Robotic investing for individuals made its appearance in the U.S. in the wake of the 2008 financial crisis and around the arrival of the iPhone. In 2015, this trend spread to the E.U. and Belgium, where smaller financial players such as Birdee, Easyvest, Keytrade Bank, and MeDirect first made robotic investing possible.
In 2020 the arrival of Matti from KBC and Lucy from B.P. Paribas Fortis shifted the focus into a higher gear. At the start of 2022, it’s time we look if they offer more insight into investing with robots, the offer, the costs, etc.
What is robotic investing?
A provider of robotic investing, the correct term is ‘Robo advisor’, provides a digital platform where a computer program replaces the human asset manager and takes all investment decisions in your place.
This starts with creating an appropriate investment portfolio based on a set of questions about your financial situation and future goals through an online survey. It ends with automatically investing and then monitoring and adjusting that portfolio.
All these decisions will always consider your risk profile and any investment preferences, such as more technology, sustainability, etc.
How popular is robotic investing (in Belgium)?
Let’s not beat about the bush. Robotic investing is nothing more than a small branch of investing. Not only in Belgium, but internationally it is still tiny.
Global estimates in the Robo-Advisors segment are projected to $8.1 trillion in 2020. For reference total assets under management in funds are expected to reach US$145.4 trillion by 2025.
As mentioned, in Belgium robotic investing is unknown too. According to a Roland Berger study, Robo-advisers managed around €400 million in Belgium in 2018. To compare: in 2020, no less than €287 billion was entrusted to asset managers in our country.
Robotic investing is still young and will undoubtedly become more widely known among Belgian investors in the years to come. Certainly, some major Belgian banks have also jumped on the bandwagon in recent years.
What are the benefits?
The idea is fairly straightforward, so what are the major benefits to robot investing compared to active managers or even passive investing strategies such as buying and holding VWCE or IWDA? There are a couple, but it’s mainly a matter of convenience.
1. Little effort and time required
Suppose you let a Robo advisor manage your money. In that case, you do not have to worry about which funds to invest in, how to spread the capital over several asset classes (shares, bonds, …), how to rebalance the portfolio, etc. This makes robotic investing a pure convenience for investors who do not have much time or who want to spend little time investing their capital.
This makes robotic investing a pure convenience for the investor who has little time and/or does not want to spend much time investing his capital. However, you are expected to spend some time on your investment profile using a questionnaire. After all, this is an obligatory number.
If you don’t have any experience in investing a Robo-advisor could be a great way to start. When you get a deeper understanding of which ETFs you should invest in, switching to an online broker like Degiro or Lynx will reduce your costs of using the Robo-advisor.
2. Relatively low costs
Another significant advantage of robotic investing is lower costs than most other investment services such as personal or private banking. On the one hand, because no physical advisor is involved and the service is automated, the cost price can be kept low. On the other hand, the choice is usually made to invest in ETFs. Such trackers have low management costs, which saves the investor money. The Robo-adviser will charge additional costs for his services, but these remain very acceptable given that everything is done for you. For example, BinckBank charges a maximum of 1.3% per year for its Let’s Invest, Matti charges 1.21% per year, and Dexxi charges a maximum of 0.8% per pair.
Most Robo-advisors maintain a low entry threshold.
You can start at 50 euros at Birdee and from 100 euros at Dexxi and Aion Bank. At Matti For example, you can do so from 1000 euros. BinckBank and Keytrade Bank apply the highest entry threshold with respectively 10,000 euros and 15,000 euros respectively.
In comparison to personal or private banking, that is still very democratic.
4. Safe and protected
Robo-advisors are required to check their tool frequently and must have a clear internal policy on robotic investing. Also, they are under financial supervision. In Belgium, this is done by the FSMA and the National Bank of Belgium.
Furthermore, the cash account balances are covered up to 100 000 euros per person by the deposit guarantee system. The capital invested in trackers/funds remains your property at all times.
If such a robot-adviser fails, your securities portfolio is transferred to a securities account with another financial institution.
Are there any disadvantages to Robo-adivsors?
1. No or little say in the matter
The fact that you are altogether leaving the investment work to the Robo-advisor also means that you have no say in all of the whole thing. Do you disagree with the choice of trackers or funds? Do you think the exposure to bonds is too high? Tough luck. All of that is in the hands of the Robo-advisor.
