Robo-Advisor

from Wikipedia, the free encyclopedia

A robo-advisor is an algorithm-based system that gives automatic recommendations for investments and can also implement them. The name is a suitcase word , made up of the English words Robot and Advisor . Robo-advisors aim to digitize and automate the services of a traditional financial advisor . The term "Robo-Advisor" is also used as a term for financial service providers who work with such systems.

A robo-advisor is usually used by financial service providers to manage relatively small portfolios at low cost. Such a system can often implement the relevant recommendations directly and automatically for the customer. Such systems to support human investment advisors are also common. Financial service providers operating robo-advisors are subject to approval and monitoring in most countries. In Germany this is the Federal Financial Supervisory Authority (BaFin), in Austria the Financial Market Authority (FMA) and in Switzerland the Swiss Financial Market Authority FINMA. If the activity is limited to certain financial instruments, such as B. for public distribution approved fund shares, the area except the § engages 2, paragraph 6 sentence 1 number 8 Banking Act (KWG) and the rules laid down by § 34 (f) Industrial Code (Industrial Code) for financial investment brokers and § 34 (h) Industrial Code (GewO ) for fee-based financial investment advisors. The asset management requires according to § 32 of the German Banking Act (KWG) the permission of the German Federal Financial Supervisory Authority (BaFin).

Development and dissemination

While functionally comparable software was already available to asset managers before the turn of the millennium, robo-advisors now enable end customers to access these functions directly with the help of the Internet. With lower entry barriers, lower costs and intuitive user interfaces, a larger number of users are given the opportunity to use such software.

Robo-advisors are most common in the United States, but various offerings are now available in Europe and other parts of the world. Metropolitan areas in particular are Silicon Valley and New York in the USA and Great Britain and Germany in Europe.

In addition to robo-advisors in the form of tech startups, some traditional banks and financial service providers are now also developing comparable offers.

United States

The world's leading robo-advisors come from the USA. By far the largest fixed assets are managed by the robo-advisors from Vanguard ("Vanguard Financial Advisor Services", since 2015,) followed by Charles Schwab ("Schwab Intelligent Portfolios", since 2015) and the startups Betterment (founded in 2008), Wealthfront ( 2008) and Personal Capital (2009).

Germany

The best-known robo-advisors include the startups Ginmon (Frankfurt a. M., Shanghai), growney (Berlin), Scalable Capital (Munich / London), LIQID (Berlin), Moneyfarm (Frankfurt a. M.), Visualvest (Frankfurt a. M.) and Whitebox (Freiburg).

Bank-side offers include bevestor (DekaBank, Sparkassen Finanzgruppe), ROBIN (Deutsche Bank), Easyfolio (Frankfurt a. M.), Fintego ( European Bank for Financial Services , subsidiary of the British financial services provider FNZ Group ), cominvest (comdirect Bank AG) , Wüstenrot ETF Managed Depot (Wüstenrot Bank AG Pfandbriefbank), Quirion ( Quirin Bank ) and Zeedin ( Hauck & Aufhäuser ).

There are also offers from technology companies specializing in the B2B segment, i.e. H. offer their technology, but do not offer their own retail business. These include a. the companies WeAdvise (Munich) and Fincite (Frankfurt).

Austria

Austrian providers include Finabro, Savity and Spängler.

Switzerland

The first robo-advisor in Switzerland is the VZ finance portal of the financial service provider VZ VermögensZentrum (launched in 2010). Other providers followed.

Great Britain

The best-known robo-advisors are Nutmeg (Start 2011), Moneyfarm (2011), Swanest (2014), Scalable Capital (2014), eVestor (2016) and Wealth Horizon.

China

The best-known robo-advisors in China include CreditEase, Ginmon, ToumiRA and Xuanji.

Investment strategy

In principle, the investment strategies of the robo-advisors active in Germany are based on three different portfolio and risk management approaches. These are largely used by traditional asset managers and are based on modern capital market theory and quantitative risk management procedures.

Buy and hold (B&H)

A basic distinction is made here between the variants with and without rebalancing. B&H without rebalancing means that the number of units of the respective investment units acquired for the first time remain unchanged in the portfolio until the end of the investment period. With B&H with rebalancing, the relative and not the absolute number of shares are kept constant. Since the percentage weights of the individual shares change over time due to price movements, regular rebalancing ensures that the relative original weights are always restored. B&H without rebalancing has the advantage that there are no additional transaction costs. However, the portfolio weights can vary significantly over time from the originally selected weights. Regular rebalancing avoids this, but is associated with transaction costs. In addition, there is a risk that long-term winners will be systematically sold and long-term losers will be systematically bought, which affects long-term performance.

