Robo Performance Anxiety – Some Thoughts On Accessing The Right Robo Advice
There are some critical core advantages that robo advice can generically deliver. An enormous swathe of the population who have a need for their nest eggs to be expertly risk managed for capital growth or to provide income, effectively have very few affordable options based on the traditional advice model.
Keenly and clearly priced robo advice can offer an intuitively structured alternative that marries the ever expanding desire many of us have to be able to manage even the more sophisticated areas of our life online. The usage of digital solutions to obtain mortgages and loans for example is now very much mainstream. It is a natural extension to include investments into this model to provide price and quality comparison.
However robo advice is not without its own possible shortcomings which need to be analysed when selecting a provider to ensure they are mitigated. The most crucial consideration that investors must become entirely comfortable with is to confirm that the actual portfolios available have the requisite real world track record to allow as greater level of confidence as possible that their future performance will fit the bill. It’s crucial to determine that the specific portfolios that can be selected have demonstrated the ability to handle turbulent market conditions in the short, medium and long term through exemplary risk management. However, this task is not an easy one in context of the fact that many robo advisers have a comparatively short performance history because many were founded only recently.
Take care not to rely overly purely on impressive curriculm vitaes of the asset managers involved or the quants who have built the investment models if the actual available portfolios are still relatively unproven. Whilst strong performance and pedigree generated elsewhere is a plus, there are numerous examples of portfolio managers who have managed to produce impressive results in a different context, who have not necessarily been able to translate this success to their next investment mandate.
The greatest peace of mind on robo adviser selection is to be achieved by identifying alternatives that have have a multi-year real world track record which, if at all possible, incudes plotting a course successfully through the events of 2008 within the numbers. Apply a healthy dollop of skepticism to performance numbers that are a result of simulations applied to a historical period in time – i.e. estimations on how a portfolio might have performed had it been in operation.
If the robo advisor’s portfolios have been white labelled by an IFA firm, it is essential to drill into the underlying robo firm to ascertain the expertise and track record of the asset manager behind the scenes.
Simon Bottle is a Law graduate with an investment banking background including 7 years at Goldman Sachs. Since launching the independent UK FCA regulated firm Alpha Diversify in early 2008, Simon has provided a variety of consulting services in the investment space. Simon’s current focus is on the benefits of robo-advice.