What is a robo advisor?

En robo advisor kan hjälpa dig att automatisera processen att investera i pension och andra ekonomiska mål. Robo-rådgivarkonceptet är enkelt, men för nya investerare kan tanken att låta en programvarualgoritm välja dina investeringar verka något obekant. Vi tar en djupdykning i konceptet och berättar allt du behöver veta om robo-advisor eller robotrådgivare som de ibland kallas för på svenska.

A robo advisor can help you automate the process of investing for retirement and other financial goals. The robo-advisor concept is simple, but for new investors, the idea of having a software algorithm choose your investments may seem somewhat unfamiliar. We take an in-depth look at the concept and tell you everything you need to know about robo-advisors.

What is a robo-advisor?

A robo-advisor – also known as a robo, a robo advisor or a robo-adviser – is a type of brokerage account that automates the investment process. Most robo-advisors charge lower fees than conventional financial advisors because they invest your money in predetermined portfolios made mainly of specially selected low-fee exchange-traded funds (ETFs). Some robo-advisors also offer access to other more customized investment options for advanced investors or those with larger account balances.

Many robo-advisors can help you save for different personal finance goals simultaneously by providing sub-portfolios with different asset allocations. Consider a growth-oriented allocation for your home savings and a more income-oriented allocation for your retirement goals. Increasingly, robo-advisers also offer basic banking services, such as savings accounts.

Like conventional human financial advisors, robo-advisors are regulated by the authorities as registered investment advisors, which means they have a fiduciary responsibility to look out for your best interests when it comes to investment choices. Robo-advisors generally insure their accounts.

How does a robo-advisor work?

The “Robo” in robo-advisor is a nod to the automated features that are at the heart of this type of investment platform. The automation begins as soon as you sign up and the onboarding process usually starts with a questionnaire designed to help the software running a robo-advisor understand your current finances, your financial goals and your risk tolerance.

For example, if you indicate that you prefer to save for retirement, the robo-advisor would likely recommend an Investment Savings Account rather than a taxable account, with a portfolio of ETFs balanced for long-term growth. However, if you answered that you wanted to save for housing, the robot may recommend a taxable account with a portfolio of ETF funds balanced for short-term growth.

Some robo-advisors allow you to adjust your asset allocation. Continuing the example above, if this feature was available and your new robo-advisor recommended that your retirement portfolio include 80 percent stocks and 20 percent bonds, you might get to adjust the allocation to 90 percent stocks and 10 percent bonds, adding a little more risk to the mix.

The robo-advisor chooses your investments

It is important to understand that a basic advantage of robo-advisors is that you generally do not choose the individual securities and ETFs that make up your portfolio. The robo-advisor pre-selects low-cost index funds and sometimes other investments. These are mainly broad stock market funds that invest in domestic stocks, international stocks, bonds and real estate investment trusts (REITs). You may be able to choose thematic portfolios, such as a socially responsible investment portfolio.

Index funds such as ETFs charge very low fees and offer strong diversification. Historically, investments in low cost index funds have been associated with better investment returns over time than higher cost, actively managed funds.

Modern portfolio theory

Many robo-advisors use Modern Portfolio Theory (MPT) to design their portfolios. MPT aims to optimize portfolios for returns while minimizing risk through diversification. Think of MPT as applying the “don’t put all your eggs in one basket” mindset to your investment portfolio. By investing in a wide range of asset types, MPT increases the odds that when some of your investments are down, others will be up. This aims to keep your portfolio trending steadily upwards, even during volatile times.

In addition to diversification, most robo-advisors provide automatic portfolio balancing and, increasingly, tax offsets. Rebalancing portfolios helps you keep the right balance of investment types to meet your goals as market conditions change, and tax offsets can help reduce the amount you owe in the long term on capital gains taxes.

How much does a robo-advisor cost?

Robo-advisors generally charge annual management fees of 0.25 to 0.50 percent of assets under management (AUM), although some charge a fixed monthly fee instead. Low fees compared to traditional financial advisors are considered one of the main advantages of robo-advisors.

Traditional financial advisors typically charge around one percent of AUM per year (fees may decrease for clients with larger balances). On an investment balance of SEK 100,000, a 0.25% fee for robot advisors would amount to SEK 250 per year, while a 1.0% fee would correspond to SEK 1,000 per year.

Overall, the fees can take a significant chunk out of your long-term profits: over 20 years, for example, a 1% advisory fee can cost you almost €30,000 more than a 0.25% fee on an initial capital of €100,000.