Value at Risk

Some robo-advisory solutions focus primarily on limiting the possible downside risks for the investor and not on optimizing possible return potential. The risk measure used for this is mainly the Value-at-Risk (VaR), which indicates the volume of losses that will not be exceeded with a probability of p% in a defined investment period. The customer's risk tolerance is determined using a questionnaire and then assigned an individual risk measure.

Factor models

Other investment approaches are based on the Fama-French three-factor model . This theory expands the Capital Asset Pricing Model (CAPM), which explains the return of a stock in terms of general market return, by two additional factors: market capitalization (small-cap premium) and the ratio of book to market value (value premium) . This should better map the behavior of stock returns than with the CAPM.

Existing robo-advisory solutions mostly use this approach in combination with countercyclical portfolio management. Depending on the respective valuation of an asset and the corresponding key figures, it is determined whether an asset class is overvalued or undervalued relative to the other portfolio components. As a result, the investor-specific risk profiles are kept as constant as possible in different market phases and the risk clusters that arise are reduced.

Fixed assets under management

With Vanguard, Charles Schwab, Betterment and Wealthfront, the largest robo-advisors are based in the USA, while Nutmeg (Great Britain) and Scalable Capital (Germany and Great Britain) are the leading providers in Europe. The assets under management of the leading robo-advisors in Germany and the USA (as of October 2018):

Assets under management in Germany (in million euros)
Robo-Advisor active since Capital assets
Scalable Capital 2016 1,300
Liqid 2016 350
Cominvest 2017 200
Quirion 2014 135
Growney 2016 100
Assets Under Management in the United States (in billion US dollars)
Robo-Advisor active since Capital assets
Vanguard 2016 112.0
Charles Schwab 2015 33.3
Betterment 2008 14.1
Wealth front 2011 11.1

While AT Kearney is forecasting an increase in assets under management of 255 billion dollars in the USA by 2020, BI Intelligence is forecasting 8.1 trillion dollars globally by then.

costs

The costs for robo-advisors can be broken down into costs for asset management, i.e. the actual robo-service, and - in the case of fund-based robo-advisors - the running costs for the funds.

According to a study by Stiftung Warentest in August 2018, the total costs for a sample investor with the cheapest providers amount to around 0.6 percent of the investment amount annually. The most expensive robo in the test even costs 1.87 percent per year. For comparison: According to information from Stiftung Warentest, balanced mixed funds cost an average of 1.92 percent per year. The robotic service alone costs between 0.39 and 1.2 percent of the investment amount per year and usually also includes deposit and reallocation costs.

The ongoing fund costs depend primarily on the type of fund that the robo-advisors use to invest. ETFs are significantly cheaper here than actively managed funds.

implementation

Robo-advisors are roughly based on two different approaches: on the one hand, the customer is provided with a fixed portfolio of index funds (ETFs). The weighting of the various asset classes always remains the same (static asset allocation). The portfolio is rebalanced at regular intervals. On the other hand, a distinction is made between dynamic approaches. Here the robo-advisors adapt the portfolio to the current market situation. The adjustment is made using mathematical algorithms. All approaches have in common (usually via a questionnaire) the determination of the customer's risk appetite. The portfolio is created based on this. The portfolio is then monitored in order to keep the investment in the previously defined risk area. The providers often differ in the frequency and extent to which such adjustments are made.

When creating the portfolios, stock exchange-traded funds (ETFs) - mostly index funds - are often used , as these enable inexpensive diversification that can be implemented quickly .

The robo-advisors currently on the market can be roughly divided into three categories:

  1. Consulting tools: With this form, only software is offered to determine a suitable portfolio for the user. However, the user has to buy the portfolio components himself.
  2. Fund solutions: The provider bundles previously created portfolios in a fund of funds that the customer can purchase on the stock exchange.
  3. Managed Depots: Robo-advisors in this category have the most comprehensive offerings. A portfolio is determined for the customer and the investment is then implemented and monitored accordingly in the custody account of a partner bank.

Since robo-advisors usually do not have their own banking license , they often work in cooperation with a partner bank . The partner bank manages the custody account in which the assets are held and carries out the transactions. As a special fund, the money invested is therefore protected from unauthorized access.

regulation

In the United States, robo-advisors are considered investment advisers and must register with the United States Securities and Exchange Commission (SEC). In Germany, a distinction is made between financial investment brokers and asset managers. Most robo-advisors act as financial investment brokers in accordance with Section 34 et seq. Industrial Code (GewO). You may not switch client portfolios without the client's approval. The stricter § 34h of the Trade Regulations (GewO) regulates the offense of fee-based financial investment advice. Robo-advisors with this permission may not bind themselves to individual providers and may not accept commissions or other benefits from product providers or banks. Some providers are regulated asset managers and meet the stricter requirements of Section 32 of the German Banking Act (KWG). They are allowed to implement investment decisions directly without being asked to do so by the customer or having to obtain prior approval.

