Moneyfarm is an investment robo-advisor, which uses underlying low-cost ETFs to invest clients’ funds. It manages your stock market/ bond investments for you and cuts out the transaction fees associated with investing directly yourself. You set up your investment goals and your risk profile, and their platform allocates your funds to an optimised, low cost investment portfolio. They have no platform fees on the first £10,000 investment and you just pay the underlying ETF fees. Beyond that there are platform fees (I’ll go into more detail and some case studies in this review).
I’ve been investing with Moneyfarm for just over 4 months. I’ve also been using TD Direct Investing, a traditional broker, for more than 5 years. So this review will look at this new robo-advisor through the eyes of someone used to a more manual, hands-on platform. I will compare an investment in a Vanguard LifeStrategy fund via TD Direct Investing with Moneyfarm.
My Personal Investment Background
I started investing seriously in 2011, saving what I could each month from my job and putting it into a stocks and shares ISA. I chose TD Direct Investing (then TD Waterhouse) because of their low charges and low cost regular investment service. I’ve refined my investing strategy over the last few years and can classify it into these 3 stages:
- Experimentation. At first I spent a lot of time reading company news and investing media/blogs. I picked individual shares that I felt had good value and would beat the market average. My thought was that most fund managers and professional investors are judged on their short-medium term performance, and if I took a contrarian long term view I could beat their performance in the long term. In practice, what happened was that I lacked diversity and the portfolio was too risky. I also felt myself becoming attached to certain stocks that I’d bought and had fallen after: it was mentally difficult to crystalise a significant loss. Finally for my small portfolio trading fees were too high, although TD Waterhouse had a regular investment cut that to £1.50 a buy, what they didn’t advertise so clearly was that it still cost £12.50 to sell each stock. After around 9 months I changed strategy to focus on:
- Diversification. Instead of investing in individual stocks, I decided to think about where the world was heading and invest thematically. I thought about a long term view of the world and invested in funds that would outperform within those changes: Agriculture, Healthcare, India, Resources and also a few more general funds (UK tracker, US tracker, Japan tracker). This strategy still gave me hope that I could beat the market average in the long term, but without the shocks of investing in individual shares.
- Cost-cutting. After a few years of the thematic investing strategy I began to look more closely at the underlying fund charges, which can be surprising high (some of mine had annual maximum management charges over 2%). I began to feel that many of the different funds I had, although targeting different areas, either shared underlying constituent shares or had a reasonably close correlation. You don’t have any control over how the market performs, but what you can control is the fees and charges that cut into returns (platform fees, trading costs and the underlying fund management charges). So I focused on drilling into costs while maintaining diversification to achieve around the market average.
Each year, the costs of investing in tracker ETFs or ‘funds of funds’ like the Vanguard Lifestrategy that invest in a basket of tracker funds have been falling. We now have the introduction of more innovative products: robo-advisors like Moneyfarm that come at the same problem from a slightly different point of view. So now I am moving towards selling off most of my individual funds and the associated manual rebalancing process and just investing via these automated, low-cost methods. For this review I will focus on the two platforms that I have experience with: Moneyfarm and TD Direct Investing. For the purpose of this review, within TD Direct Investing I would just buy the Vanguard Lifestrategy fund, which is quite highly regarded as a cost effective/low hassle investing method. The Vanguard Lifestrategy series of funds let you choose a ratio of stocks to bonds. For example, the Vanguard Lifestrategy 60 is 60% stocks and 40% bonds. It invests in low cost ETFs by Vanguard, and now has an ongoing charge of 0.24%.
Which is the best, and for what circumstances?
Moneyfarm’s fees are (for both ISA/non-ISA):
Source: https://www.moneyfarm.com/uk/pricing/ on 10/01/2017
There is also an underlying fund charge which currently averages 0.25%.
TD Direct’s Stocks & Shares ISA fees are:
- TD Account Fee: Free if you have over £5,100 in your account or a regular investment set up (£36 per year otherwise)
- Buying/Selling Funds: Often free, but sometimes there are additional charges (see individual KIID documents)
- Fund Platform Fee: 0.3% per annum of your fund holdings up to £250k, then 0.2%
- Vanguard LifeStrategy Ongoing Charges: 0.24% per year
To look at how fees apply in practice I’ve made 4 example investor profiles to look at over a 12 month period:
- Beginner: £3,000 invested
- Intermediate Investor: £20,000 invested
- Experienced Investor: £85,000 invested
- Advanced Investor: £250,000 invested
Beginner (£3,000 invested)
With a smaller investment amount Moneyfarm is a clear winner. You could reduce TD Direct Investing fees to 0.54% by setting up a regular investment, but still annual fees would be over twice Moneyfarm’s.
Intermediate (£20,000 invested)
At any amount up to approx. £19,350 Moneyfarm is cheaper than TD Direct Investing + Vanguard Lifestrategy.
Experienced (£85,000 invested)
At this level of investment it is a little more expensive to use the Moneyfarm service: annual charges rise to a maximum 0.79% for those with a £100,000 investment.
Advanced (£250,000 invested)
After £100,000 Moneyfarm’s fees annual begin to fall again, but are still a little higher than investing in the Vanguard Lifestrategy + TD Direct Investing strategy until some point after £1 million invested.