A Robo-advisor is not always free

Some robo-advisors – SoFi Automated Investing, M1 Finance, Axos Invest (formerly Wisebanyan), Schwab Intelligent Portfolios and Fidelity Go – claim to charge zero management fee. Read the fine print and you’ll find that Schwab Intelligent Portfolios requires you to keep a percentage of your portfolio in cash (Schwab earns interest on that balance, not you) while Fidelity’s service is only free for balances less than $10,000.


In addition to management fees, you are generally on the hook for fees associated with the products in which your money is invested by the robo-advisor. ETFs may have much lower expense ratios than mutual funds, but you will still pay them one way or another.

The expense ratios for index funds are on average 0.21% but can be as low as 0.02%. This corresponds to 21 öre or 2 öre per 100 SEK you invest per year. However, you will not receive an invoice for these fees. They are generally deducted from the funds’ income or cash holdings and are automatically deducted from the returns.

Common Robo-Advisor functions

Many robo-advisors offer similar features. These include:

Automated investment: All robo-advisors allow you to schedule regular deposits into your diversified portfolio. The platform decides how to allocate your deposits to your portfolios. After completing your first questionnaire, you are usually not involved in the choice of investments.

Automatic rebalancing: Many robo-advisors provide automatic rebalancing of the portfolio. This means they adjust the proportion of investment types you hold based on market performance to keep them in line with your financial goals. This can happen if your stock values fell one year and their value took up less of your portfolio than desired. Rebalancing keeps you on track to reach your goals. Some robos (Betterment, Wealthsimple and Acorns) rebalance based on preset percentage points. Others (Ellevest, Wealthfront, Personal Capital and SoFi) regularly rebalance portfolios.

Tax efficiency: Some robo-advisors will optimize your portfolio for tax efficiency. For example, Betterment and Wealthfront offer tax-loss harvesting services where investments with latent capital losses are sold in a tax-efficient way to offset capital gains. This is done without charging an additional fee. Other robo-advisor platforms, such as Axos, charge an additional fee for this service, which it calls “Tax Protection.”

Personalized financial planning: Some robo-advisors, such as Betterment, offer financial planning services that can be purchased à la carte. Others, like Personal Capital and Wealthsimple, offer level management services based on how much you have invested. These services are included in the advisory fee you pay and include dedicated financial advisors to create personalized plans and customize your wealth management.

Goal-based accounts: While robo-advisors almost universally offer access to taxable investment accounts and retirement accounts, many robo-advisors can also create goal-based accounts. For example, Wealthfront offers the option of saving for college. Other robos, including Acorns and Stash, allow you to open accounts to invest for your children. Leading robo-advisors also allow you to invest for multiple goals at once through different account types, such as an Investment Savings Account.

Other banking services: Many robo-advisors now also offer checking, savings or cash management accounts. Wealthfront’s and Betterment’s cash management accounts allow you to make unlimited monthly withdrawals and offer competitive interest rates. Platforms like M1 also offer low-interest loans.

Do you need a robo-advisor or a financial advisor?

Robot advisors are not for everyone. If your financial situation is complicated or if you want to invest in more than index funds or a very limited range of other securities, it may make more sense to work with a financial advisor. You can choose a conventional financial adviser if you:

Value Customization: While some robo-advisors allow you to customize certain aspects of your portfolio, most place you in a preset portfolio designed for someone with your investment timeline and risk tolerance. Financial advisors can also use software to create portfolios, but they offer much more tailored choices and a much wider range of investment options.

Want to trade: If you want to trade stocks or invest in individual stocks and bonds, you may want to use a financial advisor or a traditional brokerage account with, say, Avanza in addition to a robo-advisor. Very few robo-advisers allow you to trade yourself. If you want the ability to invest in individual stocks in addition to a pre-built portfolio, consider a robo-advisor like Stash. We have not found a Swedish robo-advisor that offers this.

Want a comprehensive financial plan: Robo-advisors excel at ETF-based portfolio construction. If you want advice for your entire financial life, including recommendations for products like insurance or estate planning services, you probably want a traditional financial advisor.

Have a complex financial situation: If you need help strategizing how to divide assets in a divorce, have a complicated tax situation, have large amounts of debt, or want help planning for college and other types of expenses, a conventional financial advisor is the right choice.

Keep in mind, even with a financial advisor, you may need to consult with other types of financial professionals. You may face situations where you may need access to a tax professional or a lawyer for estate planning. The more complex your finances are, the more likely it is that you will need a truly dedicated financial advisor or wealth planner to help you stay on top of things.

The points

A robo-advisor can be a good choice when you are starting out and just looking for an easy way to start growing your wealth. However, as your net worth improves and your situation becomes more complex, you may need to consider turning to a human financial advisor to help you navigate your financial future.

In terms of currency trading, we haven’t seen any really good options, but there is something similar, copy trading or social trading as it is also known, where you simply copy other currency trades automatically.

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