Robo-Advisors in Luxembourg (part II)
by Arnd Heßeler, Maria Katharina Heiden, Joël Theisen, and Sylvia Drewling, zeb Consulting*
Performance and transparency
In contrast to the funds business, where product quality can be measured transparently by means of the fund price, the performance of robo-advisors is not transparent, as the strategies are carried out within the individual client accounts and performance is not published in a certified manner.
In order to offset this weakness and bring transparency to the German market, brokervergleich.de shows a real-life test, where the website operators have opened live accounts, usually with balanced risk profiles, with all German providers to obtain performance data for online publication. However, brokervergleich.de offers only performance data for Investify, which is also available on the German market. KeyPrivate publishes quarterly reports on its website which document the performance of the ten investment strategies offered. For SpeedInvest and Birdee, no data is made publicly available.
The required minimum investment volume is another factor in which providers differ significantly. While SpeedInvest (EUR 500) as well as Birdee and Investify (EUR 1,000) have defined low entry volumes in their business models, KeyPrivate only addresses clients with an entry volume of at least EUR 15,000.
Figure 1: Luxembourg robo-advisors – overview of all B2C providers
Management fee and costs of funds
A look at the cost structure of robo-advisors reveals few differences. Providers ask for a management fee between 0.25% p.a. and 1% p.a. There are no additional costs for the securities account on which the investment strategy is executed and neither are there any additional transaction costs in case of a portfolio restructuring, e.g. as part of the rebalancing or due to inflows or outflows.
Since all providers mainly use ETFs based on shares and bonds to implement their strategies, fund costs are at least around 0.30% p.a. Due to the usage of investment funds, Birdee and Investify charge more, depending on allocation and individual setup.
The cost structure at SpeedInvest stands out. It only charges 0.25% p.a. (excl. VAT) in management fees, but there are additional fund costs of 1% p.a. for the SICAVs. Since the SICAV is a fund wrapper around the actual ETFs investments, it can be assumed that the client has to pay additionally around 0.30% p.a. for the underlying ETFs and thus faces similar fees as charged by the other providers.
KeyPrivate actually appears to be the cheapest provider due to its low management fees. A precise analysis, however, would only be possible in real-life operation with actual money involved.
Figure 2: What providers charge – the fee structure
Conclusion—small, but sweet
The market potential for robo-advisors in Luxembourg is limited compared to other European countries. Nevertheless, four providers have created an adequate offering that allows novices easy investing by means of three basic strategies and gives experienced investors the chance to customize their solutions. Actual diffusion into the mass market is only to be expected once robo-advice has become part of the standard offering of every bank.
* zeb consulting is a leading strategy and management consultancies for financial services in Europe. For more information, visit our website www.zeb.lu
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Read part I of the article here.