Ease of Use
Once you log into Moneyfarm you see your overview dashboard:
(I’ve blacked out my personal details)
To make a new investment, you select your investment amount, monthly contribution, investment period (1-10 years) and risk level (low, medium, high). It then creates an optimal investment portfolio for you:
I wanted the highest risk possible. From trial and error I found the best way to get this was to set risk to high (obviously), investment length to the max (10 years) and have no/low monthly contributions. Beneath this there are a couple of nice charts. One shows my expected performance over the next 30 years with this portfolio (368.8% growth of £1,000 to £4,688). Another shows performance over the last year (18% growth):
When I add funds, either from a one off payment or regular investment/direct debit, it will automatically invest according to my profile. So overall it is incredibly easy to use, just set up the investment profile and add funds as and when I want.
If you wish you can drill into the detail of the underlying fund holdings. For every holding it shows details on the asset class, the annual fees/charges, a trend and the unique ISIN code that lets you find the ETF easily online:
And the individual ETF instrument trend:
So overall Moneyfarm is very easy to use, and also completely transparent. I’ve seen some other fund management intermediaries that don’t like to share details that directly identify the investments, because in theory you could just copy them yourself to cut out the management fees. Moneyfarm must feel that that the service they offer is so good, they have no fear of someone copying their investment breakdown.
TD Direct Investing
There is a lot more to investing via TD Direct Investing. First you need to add funds to your account, then you need to make individual buy orders on funds that you want. The interface is geared up for more experienced investors. From my initial dashboard there’s over 80 different links to different things that range from: a pension calculator, fixed income research, foreign exchange, advanced trading tools, a portfolio x-ray tool and much more.
If I want to buy the Vanguard LifeStrategy funds I go to ‘research’, then ‘fund selector tool’. This brings me to a fund filtering tool with 2,422 different options. I filter to Vanguard and can make a buy order once I find the one I want:
Acc stands for ‘accumulation’ meaning that net income is automatically reinvested, whilst Inc (‘income’) means that net income is paid into your cash holding account.
All this choice may be great for someone with more experience, but it is certainly not as easy to use as Moneyfarm. The Morningstar tools provided by TD Direct investing and this fund selector tool have been really useful for me in the past.
Both platforms allow you to view the exact breakdown of underlying ETF holdings and so are completely transparent about what they invest in. It can be sometimes difficult to have an understanding of the smaller constituents within the underlying ETF’s themselves, but for me that’s not really an issue.
The fees have been explained clearly and transparently too.
It can be quite frustrating trying to contact TD Direct Investing. Last November I noticed an unexpected deposit into my cash account, so I contacted their support via their email contact form. No reply. A few days later I noticed the money had disappeared again so I did a little more investigation. It had been one of my funds, that they sold without warning and used to pay their platform fees. Again, I emailed support with an unhappy message asking why I’d had no notifications, but no reply. A few weeks later I saw that their website now had a live chat so I tried that. However, the live chat is useless, as once you talk to them they tell you it is ‘not secure’ and just ask you to call the main contact number if you want anything account related. After two further calls I found out it had been a couple of charges dating back to 2013/2014 that they hadn’t told me about and now decided to forcibly take without warning. In all fairness they agreed to pay back half of this as a goodwill gesture, but it had taken months, many attempts to contact them and a complaint to get to the bottom of it. I’d had a similar frustration last July when I wanted to understand the underlying fund fees, where after many calls and emails different customer service representatives had told me contradictory information on ongoing fund charges/management fees.
So far Moneyfarm has been the opposite. They have a fully functioning live chat on their website that lets them quickly answer any questions I have without the need to call and wait on the phone. Recently I had a question on the effects of sterling hedging on some of the holdings in my account and the person on live chat was able to give me a detailed answer straight away. They sent investment updates during the year too, I had two separate emails the day following the surprise Trump election victory as they talked about the economic implications and suggested you could talk to their investment consultants if you wanted.
The last year has been eventful for UK investors: Brexit, a Trump election victory and a huge fall in the value of Sterling. From looking at my Moneyfarm investment portfolio it appears that they were taking a more cautious approach: some currency hedging and a max allocation to equities of around 60%. So, it would have underperformed a more aggressive/risky manual portfolio or many 100% unhedged equity allocations over the last year. However going forward, perhaps this cautious approach may work well.
In my case, my Moneyfarm dashboard is reporting a 7.23% return since mid September. My investment had an initial deposit and a monthly ongoing direct debit.
For less experienced investors or those investing smaller amounts, Moneyfarm has many advantages over traditional brokers. It is far easier to use, and often lower cost. Once you set up your investment profile and regular investment there’s nothing you need to do. You still have detailed information on your underlying holdings and their performance if you want it.
More experienced investors may like more control over individual stocks or funds and some research tools like Morningstar, and for these a traditional broker would probably still be better. Personally, I like to take more risk, and Moneyfarm appear to have a more defensive strategy than I would usually take.
In my experience so far, customer service is far better with Moneyfarm and may alone justify the slightly higher management fees for investments between £20k and £100k.