Exo Robo Advisor - Opinions Sought

DairyQueen

I read that Exo has recently extended their 'daily rebalanced' robo advisor service to retail investors. I haven't previously considered using robo advisors as they seem to offer a one-size-fits-all asset allocation based only on risk profile. However, my knowledge of such services is limited so please correct me if I'm wrong.

I like some of Exo's features: ETF allocation driven by customer choice of investment focus, daily rebalancing and transparency of fees.

The fees (0.75% platform plus 0.25% ETF) are more expensive than, for example, holding a passive such as VLS in, say, a SIPP/ISA wrapper on a low-cost platform (0.22% + 0.25% in my case). However, the fees compare favourably to holding actively managed funds similarly wrapped. There are no other charges (zero transaction, trading or commission fees).

They are FCA registered and currently offer an ISA wrapper (SIPP on its way according to the website). Minimum investments is £10k. Link to their website here.

Background:
I am nearly 59 and began drawing down from my SIPP, up to max personal allowance, last year (UFPLS). This is an exercise in minimising tax when SP kicks-in. The funds are not needed/used for income right now but are ISA re-invested so they can be accessed tax-free from SP age.

This strategy has complications around transaction charges/rebalancing portfolio so I wondered whether using Exo's service could simplify things. I could put a toe-in-the-water this tax year and see how it performs compared to my SIPP portfolio.

Any advice/warnings from forum members would be much appreciated.

bostonerimus

VLS will rebalance automatically for you at a far lower cost. I worry about robo investing just as much as I worry about advisors choosing a portfolio of active funds if it means that the investor is isolated from their portfolio, pays too much and thinks someone else will do stuff for them. It's not that hard to DIY and rebalance a simple portfolio yourself and keep costs down while staying aware of your finances.

bowlhead99

DairyQueen wrote: »

The fees (0.75% platform plus 0.25% ETF) are more expensive than, for example, holding a passive such as VLS in, say, a SIPP/ISA wrapper on a low-cost platform (0.22% + 0.25% in my case). However, the fees compare favourably to holding actively managed funds similarly wrapped

Not really very favourably. A typical actively managed fund might be 0.7-0.8% for running costs and 0.25% for platform on which you hold it, so ballpark 1%, which is what the Exo fund-of-ETFs will charge you in total.

You would of course have to decide what fund(s) to hold, because your 1% is not really enough to get you an active fund and a platform and financial advice, unless you have a very large amount of money or you want the advisor to only use cheap passive options. But perhaps you don't need financial 'advice' anyway if you are happy to say what sort of risk level or objective you have and then just deploy the money in something suitable. As you note, some passive options for a given level of risk are available for about half of that 1% total (e.g. Lifestrategy, L&G's multi-index range, etc). if you want you money to be deployed through tracker funds or ETFs.

So, it's not amazingly compelling on cost grounds. Then on the other features you find attractive:

"ETF allocation driven by customer choice of investment focus" -basically a robo allocation to a risk level; if you know what you want your investment focus to be you could buy fund(s) in that area and plenty of mixed asset funds exist at different risk levels.

"daily rebalancing" - you don't really need a portfolio to be rebalanced every single day. That seems like an expensive way to operate unless they have a huge amount of assets under management and lots of economies of scale. Which they don't. It is pretty much a beta level service trying to build business up from nothing.

"transparency of fees." - everyone has transparency of fees. You just told us the transparent fees for one example of your current platform offering Vanguard (and you'll be aware that Vanguard's own ISA platform is only 0.15% rather than your 0.25% - though Vanguard, like Exo, haven't yet launched their own SIPP)

They make some nice claims on their blog:

... Exo playing the role of 'co-pilot'. He sees Exo as "smoothing out the investment journey". Our sophisticated technology allows assets to be moved to safe havens in times of market distress, without the need for intervention by an adviser. It works in the background to maximise the potential of your decisions...

Exo's advanced systems provide coherent real-time investment advice through tried and tested AI algorithms that factor in the current market conditions. This is the equivalent of having your own investment manager analysing the markets non-stop - one who creates a dynamic investment portfolio based on your specific preferences, constantly evolving and optimising towards your needs and the market context.

Well, that's a lot of nice-sounding fluff, and who wouldn't want something that "maximises the potential of their decisions", or a "dynamic investment portfolio based on their specific preferences, constantly evolving and optimising towards their needs and the market context". Sounds great, sign me up!

But basically they are saying they have some algorithm that monitors markets and changes the portfolio according to what they think it will do next so they can run to safety when things get choppy but hopefully not miss the recovery. Many professional active fund managers do that and hope to make decent long term returns within a risk profile or overall objective from their customers.

The difference is that with the active fund managers you can see the track record of their performance, rather than these guys who are just a start-up where you have to take their word for it that they are really offering 'institutional grade portfolio management' and will still be around in a couple of years' time.

This strategy has complications around transaction charges/rebalancing portfolio so I wondered whether using Exo's service could simplify things.

As an example, the L&G Multi-Index funds do the rebalancing for you for a given level of risk/volatility target and use indexes as building blocks, coming in with an ongoing charge of about 0.3% on top of your 0.25% platform fee (instead of 0.75% platform fee and 0.25% ETF costs with Exo). You also mentioned Vanguard and there are various others in the space and price point using passive funds, or more expensive ones using active funds.

I could put a toe-in-the-water this tax year and see how it performs compared to my SIPP portfolio.

The problem wit putting a toe into something for a year to see how it compares to an existing portfolio, is that one year is not a meaningful amount of time over which to compare strategies and draw particularly valuable conclusions on the results; and are you going to be sure that the allocation 'built to your specific preferences' is going to be the same level of risk and potential rewards as what you actually built in your SIPP? Because if the risk isn't the same the rewards won't be comparable.

grey_gym_sock

DairyQueen wrote: »

There are no other charges (zero transaction, trading or commission fees).

there may be no other charges (payable to exo), but there will be transaction costs, because there is a difference between the prices an ETF can be bought or sold at.

bowlhead99 wrote: »

As an example, the L&G Multi-Index funds do the rebalancing for you for a given level of risk/volatility target and use indexes as building blocks, coming in with an ongoing charge of about 0.3% on top of your 0.25% platform fee (instead of 0.75% platform fee and 0.25% ETF costs with Exo).

yes, L&G's risk/volatility targetting approach might be similar to what exo are trying to do with a "dynamic investment portfolio". but L&G do it a lot cheaper. so that could be an option if you want something like that.

some other multi-asset funds, such as vanguard lifestrategy, don't do risk-targetting, and instead stick to a fixed percentage in equities.

personally, i don't like risk-targetting. it might get you (partly) out of the market just before a crash, or it might get you out after a wobble so that you miss a quick bounce back. so it may or may not work.

and if a lot of other investors are trying something similar, there may be a bit of an arms race, in which, if it's known that many algorithms will be selling after the market falls by x% or volatility rises by y%, then others will try to get ahead of the game and sell after a (x - 1)% market fall or a (y - 1)% volatility rise. in which case:

1) who is likely to be winning this arms race: some small robo startup, a retail multi-asset fund, or some hedge fund (which you couldn't put money in if you wanted to, and probably funds trump)?

2) this arms race will make markets more volatile. and the more people take part in it, the bigger this effect.

but that's just what i think about risk-targetting. opinions differ

DairyQueen

Thanks for your replies; definitely food for thought.