Automated advisory could give better yields than managed funds

The purpose of wealth managers can be continually scrutinised, especially when the returns they make for clients are modest to dismal

The purpose of wealth managers can be continually scrutinised, especially when the returns they make for clients are modest to dismal.

Warren Buffet recently warned, at the annual meeting of Berkshire Hathaway Inc., that investors should steer away from money managers and consultants, in favour of stock market based index linked funds.

Buffet made a bet that a Vanguard Group Inc. fund that tracks the S&P 500 Index could beat a collection of hedge funds from 2008 through 2017 – with the proceeds going to charity.

Last Saturday, he revealed that the hedge funds picked by Protege Partners had returned 21.9% in the eight years through 2015. The S&P 500 index fund had soared 65.7%.

Roboadvisers such as Wealthfront and Nutmeg are, for the most part, basing their investment portfolios on passively managed ETFs, with the added advantage of a convenient tech interface for the client to keep track of their investments.

Clearly the fees are far lower than in the private banking and wealth management space, but the returns in the long run are often better as well.

We often talk of roboadvisory services from a digital engagement perspective – engaging the next generation of wealthy clients, and their requirement for digital channels. But the reality is that the most important aspect of an investment service is returns.  If passively managed solutions are beating the private banks and wealth managers, then the industry’s days are clearly numbered.