Wealth Management: Everyone has their own robot advisor – Investing

Robo-advisors are gaining ground in the capital management market as a simple, cheap and affordable alternative. However, keep in mind that they do not protect you from the ups and downs of the stock markets. And do not hesitate to play the competition …

The capital management sector is experiencing a real shock with the development of automated solutions. Today, about ten robot advisors work in the Belgian market. While startups or online investment professionals were the first to launch, large banks such as Belfius or BNP Paribas Fortis now also have their own advisory robot.

The capital management sector is experiencing a real shock with the development of automated solutions. Today, about ten robot advisors work in the Belgian market. While startups or online investment professionals were the first to launch, large banks such as Belfius or BNP Paribas Fortis now also have their own advisory robot. In addition to the digitalization of the economy, this development is based on two innovations of the last century. The first and most important are index funds (ETFs, trackers, etc.). Unlike traditional funds, which are actively managed by the team, these products simply copy the benchmark. The best known are stock indices such as the Stoxx Europe 600 or the US S&P 500, but there are also indices for bond or commodity markets. The first index funds were launched in the 1970s, including The Vanguard Group, founded in 1974 by John Bogle. In the early years, this so-called passive management remained fairly confidential, but since the beginning of this century, this trend has accelerated. Index funds now weigh more than $ 11,000 billion. This enthusiasm is the result of a double observation that more than 90% of active funds perform worse than their benchmark index, and that index funds are much cheaper in terms of commissions. Thus, most ETFs charge a commission of 0.1% to 0.5% per annum, compared to an average of 1% to 2% for active funds. Bloomberg also notes that Vanguard manages more than a quarter of the assets of the entire stock sector in the United States, while it accounts for only 5% of the sector’s revenue. Another innovation updated by robot consultants is modern portfolio theory, introduced in 1952 by Harry Markovic, winner of the 1990 Nobel Prize in Economics. This theory of portfolio construction is based on diversification. In particular, he postulates that the various securities in the portfolio must be selected and weighed according to their ratios in order to obtain the best risk-return ratio. Most players are based on this theory (making adjustments and / or adding a management committee), as it allows you to automate management with algorithms. This reduces costs, as well as the use of index funds. For Better Finance, the European Federation of Investors and Financial Services Users, “the success of advisers is based on their ability to keep costs low and they do not disappoint. Their services remain much cheaper than those of their traditional counterparts such as banks, financial consultants and asset managers. ”In its latest annual survey, Better Finance also noted that most of the robotic advisors tested clearly indicate that they do not fall into the same conflict of interest as traditional consultants, most of whom receive commissions for selling certain products. In addition, due to the low cost of services offered by consultants, the actual lack of commissions or financial benefits also usually leads to cheaper products. ”These reduced costs also make automated solutions much more affordable with investment thresholds of € 50,000 to € 5,000. also offer regular investment plans, so you can start with small amounts and not invest them in a savings account that pays off. Another advantage of automated management solutions is their relative simplicity, explained Corentin Skave, co-founder and head of Easyvest’s customer satisfaction department. “Every investor starts by modeling an investment plan on our website. He asks a short series of questions about his goal and investment horizon, his risk appetite and the amounts he wants to mobilize first, and then the investor directly receives a detailed plan that determines the optimal risk profile and appropriate allocation. All recommended portfolios consist of the same building blocks, namely the Global Equity Index Fund and another that includes euro area government bonds. Financial experience and wealth do not affect the composition of the recommended portfolio. However, Better Finance notes that “despite their low cost and ease of access for retail investors, it is important to remember that robo-advisors use products and services that require clients to have the financial knowledge and familiarity with certain financial concepts to fully understand their solutions. ». Therefore, like any investment, investment through a work advisor should be carefully considered. In particular, investors should be aware that algorithms based on modern portfolio theory aim to somewhat improve profits adjusted for risk in the long run. But they do not offer real protection against market volatility, as Corentin Skave explained. “Our approach to investing is to monitor the market, both bullish and bearish,” he said. High and harmful to long-term profitability. Significant market declines (more than 20%) occur every three to four years and are an integral part of an investor’s journey to prepare for them. It is important to explain to our clients that stock markets tend to grow in the long run, but that all scenarios are possible in the short run and that nothing can be predicted. ” Finally, do not rush headlong to the first work advisor to appear, or focus solely on its “fresh” component. Even if the basic principles are often compared, each player tries to make his offer unique. For example, Easyvest also offers additional pension products for self-employed / company executives: individual pension obligation (EIP), free supplementary pension for self-employed persons (PLCI), pension agreement for self-employed workers (CPTI), Inami contract. For its dynamic, moderate or protective profiles, Birdee has three thematic options: small and medium capital, biotechnology companies and real estate companies. Saxo Bank Wealth Care offers the Sustainable + option for different profiles, while other consulting companies directly use index funds that include sustainability criteria. For example, BNP Paribas Fortis or Birdee. As for Keyprivate, it has expanded the range of assets in its portfolios with ETFs for gold and industrial metals in addition to traditional stock and bond markets. Finally, let’s mention the MeDirect investment plan, which stands out in several aspects. First, it is based on active funds from senior managers (Legg Mason, Robeco, Comgest, BGF, etc.), which, however, have been well below benchmarks since 2016 with Morningstar, a fund valuation specialist for management.