principles for investment.
The JustETF platform, which specialises in ETFs, offers its clientele only minimally worse conditions than Weltinvest – the brand with which Raisin/Weltsparen is officially launched. JustETF clients can conclude the offer on the JustETF site and are then redirected to world saving. While Weltinvest has only four portfolios to choose from, JustETF offers ten portfolios, including sustainably oriented ones. However, we have not examined these in more detail in this analysis.
The following other providers did not meet our criteria:
- Criterion 1: Liquid, Zeedin.
- Criterion 2: Easyfolio.
- Criterion 3: Bevestor, Cominvest, Easyinvesto, Fidelity, Investify, Meininvest (Volksbanken), Minveo, Moneyfarm, Monviso (Baseler), Robin (Deutsche Bank), Scalable Capital, Smavesto (Sparkassen), Sold Invest, VisualVest (Union Investment), Warburg, Whitebox.