‘We’ve combined innovative technology with years of investment wisdom to create portfolios that can help your money grow.’ - Moneyfarm
If you are reluctant to pay for a financial advisor or you don’t have the time, energy or knowledge to select your own investments, Moneyfarm might just be the perfect option for you to kick-start or refine your investing career. Orca have now updated this review of Moneyfarm as of June 2018 to offer you the best insight when it comes to selecting the right robo-advisor for your portfolio.
Moneyfarm is considered a “robo-advisor” that aims to make investing more accessible for first-time investors and remove the hassle from investing for more experienced investors. Like other robo-advisors, Moneyfarm will ask you a series of questions during the signup process, which will help you to determine your personal risk profile and investment objectives. Moneyfarm will then automatically invest your money into a liquid, cost-efficient portfolio, which is suited to your financial goals.
The company was founded in Italy in 2011 and has assumed a market leading position in the Italian market. Moneyfarm UK launched April 2016 and the digital investment manager has quickly established itself as major figure in the UK robo-advice market.
Now, the robo-advisor has attracted more than 27,000 active investors in the European market since its launch and is managing around £400 million in assets under management, increasing over 50% from August 2017 - May 2018.
This growth is expected to continue, fuelled by strategic investment from Allianz Asset Management. First investing in Moneyfarm in September 2016, Moneyfarm secured an investment round of £40 million, led by Allianz Asset Management in May 2018. With this, Moneyfarm plans to add additional layers of personalisation to their current model, using data-points to make portfolios increasingly unique to investors’ needs. This improvement reflects their ambitions of creating investments that are “simple, efficient and tailored to your profile”.
Benefits of a Moneyfarm Investment
When compared against a financial advisor, Moneyfarm’s investment process has a number of benefits:
- Lower costTraditional advisor fees are typically 1-3% AUM while Moneyfarm fees are lower0.7% (+0.3% fund fee) for the first £20,0000.6% (+0.3% fund fee) charged from £20,000 to £100,0000.5% (+0.3% fund fee) charged at £100,000 to £500,0000.4% (+0.3% fund fee) for assets above £1,000,000.
- Less upkeep, but there when you need themNo need for long face to face meetings, but always available online or over the phone. Moneyfarm has also experimented with opening “popup” stores in Milan.
- No minimum commitmentWhen investing in Moneyfarm there is no minimum investment, however, Moneyfarm fees are no longer waived for investments under £10k.
- Ability to view your investments onlineMoneyfarm is focused on its users (investors). An intuitive platform provides an overview of your investment performance.
- Personalised portfolios
- Moneyfarm allocates your funds based on a series of questions regarding your investment experience, risk appetite and more.
Moneyfarm has the following benefits over traditional investment platforms:
- Removes the hassle of selecting investmentsMoneyfarm will invest your funds on a purely discretionary basis with no active involvement from yourself required.
- Time savingSave time on researching investments. Moneyfarm’s expert team of finance professionals constantly monitors ETFs and market conditions to ensure your portfolio is performing adequately.
With these benefits, Moneyfarm is well suited to individuals who want a low-costing, hassle-free investment. Perfect for first-time investors, particularly for people who are already comfortable with managing their finances online. As an investor, you’ll be able to hold your investment in a tax-efficient ISA or a General Investment Account (GIA).
New to the platform, since April 2018, is Moneyfarm’s “Pension” product. A benefit of this product over other offerings, Moneyfarm states, is that it has “target-date functionality”. This enables the pension portfolio to be personalised in many ways, such as to reduce risk as your date of retirement approaches.
The annual fees for this product is 1% for investments less than £10,000, and 0.72% for investments over £2.5 million.
For a pension product, these fees could be considered to be quite pricey with the likes of Hargreaves Lansdown charging a 0.45% for investments up to £250,000 and no fee for investments over £2 million. This begs the question, is an extra layer of personalisation for your pension worth the added fee?
Moneyfarm Sign-up Process
So, how does it work? The whole ethos of Moneyfarm is to make investing as simple as possible.
Moneyfarm offers a handy “Portfolio preview” option before signing up, allowing investors to adjust their initial investment, monthly contribution, investment period and risk level to achieve the desired outcomes without first making any commitments.
Once you start the sign-up process with Moneyfarm, as well as the normal details you would expect from an online sign-up process you will also be asked a series of questions to determine your suitably and tolerance to financial risk. This is important as the answers you give, combined with your financial goals, which you are also asked, drive the Moneyfarm algorithms to allocate your investment.
Questions on risk are not solely based on how financially adventurous you are, but also your knowledge of investments and your financial situation. If you have a high appetite for risk, yet you have little financial security, a high-risk portfolio will not be suitable. This question-led approach is actually very similar to how a financial advisor would determine your suitability to financial products. Personally, I actually enjoyed answering the questions, it’s a fun process and useful in helping you to think about your financial goals a bit more clearly!
Here are some example, with answers required in agree/ disagree format:
- Risk does not worry me. It is the best way to maximise the probability of returns.
- I generally feel stressed about my investments and frequently check their performance.
- I regularly invest in ETFs, mutuals or other financial products.
- I am familiar with Exchange Traded Funds (ETFs), mutual funds and similar instruments and consider them a good way to diversify investments and reduce risk.
