By @SimonCocking. Interview with Luis Rivera is CEO of ETFmatic – the first pan-European robo-advisory platform disrupting how exchange traded funds (ETFs) are customised for investors.
What is Robo Advice?
A nightmare for greedy financial advisors and banks that have mistreated their customers. Robo Advice is a term for the Wealth Management approach pioneered by U.S. companies like Betterment and Wealthfront combining an App you can use in your phone or laptop with Exchange Traded Funds (ETFs). It is convenient and saves you endless fees.
Why has it taken so long to arrive in Ireland, compared to the rest of Europe?
Most robo-advisors on this side of the Atlantic offer their services in one or two markets, with the majority focused in the UK or Germany that represents most of the European ETF demand. There are a few local players in countries like France and Spain, but it’s hard in smaller countries because developing the software can cost millions. We are the first offering the service across 32 thanks to the flexibility of our Platform, which can build a bespoke portfolio in Euros, Pounds or Dollars for each customer.
How does Robo-advice work in the context of ETFs?
Robo-advice allows firms to offer clients tailored investment solutions at a fraction of the cost of traditional services. This is possible due to two things; using technology to remove costly layers of middlemen and using ETFs as the building blocks in constructing tailored asset allocations. As ETFs are liquid, transparent and allow for pure exposure to a particular region or asset class they are the perfect instrument to use in managing portfolios. Most importantly, ETFs are the most cost-effective investment solution allowing for diversified exposure to the market. Robo-advisors essentially take it to the next level by automating many steps traditionally performed with a calculator or spreadsheet and saving you trips to the bank.
Ireland has a sophisticated financial Industry compared to many other countries in Europe. However despite this, traditional investment firms still dominate the landscape. And raw numbers tend to show 80 to 90% of active managers underperform their benchmark over a 5 and 10 year period. Part of this is driven by bad investment decisions no doubt, but a large part is due to the exorbitant fees active fund managers still charge their clients. We have found that retail investors in Ireland still incur these high costs for normal portfolios, never mind tailored asset allocations. We believe all investors in Ireland should have access to the same level of investment sophistication as a Private Bank client in London.
What is the appetite for ETFs in Ireland?
Huge. Like across most of Europe, horrible experiences with property and complex financial products have led investors to remember the importance of diversification and transparency. Many experts think only millennials will embrace new Wealth Management options, but the average age of our customers in Ireland is 31 and includes children accounts opened by parents because they are free of fees.
What kind of investors are interested in ETFs in Ireland – what is their risk profile?
In terms of risk profiles they are in the mid-range compared to other European countries. In terms of investment styles we currently observe an almost equal split between our investment plan portfolios and our starter portfolios. Our starter portfolios are our most easy-to-use offering whereas investment plans allow for more tailoring. In terms of our most sophisticated offering based on custom goals, 6.4% of customers in Ireland set their own asset allocation compared to a 6.5% in Germany and slightly over 10% in the UK.
How can ETFmatic help?
By having removed layers of unnecessary intermediaries, we can offer a transparent end to end service for only 0.5% of Assets Under Management. This gives our customers a reason to be satisfied, instead of suffering the ridiculous fees and conflicts of interest of most traditional Wealth Management options.
Where do you see robo-advice going?
We are still in its infancy. The first ETFmatic customers had worked in the industry and studied CFAs, MBAs and PHDs. It now only takes a few taps or clicks for anyone with investment experience. The term will fade; at some point experts will start referring to it as digital wealth management – and then just investment in an app, or perhaps ETFmatic 😉
— ETFs made simple ? (@ETFmatic) March 28, 2017