Tag Archives: roboadvisor

MiFID II and my roboadvisor

Next year in January, the European regulation MiFID II becomes effective. MiFID are the initials of Markets in Financial Instruments Directive. There was already a first version, but the evolution of the market and the interest of the European institutions to protect individual investors promoted this second chapter.

What does it mean? Actually, the regulation improves transparency in the markets and prices, promotes lower costs and strengthens investment protection. For instance, what investors’ protection refers, it makes heavy emphasis in communication, disclosure and transparency. The supervision is also reinforced and put the focus in management and governance in financial entities and markets.

MiFID has a high complexity, but we wonder: what will it happen if we invest through a roboadvisor? Will these platforms avoid the regulation? No, in any case. Automation does not mean at all that roboadvisors will protect less their customers. On the contrary, roboadvisor promote lower costs, standardization and transparency.

We have to consider that there are several kinds of these platforms: form full automatic services to others where there is a platform with human active management. This diversity is not linked with different levels of protection, because all of them must comply with the suitable tests to check the investment ability and knowledge of the customers and they have also forbidden retrocession if they are independent. What does it mean? In short, independent roboadvisors will not be able to sell financial products from other entities (for instance, mutual funds) to obtain a sales commission. Well, let’s explain this a bit more: if you sign up in the roboadvisor XYZ, which reports as independent, it is engaged to sell the best products depending the investors’ profile: the best from any entity. If the roboadvisor is not independent, it has to be very clear that it sells from specific entities and receive a retrocession for any sale.

Roboadvisor are platforms, but there are people behind that create portfolios. These people must have specific studies, following the rule. But the most important effect is the transparency in costs: roboadvisors (as human advisors) will have to report with details about any costs. These costs will have to be listed, not accumulated. In this part, roboadvisors are far away from human advisors. One of the first thing that you find in roboadvisors websites are the amount that you have to pay for the management, because they have very clear their advantages against traditional models.

As you see, MiFID will regulate much more to protect investors. It was developed with several learning from the crisis and from the recent fintech solutions. It tries to order these new systems and they have to accept regulations. If roboadvisors wouldn’t accept MiFID, what credibility would they keep when they say that they are transparent?

Active and passive management: an endless discussion

Passive management categories in T-Advisor

The boom of ETF in the investment landscape as a new kind of asset opened the endless discussion about active and passive management. First of all, what do we mean when we speak about both ideas?

Traditionally, the active approach means that a fund manager or a team design a specific fund or portfolio composed by a basket of assets. These assets are selected by the product profile (different kind of risk, asset categories or market). Then, the manager tries to beat a specific index or benchmark. The task is hard, because the manager has to deal with a lot of information related to companies, markets, policies and general trends. To attempt to outperform, the manager buys and sells regularly to improve the results.

On the contrary, the passive approach creates a portfolio or fund that copies the same structure as a specific index. That means that the result is narrowly linked with the index. Instead of outperform, the passive management obtains the same returns as the benchmark. The task of the manager is quite lighter, because he only adjusts the portfolio every certain time depending the changes in the index composition.

The question is: what is better? A usual pitch explained by passive management supporters is that active managers have a low rate of success outperforming the market, which is actually true, if we see some statistics. Usually, ETFs even beat the active manage funds. Other arguments are related to the costs: while passive management has low fees, active management costs quite more, because there is a human group behind the portfolio. Passive products are also easier to understand and agree the idea of diversification to reduce risks.

The current roboadvisor trend is based on ETF and passive management. However, it is reasonable to speak about different degrees of active management, as the financial adviser and blogger Cullen Roche proposed in his blog. Passive investing has a reduced degree of active management, but it is fair to say that the operational structure is quite lower as a traditional fund manager.

It is difficult today to defend active management, because they fail regularly in its aim of beating the market and the costs are higher. We don’t mean that it has to disappear, but it will surely evolve to a model in which technology will play a stronger role to reduce costs, so that traditional funds can compete again. Roboadvisor platforms can be a solution. The current movements in the markets are showing it, because great banks and managers are buying roboadvisors or developing their own algorithmic platforms.

TechRules introduces T-Advisor, the first roboadvisor in Spain

T-Advisor homepage

TechRules, the leading company for advanced wealth management solutions, introduces T-Advisor, the first roboadvisor in Spain. T-Advisor is a suite of tools to manage and monitor portfolios. It offers a new commercial channel to gain new customers amongst financial advisers, wealth managers and financial entities.

Roboadvisors have deeply changed financial advisory landscape in US. There are already several solutions that have created a new business model where technology and human capital join to add value to financial companies and entities.

T-Advisor has been launched for a year and a half and it has already more than 1.000 users that manage their portfolios. The suite is based on data accuracy, a list of more than 6.000 assets and dozens of world reference markets to look up, an easy-to-use toolkit with many hints and the technological support by a leading fintech company as TechRules.

Tomorrow, TechRules will officialy introduce T-Advisor to professionals from the finance branch in Spain. In the presentation, TechRules general managers will give many details about its main features that get close finances to everyone.

“This concept didn’t exist in Spain. TechRules detected that the roboadvisor model is a future business line. Solutions as T-Advisor let financial companies have available tools for their customers, so that they feel the control of their investments. At the same time, these companies benefit from an easy-to-manage platform that opens a new communication channel with individual investors. This technology provides a higher adaptability, as it opens our business to a greater number of people and reduces substantially the costs. In exchange,you obtain a collection of tools with excellent and professional features”, explains Jaime Bolívar, TechRules general manager.

T-Advisor is a suite of professional tools with an easy and usable design to approach finances to everyone. With these tools, individual investors can organise, monitor and modify their investments to get the best results. In our blog, we have written posts full of details about all features.