Robo-advice drives down investment costs

Extraordinary LifeI recently came across the Nedgroup ‘robo-advice’ site, called Extraordinary Life. This new functionality from the Nedgroup investment house has not been widely advertised, and I suspect they are doing a ‘soft’ launch to test the channel first.

The Extraordinary Life platform is one of the first end-to-end digital journeys in the South African market that enables a customer to receive investment recommendations with detail on the tax implications, apply for investment products, invest, and see their holdings without submitting any paper in less than 10 minutes. This also includes digitally setting up retirement plans.

It is a great tool for someone who wants to know how much they should be investing, and into which funds, but what is most remarkable is how low the costs are.

As a user, you engage with a chat bot called Eva, a digital ʻadviserʼ who asks questions to determine the right investment for your needs.

For example, the digital adviser will calculate how much you should be putting away for retirement or how much you need to invest each month to reach a certain goal.

If you want to save for retirement, but would like to access some funds before retirement, Eva may recommend that you invest a portion in a tax-free savings structure, putting the rest into a retirement annuity.  If the goal is short term – for example, you need the money in two years’ time –the appropriate low-risk fund will be selected.

If you still have some questions, you can engage online with a live financial adviser who can answer more specific queries.

It is a great tool for someone who wants to know how much they should be investing, and into which funds, but what is most remarkable is how low the costs are. At just 0.57% per annum (including VAT), including their retirement annuity, this is definitely among the most cost-effective investment offerings in the market ‒ even more so when you have advice built into the offering.

I spoke to Donna Barnes who heads up Extraordinary Life, to confirm that these were really the only fees an investor will be paying. Barnes confirmed that that fee includes all administration, advice and fund management costs.

“We wanted to do something that was right for clients and our goal is to eventually reduce this to a flat fee,” says Barnes who explains that digital channels are now allowing investment houses to offer far more cost-effective channels as they remove all the paperwork and administrative burden. The investments are part of the Nedgroup passive range so there is no active fund management fee. By combining the efficiency of digital delivery with low-cost passive investing, investors will reap the benefits of lower fees.

The downside to the Extraordinary Life offering is that the minimum monthly contribution is currently R500 per month, which is on the high side for a channel that wants to encourage more people to invest for the long term.

However, Barnes says they will be looking to reduce that significantly, aiming to reach a point where one could invest from R1. The platform is also to be updated to accept one-off lump-sum investments.

This article first appeared in City Press.

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