A robo-adviser is essentially a do-it-yourself, automated online investment and portfolio management service.  The robo-adviser creates a portfolio based on an individual investor's input regarding his or her financial position and investment goals. Picture: BBC
A robo-adviser is essentially a do-it-yourself, automated online investment and portfolio management service. The robo-adviser creates a portfolio based on an individual investor's input regarding his or her financial position and investment goals. Picture: BBC

OUTvest, a wholly-owned subsidiary of short-term insurer OUTsurance, enters the South African robo-advice market today with savings products you can access via easy-to-use internet and app tools that help you set and stay on track to achieve your savings goals.

This is the first robo-advice offering from a company other than an asset manager or a financial advisory firm and OUTvest believes its familiar brand and experience in reaching consumers directly will get you saving.

Financial advisers were the first to bring you robo-advisers that use computer programs to advise you on appropriate unit trust fund choices on existing investment platforms - often the Allan Gray-linked investment services provider.

But over the past year, asset managers Sygnia and Anchor (Bizank) have launched robo-advice services for their index-tracking and actively managed funds respectively on their platforms.

And earlier this year exchange traded fund investment platform iTransact launched iTransactGO to help investors put together appropriate index-tracking ETF portfolios on its investment platform.

Human advisers

This week, the asset management, financial planning and stockbroking business in the Sasfin group, Sasfin Wealth, announced that it was acquiring, subject to Reserve Bank approval, SIPP Investments, a robo-advice business offering long-term ETF investment portfolios to clients of human advisers.

Absa Investments has launched what it calls a new investment platform, the Virtual Investor, but has stopped short of referring to this tool, which recommends Absa unit trust funds for you, as a robo-adviser.

There's also a start-up called Advicement, offering access to average exposures in various unit trust categories through online stockbroker EasyEquities.

When you use a robo-adviser's website or app you typically provide answers to questions to help a computer program determine how much investment risk you can and should take on to meet your investment goals. This is used to determine the appropriate allocation to different asset classes such as equities, bonds, listed property and cash for you.

The robo-adviser then suggests to you a fund or selection of funds offered by the asset managers, or selected by the financial adviser, to match that allocation.

Most also offer a service to rebalance your portfolio regularly so that you maintain the appropriate allocation to the asset classes that you need.

Key attraction

Sanlam Investments is also offering online investment services to help you invest in its products. Whereas Absa's service includes questions about risk and provides advice on the relevant fund, Sanlam's just asks you to state your investment goal and then provides a fund that will deliver it.

A key attraction of robo-advice is its lower costs; most robo-advisers recommend lower-cost index-tracking or passively managed funds.

The OUTvest robo recommends one of four custom-built, low-cost, passive unit trust funds provided by CoreShares and a money market fund provided by Granate Investment Management, which is in the RMI Investment Managers stable.

CoreShares recently added the index-tracking unit trusts to its range of ETFs which track, among other things, the S&P Dow Jones indices.

OUTvest's savings products start at a relatively high total investment cost of 1.5% for the first R100000 you invest. However, you can save as little as R100 a month. The cost reduces the more you invest, to 0.7% for amounts of more than R500000.

Investors are currently enjoying the benefits of a bit of a cost war between providers of passive investments, and the robo-advisers are offering fees of between 0.4% and 1.7%.

The new feature the OUTvest robo-adviser brings to the South African market is advice on setting your goals - giving you information that will help you set a goal, for example saving for a wedding or your child's education.

The OUTvest computer algorithms have been populated with information on the costs of a wedding or a university education to help you set your savings target, and a team of human advisers supporting OUTvest's robo-adviser will ensure this information stays relevant.

A withdrawal

Grant Locke, the head of OUTvest, says if the markets move against you or you make a withdrawal, the robo-adviser will give you an indication of the impact on your goal.

OUTvest has also introduced CrowdVest, an innovative feature that allows you to set up a savings goal, such as saving for a child's education - and invite friends and family to contribute to it, in lieu of birthday gifts for example.

Once you have set up your goal and your CrowdVest page has been approved by OUTvest, you will be able to post the website URL for your goal on social media or e-mail it to friends and family who can use their credit cards to make donations through the PayU secure payment system.

OUTvest has also launched an app complete with a chatbot to guide you with instant messages through setting up savings goals. Currently the app is more for keeping track of where you are, and you need to use the website to add or withdraw from your investments, but this functionality will be included in the app in future.

No penalty

South African robo-advisers all offer investments that you can stop at any time without any penalty. Most offer you the option to invest in a tax-free savings account and a retirement annuity, for which there are some rules, but otherwise your are free to contribute and withdraw as you wish.

Locke says many South Africans use debt to fund their purchases because it is easy to get a loan or credit facility. But they do not realise how debt erodes their wealth.

The aim of the robo-adviser is to provide an easy way for you to save. If you to take small but wise steps and save over 20 years, you will never need to worry about money, he says.

Galileo Capital, a firm of independent financial advisers founded by former financial planner of the year Warren Ingram, and Theo Vorster, built their robo-adviser SmartRand in 2015 to cater for clients who did not need a full advisory service.

Ingram and Botha negotiated low fees for SmartRand investors on the Ashburton platform in one of three RMB Fusion unit trust funds. These are multi-asset funds that track indices representing the different asset classes, Ashburton's money market fund and its actively managed equity fund.

Actively managed

Ingram says Galileo is now in the process of setting up its own unit trust funds that will be 20% actively managed and 80% passively managed.

The total investment cost will be below 1%, he says.

SmartRand makes use of comprehensive questions developed by Australian company FinaMetrica in conjunction with psychologists at the University of New South Wales to determine how much investment risk you can tolerate and afford.

FinaMetrica has tested the validity and reliability of the questions, as well as how easy they are to understand and answer.

dupreezl@tisoblackstar.co.za

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