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Wealthify: don't call us robo

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Wealthify: don't call us robo

The Financial Conduct Authority criticised automated advice and online discretionary managers last month over suitability failings and charges. Selin Bucak, who has invested money with five robo advisers, Nutmeg, Moola, Wealthify, Moneyfarm and Wealthsimple, has decided to review the companies from the perspective of an individual investor, with one question on her mind: was the FCA right?

What is the difference between robo-advice and online investment management?

As journalists, we have been using the catch-all phrase of robo-advice as a label for all online firms that provide investment management services to smaller clients, but we often forget that there is a difference.

For example, with Wealthify it is quite easy to put it in one category. The company is clear that it does not provide advice and it is an online discretionary investment manager.

However, Moneyfarm and Nutmeg, two other services that I am invested with, are truly robo-advisers, although I could not tell the difference from my own experience. I know only because Nutmeg and Moneyfarm say they provide advice.

My experience with all these companies has been the same: fill out a questionnaire, get a suitability report, select a portfolio and leave it to the firm to invest.

Richard Theo (pictured), CEO of Wealthify, said: ‘Wealthify’s service comes into the category of online discretionary investment manager and, as such, our service does not offer advice or recommendations. This is clearly disclosed to our clients during sign-up.

‘We do ask a series of questions to understand more about our clients’ attitude to risk and their suitability to open a plan with us. Our suitability test complies with all the regulatory requirements assessing capacity for loss, knowledge and experience and attitude to risk using statistically verified questions and data.’

In contrast, Moneyfarm says that it provides investment advice and explains what that means: ‘Initially, you will be asked a series of questions to determine your knowledge, experience, risk appetite and objectives (amongst other factors). We then recommend an investment portfolio which is in keeping with the factors in your profile. This constitutes the provision of investment advice (as we take your personal circumstances into account in providing you with a recommendation).’

Once the portfolio is selected, Moneyfarm acts as a discretionary investment manager.

Let me know if someone can actually spot the difference.

Wealthify response to FCA

On the FCA’s publication, Theo said: ‘We welcomed the FCA review of this emerging sector which has the potential to transform people’s long-term financial outcomes and wealth, and to reduce the high costs that many traditional investment managers and fund providers have charged and make investing accessible to a wider audience.

  ‘As part of Mifid II, required by 3 January 2018, we have already addressed many of the areas identified by the FCA.’

Part of the Mifid II compliance project also involved lengthening the suitability test. The firm will also ask its clients to retake the test once a year to ensure ongoing suitability.

Theo added: ‘We are transparent with our disclosure of costs and charges and we will be adding additional information in the near future about the indirect cost of spreads.’   

Verdict

I have already said that I think the ‘adventurous’ bucket Moneyfarm put me in was the right one. In contrast, Wealthify has put me in its ‘confident’ bracket – right in the middle of its five investment styles.

Looking at the asset allocation, my Moneyfarm portfolios has 72% in equities while my Wealthify portfolio has only 48% in equities – so there is quite a bit of difference there as well.

But I am not uncomfortable being placed in the balanced bracket. When it is time for Wealthify to ask me to retake the test, I wonder if it will come up with a different result? Remember, Nutmeg did find that I had grown more confident over the past year.

More importantly, the split between robo-advice and online discretionary management concerns me. I like that Wealthify makes it clear: it does not provide advice, plain and simple. There is no confusion about it. But its suitability test and the initial onboarding process, does not seem that different to that of Moneyfarm or Nutmeg.

Then the question becomes, can those two really claim that they are providing advice, or is it Wealthify that is venturing in to the advice territory?

Next up Wealthsimple...

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