- I know that despite investing in GBP I may be exposed to other currencies through an ETF or Mutual Fund and the value will depend on exchange rates.
After completing the sign-up questionnaire your funds will be allocated to one of the six managed investment portfolios (shown above), depending on your suitability and risk appetite. When I signed up, I was deemed to be an Exploring Investor, “motivated, diligent, determined, these are the values that describe your approach to wealth”.
You do have the ability to fine-tune the exposure to risk within your portfolio, but you are not able to individually select investments. This is where the ‘discretionary’ element comes into play.
It is possible to create a number of portfolios on Moneyfarm, so you can diversify even further across different risk-graded portfolios, if desired.
Moneyfarm User Portfolio: Aggressive profile
The above chart shows how Moneyfarm has allocated assets in an aggressive portfolio. This is a base case, generated from the questionnaire which can be altered by adjusting the risk profile, investment amount and time horizon. As these inputs are fine-tuned the proportion of less risky assets (cash) relative to the proportion of riskier investments (equities) are adjusted accordingly. This adds a degree of user input, if desired.
Moneyfarm accepts phone calls for investors who require extra support or simply want to speak to someone over the phone, before taking that all important next step. A nice addition to the service.
The past performance and expected performance of the above portfolio are covered below.
Moneyfarm UK Investment Strategy
“Our investment strategy is tailored to your profile and laser-focused on giving you a simpler, smarter investing experience” - Moneyfarm
Moneyfarm portfolios contain a mixture of asset classes diversified across geographical areas and currencies. To represent asset allocation, Moneyfarm invests solely in Exchange Traded Funds (ETFs). An ETF is an investment vehicle that tracks an asset index (equities, bonds, commodities) and is listed on the exchange, similar to an equity or bond. As ETF’s are not actively managed, they have the benefit of reduced costs and as they are listed on the exchange they are highly liquid, differentiating them from index funds. Moneyfarm claims the use of ETF’s offers benefits such as full transparency and low management fees.
A separate strategy dictates the direction of each of the six individual investment portfolios and the assets that sit within these portfolios. The platform offers a breakdown of each investment portfolio with strategies here, with an example (portfolio 3) shown below:
The Moneyfarm UK Investment Committee monitors investments over time and rebalances the allocation of assets based on their performance.
Moneyfarm Investment Performance
The performance of a Moneyfarm investment is determined by two main factors:
- Market conditions: As Moneyfarm invests your funds into ETF’s that track markets, the performance of your investment is largely dependent on market conditions. As an investor, you need to think of Moneyfarm as a long-term investment to account for short-term market volatility.
- Investment selection: When investing in Moneyfarm, you are entrusting Moneyfarm’s Investment Committee to allocate your funds and maximise your returns, for your given risk profile.
Moneyfarm as a long-term investment to account for short-term market volatility
To assess performance, Moneyfarm has an interactive chart on their website. For example, the snapshot below shows how a portfolio at Risk Level 4 would have performed since January 2016.
Investors should be conscious that reviewing investment performance is notoriously difficult and it has been constantly proven that historical performance is not an accurate indicator of future returns. Ultimately, investors need to be comfortable with the risk profile of their portfolio and believe in the investment strategy employed by Moneyfarm.
Moneyfarm Fee Comparison
Against traditional financial advisors, robo-advisors, and particularly Moneyfarm, stack up well in terms of fees. Traditional investment advisors typically charge anywhere between 1%-3% of the asset value in annual fees.
Moneyfarm’s fee structure can be seen below:
Moneyfarm announced they would be raising their fees in October 2017 to the above offerings as part of the platform’s plans for expansion. Previous to this, the robo-advisor offered a fee-free investment for anything up to £10,000 (not including the 0.3% underlying fund cost).
The company’s CEO, Giovanni Dapra, commented on this fee-change:
“Moneyfarm continues to be a competitive option in the investment landscape. We have worked to ensure your investment will never be more than 1% when you combine the underlying fund cost and the management fee”.
Now, investing less with Moneyfarm incurs consistently higher fees. If you invest £20,000 or less, you will incur a fee of 1% (including fund fees). However, investing £1,000,000 or more will incur only 0.73% (including fund fees). At these higher levels, this small change in fee can make a large difference to your portfolio. But, it is clear that Moneyfarm strategically encouraging higher level investors to the platform.
Just as stated by Dapra, the Moneyfarm fee structure does still perform well against competing robo-advisors, as seen below. However, Moneyfarm’s low fees are being consistently challenged by Wealthify.
Robo Advisor Annual Fee Comparison (Incl. Fund Fees)
Moneyfarm Review Conclusion
The performance of investments through Moneyfarm will be demonstrated over time. But, we agree that the ethos and ease-of-use of Moneyfarm is great. Although Moneyfarm’s fee changes have removed the attractive “no fees attached” offer to your first £10,000 under management for new investors, the increase in fees is somewhat small across higher investment levels and, true to Dapra’s statement, Moneyfarm still remains a competitive fee-structure in the robo-advisor market and we are excited to see the positive changes in store for this fast-growing robo-advisor.
Editor note: This is an updated version of Moneyfarm Review, data is correct as of 11th June 2018.