How to Choose a Robo Advisor in Singapore

02 March 2023

TLDR? You really don’t need to look further than StashAway. 

With over 10 robo advisors now operating in Singapore, picking one to invest with can seem daunting. We’re here to break down how to choose a robo advisor in Singapore.

First, what’s a robo advisor?

A robo advisor is an investment platform that gives financial advice and provides automated investment services, generally at a lower cost than traditional financial advisors.

What are the benefits of using a robo advisor?

Apart from the lower fees, robo advisors are gaining traction in Singapore because they provide a valuable service to digitally-savvy investors – they reduce the cognitive load involved with managing money.

In other words, robo advisors make it easy for you to invest. With StashAway, all you have to do is enter your risk preference and investment goals and set up your deposit plan. We’ll then automatically create your portfolio and rebalance your investments for you. You no longer need to follow markets closely, research individual securities, or worry about timing the market.

How should you choose a robo advisor that’s right for you?

Here are the top 5 things you should look at, and how StashAway stands out from the crowd.

1. Check how safe your funds are with the robo advisor

Robo advisors haven’t been around for as long as the traditional banks have, so you might want to look into how a robo advisor holds its clients’ assets.

Why you should care about how a robo advisor protects your funds: 

You want to make sure you’ll still have access to your cash in the event the robo advisor closes or gets acquired.

StashAway keeps your money safe

We’re regulated by the Monetary Authority of Singapore (MAS): We have a Capital Market Services License for Retail Fund Management. This means MAS authorises us to manage assets and invest on behalf of individual investors.

We also keep your money separate from our company finances. We use reputable custodian banks that hold your money, whether it's in cash or in securities (your investments).

Your cash deposits are held in a Trust Account at DBS Bank while your investable cash and securities are held in a custodian account through Saxo Capital Markets Pte Ltd, which custodises your assets with HSBC and CitiBank.

This means you’ll always have full access and claim to your assets no matter what happens to StashAway.

2. Look at the robo advisor’s underlying investments 

There’s an ever-expanding landscape of asset classes, ETFs and mutual funds that robo advisors can invest your funds in. So, it’s important to assess the underlying funds that make up a robo advisor’s offering, and look at the experience and reputation of their respective fund managers.

Why you should care about a robo advisor’s underlying funds: 

The performance of the underlying funds, and how much you pay for them, directly translates into the returns of your investment portfolio.

StashAway uses ETFs rather than unit trusts to build your portfolios

Some of our competitors invest into unit trusts, which are actively-managed funds that focus on security selection. Examples of some well-known active funds include the Dimensional Global Core Equity Fund, UBS Global Emerging Markets Opportunity Fund, and PIMCO Global Bond Fund. (Learn more about ETFs versus unit trusts.)

We prefer ETFs because:

  • They’re a cost-effective way to get broad market exposure: the ETFs in our General Investing portfolios have an average expense ratio of around 0.2% p.a., while actively-managed funds cost an average of 0.6% p.a. in 2021.
  • ETFs are usually more liquid than mutual funds, because they’re traded on the public markets. Unit trusts can only be bought and sold after the market closes each day.

And, while it could be worth paying more fees for an actively-managed fund that outperforms the market, most active fund managers fail to beat the market in the long term. Data from the SPIVA US Scorecard, which compares the performance of US active fund managers against their relevant S&P benchmarks, found that 90% of large-cap mutual fund managers underperformed their benchmark over the 10 years to June 2022.

This is why all the investment solutions on our platform, including our General Investing powered by BlackRock® portfolios, invest solely into ETFs.

StashAway only chooses large, cost-effective ETFs from leading fund managers 

We’ve done the hard work of vetting the best ETFs for you, so you don’t have to! We select the funds we use in our portfolios using the following rigorous criteria:

  • Liquidity: We use ETFs with an underlying market size of larger than half a billion USD, so they’re easily tradable.
  • Cost-effectiveness: Instead of going for the cheapest ETFs, we focus on quality ETFs that are cost-efficient and successful in tracking their respective indices.
  • Simplicity: Our ETFs provide straightforward exposure to their asset classes, with no leverage or use of derivatives.
  • Credibility: We only select ETFs from experienced, reputable fund managers, and ensure that each ETF or underlying index has at least 3-10 years of track record.

3. Differentiate between real portfolio returns and back-tested returns 

When looking at a robo advisor’s investment track record, it’s worth checking to see if it is showing back-tested returns (hypothetical data showing how the strategy might have performed over a historical period) instead of actual returns.

A robo advisor may choose to show back-tested returns if it just started operations, or if it wants to show how its strategy might have performed in the past.

Why you should care about how a robo advisor presents its historical returns:

The trouble with back-tested returns is that they’re developed in a vacuum, without putting any money at risk and without putting the investment strategy through actual market fluctuations.

More importantly, back-tested returns are developed with the benefit of perfect hindsight - because we can see exactly how markets performed in the past, there’s potential for biases or hidden assumptions to slip into back-tested returns calculations.

StashAway only ever publishes real portfolio returns 

We regularly communicate our portfolio returns, so you know exactly how your investments are performing. (Click here to see the latest performance updates for our StashAway-powered portfolios and our BlackRock-powered portfolios.) And, for transparency, we always show actual portfolio returns rather than back-tested returns.

4. Check the fees the robo advisor charges 

Robo advisors generally charge lower fees than traditional asset managers. But it’s still important to understand a robo advisor’s fee structure, and figure out how much you’ll be paying to manage your money.

Why you should care about a robo advisor’s fees: 

Because fees add up, and ultimately, they’ll come out of your investment returns! So the lower your fees are, the easier it’ll be for you to reach your financial goals.

StashAway’s fees are straightforward and transparent

We invest in low-cost ETFs and make use of automation to keep our fees low.

Our annual management fee is calculated as a percentage of your total assets under management, ranging from 0.2%-0.8% p.a. This includes unlimited deposits and withdrawals, transfers between portfolios, and all rebalancing and reoptimisation costs. View our detailed pricing breakdown here.

But management fees are only part of the story: the cost of your portfolios’ underlying funds also add to the total fees you’ll incur while investing. As we mentioned earlier, this is why we prefer ETFs over unit trusts – their lower costs means you get to keep more of what you earn from investing.

5. Check that the robo advisor offers access to a human 

Robo advisors vary in how fast you can get access to customer service.

Why you should care about a robo advisor’s customer service: 

Great customer service is key in your overall investing experience. Being able to get your questions or issues resolved quickly makes investing way less stressful.

StashAway’s customer experience is second to none

You’ll never hear “press 1 for English” if you’re trying to get in touch with us. Our Client Engagement and Wealth Advisory team is just an email, WhatsApp, or phone call away (we pick up in 8 seconds!).

Don’t let decision paralysis stop you from investing 

Robo advisors or digital wealth platforms make it easy to invest, but it’s important to pick a platform that’s aligned with your investment preferences.

It’s equally important not to get bogged down by decision paralysis, because getting overwhelmed by choices and delaying the start of your investment journey could put your long-term financial goals at risk.

So, once you’ve chosen a platform that you’re comfortable with, put your money to work! The earlier you get started, the more time your money has to compound and grow with the markets.

If you're ready to start your investment journey with us, click here to sign up and get up to $10,000 SGD managed for free for 6 months.

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