From Boring Money Bulletin September 2017

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Robo Returns

We think that robo advisers are a good way to deliver diversified portfolios to less engaged consumers. (Which incidentally doesn’t mean less wealthy consumers!) However it’s hard to compares apples with apples and with limited track records the availability of information about performance is limited.

We sat with 5 of the main robo advisers and discussed how we could showcase returns to customers and address the main questions people have. Namely – how much could I lose? And how much might I make?

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Benchmarks are an industry construct which mean little to consumers. And too often the industry takes a framework, or a tool, or content which has been developed for an intermediary audience, and just forces it down the throat of the alienated customer. One benchmark which people understand is cash. So we have shown performance alongside a popular cash account, the Santander 123. People also tend to have a concept of what the FTSE 100 is. So we’ve also included that. It’s a point of reference. Not a benchmark.

Years in the industry can blinker us to the fact that many people have no points of reference. They don’t know whether these investment portfolios should return £1, £10 or £100. OR whether they might lose 10%. 50%. Or 100%.

By framing the discussion around maximum drawdown over any 1 year (how much could I have lost?) we at least put a number of people’s worst fears rather than being nebulous and conceptual.

A further challenge is that all the robos have differing numbers of portfolio with different asset allocation profiles. Nutmeg’s most aggressive portfolio might be very different to Scalable Capital’s most aggressive portfolio. So how to compare like with like? We have decided to focus on three profiles. The 'Mild' portfolios most like cash/with the least risk. The ‘Medium’ portfolios with attributes most like a blend of half cash, half FTSE 100. And ‘Spicy’ Portfolios which are most like 100% FTSE 100.

We’re testing and learning what resonates with consumers. Please contact us if you have any suggestions or would like to be involved in the testing and debate!