You will be able to compare two robo-advisors' portfolios at a similar risk level on holdings, costs and features.
Arjun has narrowed his choice to two robo-advisors. Both have clean apps and promise low fees, and friends have recommended each one. Reading their websites side by side has left him less sure than before, because each site leads with whichever number makes it look best.
A comparison sheet helps by asking both providers the same questions. You compare two portfolios at a similar risk level on holdings, all-in cost, rebalancing, minimum investment and withdrawal terms. Provider A and Provider B below are made-up providers, and their figures are invented for the example.
Start by searching each provider's company name in the MAS Financial Institutions Directory, and note the licence type it shows. Lesson 4.1, "From questionnaire to portfolio", explains how to search the directory. If a provider does not appear there, swap it for another provider before you do any more work on it.
Providers give their risk levels different names, so compare portfolios by the share each one holds in equities and leave the labels aside. Arjun's questionnaire placed him in the high-risk model at both providers. Provider A's high-risk model has 60% in equity funds and Provider B's has 80%, which is too wide a gap for a fair test. He used B's model one level down instead, which holds 60% in equities. If your own questionnaire puts you at the "same" level at two providers but their equity shares are far apart, move to a different level at one of them in the same way.
On each portfolio page, write down every fund with its weight, its expense ratio and its type, either an ETF or a unit trust share class. Lesson 4.2, "The funds inside a robo portfolio and how it rebalances", shows where to find these details.
The all-in yearly cost is the advisory fee plus the weighted expense ratio of the funds. Lesson 4.3, "What a robo-advisor really costs", goes through the calculation. Put the result on your sheet twice, as a percentage and as a dollar amount on your own balance.
Arjun has S$20,000 to invest. Provider A uses four index ETFs, with an advisory fee of 0.5% and weighted fund costs of 0.20%. Its all-in cost is 0.70%, or S$140 a year. Provider B uses institutional share classes of actively managed unit trusts, with an advisory fee of 0.8% and weighted fund costs of 0.30%. Its all-in cost is 1.10%, or S$220 a year. On his balance the gap is S$80 a year (S$220 - S$140), and the dollar gap gets bigger as the balance grows.
Provider B argues that its active funds will earn more than the index after costs, which would justify the higher fee. Module 6 looks at how often claims of that kind have held up.
Cost takes up one row of the sheet. The remaining rows describe how each service would work for you from day to day.
For rebalancing, note which method each provider uses: calendar, threshold, cash-flow or a mix of these. Provider A rebalances when a fund's weight drifts five points from its target, and Provider B rebalances every quarter.
The minimum investment has two parts, the amount you need to start and the amount you need for each top-up. Provider A has no minimum, and Provider B asks for S$1,000 to start.
Under withdrawal terms, record how long a withdrawal takes to reach your bank, whether you can withdraw part of your balance, and whether there is a charge. Provider A takes about five business days and Provider B takes up to seven.
If you plan to invest money from the CPF Investment Scheme (CPFIS) or the Supplementary Retirement Scheme (SRS), check whether each provider can hold it, because not every robo-advisor accepts both. CPF Board sets the rules on what CPF money can buy, so check the CPF Board website as well as the provider's own page. Arjun is investing cash only, so he notes this row and moves on.
For every figure, write down where you found it (portfolio page, fee page, terms or FAQ) and the date you read it. Fees and models change, so if you come back to the comparison later, for example in a year, check each number again at its source. Don't rely on memory or on review articles, which may already be out of date when you read them.
Arjun's sheet is one table with a column for Provider A and a column for Provider B. Its rows are licence, equity share, funds and weights, advisory fee, weighted fund costs, all-in cost in percent and dollars, rebalancing method, minimums, withdrawal time, and CPF and SRS eligibility. Each cell has its source.
Reading down the columns, he finds that most rows are close, with two exceptions. On cost, A is S$80 a year cheaper on his money. On fund type, B relies on active funds and A uses index funds. He decides these two rows matter more to him than the minimum or the two-day difference in withdrawal time.
In the activity below you will complete the comparison for two providers of your own choosing and write the two differences that would matter most to you.
Fill in the robo comparison sheet for two providers, then write down the two differences that matter most to you.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).