2. No human intervention
A flesh and blood financial advisor can determine whether investing is suitable for you. Suppose someone wants to buy a house three years, someone wants to buy a home, then the financial advisor may advise against investing the funds intended for its purchase.
A computer program will not do so and is easily fooled by indicating a different investment horizon when determining the investment profile.
3. No guarantees
Even though a sophisticated computer program is used behind the scenes
computer program is used, that doesn’t mean you get better guarantees in terms of capital preservation or return versus other investment solutions. It is still an investment, and so you always run risks.
4. Struggling to gain traction
Despite the growing market and the attention from market participants, standalone Robo-advisors are struggling to be profitable. They face various challenges, such as creating trust despite their online nature and lack of track record.
Furthermore, they need to ensure sufficient data protection & digital security. Also, Robo-advisory is a highly competitive market with a lot of pressure on fees and high customer acquisition costs.
Is Robo-investing worth your time in Belgium?
For which type of investor is it? What is the landscape for Robo-advisers? Is it hype? Does it have a future? What are the recent developments? Many questions that unfortunately don’t have a clear-cut answer (at this time).
Robotic investing offers an ideal solution to those who find investing complex and/or time-consuming and who like to be left in charge.
In that respect, investing robotically can be seen as a very accessible way of asset management. This is thanks to the low entry amounts, starting at 50 euros. And thanks to the relatively low costs, because portfolios are constructed from trackers known for their low management costs.
The Robo-advisors charge their own management fee, but robot investing is even then not an expensive affair.
There is no hype, but more choice
Over the years, the number of Robo-advisors in Belgium has grown nicely.
Now that the major banks are also jumping on the bandwagon, there is no hype yet. Assets under management by robo-advisers remain very limited, with an estimated market share of 0.14%.
Robotic investing is also rather an unknown term for the average Belgian who barely knows anything about investing in the first place. However, researches predict strong growth in this market.
Robotic investing will become more important in the future because of the tendency within the financial sector to automate and digitalize more. Asset management has to keep up with the times.
Therefore, the future expectation is that more and more financial players, when giving investment advice, will move towards a hybrid model where personal advice will go hand-in-hand with guidance provided by software with or without artificial intelligence. Both will lead to better financial advice.
Only just started in Belgium
In Anglo-Saxon countries such as the U.S. and the U.K., robotic investing is better established because there is more trust in investment technology. In Belgium, but also in countries such as Germany, investors are rather suspicious about leaving the management of their assets to software.
Not a fan unless
While it looks nice at first glance, a bit more than five minutes of work will give you similar results.
The only reason why you should consider it is if you want a hands-off experience yet still limit costs. You have to agree to little or no say in the composition of your portfolio and the choice of the tracker.
Finally, the performance history of Robo-advisers is still inadequate to determine whether robotic investing will be very successful in the long term.
Due to the short time, the landscape for robotic investing will change significantly over the years. Strict financial regulations and increasing competition put profit margins under pressure. Therefore Robo-advisors need to get sufficient capital under management to survive.
Overview of Belgian Robo advisors
|Financial institution||Product||Start date||Minimum deposit||Yearly costs (on top of Trackers’)||investments||Strategies|
|Aion||ETF Matic||2020||100||Membership fee of €228/year||ETF||3 conservative, 3 neutral, 3 dynamic, 3 progressive|
|Binckbank||‘Laten beleggen’||2016||10,000||Max. 1.3%||Fund of funds||1 fund of funds for bonds, 1 fund of funds for stocks. Depending on the profile, the balance changes.|
|BNP Paribas Fortis||Lucy||2020||1,000||1.21%||ETF||Conservative, defensive, neutral, balanced, growth|
|Fintech Gambit||Birdee||2016||50||1%||ETF||Protective, defensive, stable, moderate, and dynamic|
|Keytrade bank||KEY Private||2015||15,000||0.91%||ETF||10; conservative to dynamic|
|Bolero||Matti||2020||1,000||1.21%||ETF||9; conservative to dynamic|
|MEdirect||Volledig beheerd||2015||2,500||Max. 0.90%||ETF||Defensive, conservative, balanced, growth, dynamic|
|Easyvest||Easyvest||2016||5,000||Max. 1%||Funds||10; conservative to dynamic|
|Indexus||Dexxi||2016||100||Max. 0.80%||ETF||Very defensive, defensive, neutral, offensive, and highly offensive|
Interested in a video on the topic?
A nice summary video was recently published by 2 cents. Be sure to check them out if you rather watch than read: