Opinion on Robo-Advisor

OCBC has jumped onto the bandwagon to introduce robo-advisor service with a high management fee of 1.5%. Regardless of whether you seek a human financial advisor or a robo-advisor, their primary goal is to earn money from you either through selling of financial products or fees. Take note that these costs are always there regardless of how your portfolio performed.

The robo-advisors available in the market currently are 'dump' advisors which will just re-balanced your portfolio according to your selected risk profile. Each profile has fixed assets allocation predetermined. There is no machine learning or AI algorithms built into these robo-advisors so there is little value added.

It is strange that most portfolios are biased towards US market. For example, a robo-advisor will choose US Bonds ETF over Singapore Bonds ETF, and choose US REITS ETF over S-REITS ETF. By having these in your portfolio, you already lose on forex and the 30% withholding tax. One possible reason is that these robo-advisors are also into the business of 'money changer'.

It is also strange that some platform has a ‘cash’ component in the portfolio. The cash component should just be the money which you did not put into the platform. Does the ‘cash’ component earns interest on the platform?

There is also platform risk consideration when using robo-advisor. In the event that the platform liquidates, and in the best-case scenario that the assets are held separately by a custodian, how would the shares be split since you could only be holding a fraction of a share?

Managing your own portfolio saves you money and if you choose to use robo-advisor just be aware that they are getting a cut of it even when your portfolio is making loses or under-performing.

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