By Jessica Wee

As a former relationship manager at a bank, I have come across clients who are uncomfortable discussing their financial matters with a third party. There are also clients who feel they have better experience handling money than trusting their financial advisors whose net worth is clearly lower than them! On the other end of the spectrum, I have met beginner investors who were too afraid to ask questions even when they wanted to learn to diversify their portfolios.

Here comes robo advisor, a term which we just started hearing about a few years ago.

Robo advisors provide a low-cost, flexible and efficient alternative to the traditional wealth management industry. As investing is personal, you’re more likely to reach your financial goals if your investments reflect your needs. This can be difficult to get right and can be a lot of pressure for those trying to save for their family’s future if you don’t have the right support. In Malaysia, there are currently 6 robo advisors with SC licenses that we will discuss below.

To be a successful investor, it has more to do with discipline i.e. adopting dollar cost averaging (DCA) rather than relying on market timing. DCA is the regular and frequent investment of generally smaller individual contributions of funds, while market timing refers to investment decisions based on market conditions, company news and data, and the interpretation of some individuals based on their observations.

What are the advantages of using a Robo Advisor?

Low fees: A clear and simple fee structure so you keep more of your money, with no surprises around the corner. Low annual management fee of <1% as compared to traditional banks charging between 3-5% that will eat into your gains.

Customisable: Investing is personal, and the way you invest should be too. Robo Advisors match you with a portfolio built specifically for your investor profile as you determine your risk profile and acceptable returns.

Professionally managed: Robo Advisors ensure your portfolios are built with you in mind, and are regularly rebalanced to keep you on track to achieve your goals. The people behind the Robo would have fund management background.

Hassle-free paperwork: You can set-up an account in 10 minutes – leaving you with more time to get on with the important stuff. Unlike traditional banks where you are required to sign dozens of paperwork.

Flexible: You can manage your investments from your computer or phone at any time. Most suited to the tech savvy generation.

Transparent: See exactly what you’re invested in and how your money is performing – at any time and anywhere.

DCA via direct debit: can be programmed monthly, quarterly etc to keep your investing journey disciplined and consistent. There is even a Robo advisor that automatically invests spare change from everyday purchases!

Low minimum investment: from your spare change to RM100 minimum investment.

Auto rebalancing: a feature that you can choose to activate which it’s algorithm will rebalance your portfolio following volatile market movements.

Auto portfolio creation: construct a complete portfolio with much less money, without having to manually calculate how much of each security you need to buy or rebalance your portfolio yourself. No need for stock picking!

Disadvantages of robo advisor
Lack of human touch: Most things are done through apps and you may get frustrated when you can’t get something right. However, some Robo Advisors do have a hotline where you can call and speak to someone right away.

Lack of customisation: As you will be buying into ETFs and unit trust which is a pool of pre-selected stocks, you cannot do stock picking.

What will happen to your money if the Robo Advisor goes bust?

Your funds are held by a third party so if your Robo Advisor goes bust, do contact the Securities Commission to find out the procedures to claim your funds.

Here is a comparative table on the 6 Robo Advisors in Malaysia. The most important consideration for me is the asset class and investment region instead of the fees as you can see, they are quite competitive.

If you are still sceptical about losing your funds despite assurance from Securities Commission, BEST Invest Robo Advisor which is backed by Bank Islam may be the most suitable choice for you. If you’d like to start investing using spare change, RAIZ is available via Maybank.

Major global economy is 57% in the USA and the rest in international markets, we must at least have some exposure in these markets especially now that it is so simple.

For this reason, I think Robo Advisor is a good way for us to diversify our portfolios globally especially for beginner investors. After all, what’s the use of being ‘Jaguh Kampung’ when the world can be our oyster!