Do Robo-advisors generate real added value apart from a snazzy app? A study on automated investment advice concludes that in Germany, many Robo-advisors merely add cost to the value chain.
In Germany, over 75 percent of all Robo-advisors use only externally managed funds through either ETFs or actively managed funds in their asset management approaches. For this, investors usually pay an additional service fee. This is the conclusion of the study «Asset Management in Robo-Advisory» (in German) by the asset manager Evergreen and Green Finance Consulting, the student consultancy of Goethe University Frankfurt.
Comparatively High Costs
According to the study authors, the Robo-advisors' services mostly consist of providing a digital platform and independent asset allocation. Apart from pure ETF providers, there are only a few Robo-advisors that pursue their own, more complex investment strategies.
The costs for German investors are very high compared with other countries, as the trade journal «IT Finanzmagazin» observes. Germans pay an average service fee of 0.82 percent, while U.S. consumers pay an average fee of only 0.38 percent per year. Every second provider offers exclusively passive ETF portfolios, and 72 percent act as so-called funds of funds or distribute third-party funds from the start.
Little Added Value
The German Robo-advisor market does not yet show any pronounced disruption, the study continues. Many of the providers are merely a digital, user-friendly interface and only expand the existing units of the traditional value chain. To the authors of the study, the following maxim applies: «The shorter the value chain of the actual financial product, the lower the costs. This reduces the likelihood of customers and clients paying too much,» they conclude.