Using a standardized chain of causality, the robo-advisor can use various text modules to generate an automated declaration of suitability , as required by section 64 (4) of the WpHG for private investors .

Individual evidence

  1. ↑ a b Robo-Advisor . In: Gabler Wirtschaftslexikon . Accessed in 2019-11-0400.
  2. ↑ How Robo Advisors Master the Crisis. Capital. Retrieved April 27, 2018.
  3. ↑ Federal Financial Supervisory Authority and Deutsche Bundesbank: Joint information sheet of the Federal Financial Supervisory Authority and the Deutsche Bundesbank on the offense of investment advice. (PDF) Federal Financial Supervisory Authority and Deutsche Bundesbank, July 2013, accessed on July 14, 2016 .
  4. ↑ IHK for Munich and Upper Bavaria: Financial investment broker and fee-based financial investment advisor. IHK for Munich and Upper Bavaria, accessed on July 14, 2016 .
  5. ↑ a b Regulation of Fintechs Private Bankers. Retrieved May 2, 2016.
  6. ^ The Rise of the Robo-Advisors - Should You Use One? Investor junkie, accessed April 27, 2018.
  7. ^ The Real Hidden Cost That Has Been Inhibiting Financial Planning For The Masses. Kitces.com, accessed May 2, 2016.
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  9. ↑ These are the largest robo- advisors in the world , Fintech.ch, August 7, 2017.
  10. ^ Vanguard Introduces Personal Advisor Services , May 5, 2015 press release.
  11. ^ Charles Schwab launches Schwab Intelligent Portfolios , press release March 9, 2015
  12. ↑ That's how good the ready-made portfolios of Internet consultants Finanztip are. Retrieved May 2, 2016.
  13. ↑ Patrick Junker: ÖKO-TEST Online. In: www.oekotest.de. Retrieved May 31, 2016 .
  14. ↑ Finevision and Media Guide for Cash.Online http://www.cash-online.de/ : New B2B robo-advisor at the start . In: Financial news on Cash.Online . ( cash-online.de [accessed on April 9, 2018]).
  15. ↑ Portrait of Fincite: The somewhat different robo advisor | private-banking-magazin.de . In: private-banking-magazin.de . ( private-banking-magazin.de [accessed April 9, 2018]).
  16. ↑ Robo-Advisors: Only the big ones will survive . In: www.fondsprofessionell.at . ( fondsprofessionell.at [accessed on May 4, 2018]).
  17. ↑ Partner Bank: No complaining about regulations. In: www.fondsprofessionell.at. Retrieved December 23, 2018 .
  18. ↑ Build up wealth with ETF savings plans , interview with Marc Weber, CEO of VZ Depotbank, in Punkt-Magazin, August 3, 2011.
  19. ↑ Pascal Meisser: The robots conquer asset management. In: Finanz und Wirtschaft , February 3, 2016, accessed on June 13, 2019.
  20. ↑ Sarah Naegele: Robo-Advisor: Investing with Algorithm-Based Models. August 14, 2016, accessed May 1, 2017 .
  21. ^ Eugene F. Fama and Kenneth R. French: Common risk factors in the returns on stocks and bonds . University of Chicago September 1992.
  22. ^ Cullen O. Roche: Understanding Modern Portfolio Construction . Ed .: Orcam Group LLC. February 2016, p. 44 .
  23. ↑ Start-ups benefit from the entry of the major banks Handelsblatt. Retrieved October 15, 2018.
  24. ↑ Robo Advisers to Run $ 2 Trillion by 2020 if This Model Is Right Bloomberg. Retrieved May 2, 2016.
  25. ↑ Here are the top 15 robo advisors making stock portfolio management easy in 2017 . January 3, 2017. Retrieved February 19, 2017.
  26. ^ Stiftung Warentest: Robo-Advisor-Test . In: Finanztest 8/2018 and test.de from July 23, 2018.
  27. ^ A History of Robo-Advisors Futureadvisor. Retrieved May 2, 2016.
  28. ↑ This is How Robo-Advisors Use ETFs Investopedia. Retrieved May 2, 2016.
  29. ↑ Professional duties for financial investment brokers and fee-based financial investment advisors. (PDF) (No longer available online.) IHK Nuremberg for Middle Franconia, archived from the original on August 12, 2016 ; accessed on August 12, 2016 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / www.ihk-nuernberg.de
  30. ↑ Asset advisor or asset manager? The subtle difference dasinvestment.de. Retrieved May 18, 2016.
  31. ↑ Tobias B. Madel, Robo Advice , 2018, p. 188 f.