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In search of Robo-advisor Actual Performance. Anything out there?

Performance Monitor

Aphrodite, a mobile cross-continental femme, shared publicly on the Daily Fintech platform her account integration concerns and her confusion in choosing from the multiple financial service providers that are competing to satisfy her needs.

Unfortunately, the seasoned women in digital wealth management working on bridging the gender gap, Sallie Krawcheck and Gemma Godfrey, are focused for now in their respective regions (US, UK). Ellevest, co-founded by Sallie, who from junior analyst at Salomon Brothers raised to CEO of Merrill Lynch Wealth Management, operates only in the US. Moola, founded by Gemma, who started at Goldman Sachs and raised to multiple senior positions in fund management, is just launching in the UK.

Aphrodite’s needs are more complex. She made it clear to her husband:

And the order is not coincidental. With this whipsaw in the markets, I am not focusing on saving 50bps on commissions when I can loose 1000bps (10%) in a couple of weeks. Watching my holdings be in the red while not being able to communicate, will force me to hit that sell button on my smartphone when I should not.

Broadcasting pause of Ping-Pong communication of the couple.

Aphrodite sent me looking for performance figures of robo-advisors. Is it predominantly we women who care first about performance? Maybe Sallie Krawcheck knows more about this since her platform already takes a more goal-based approach tailored to women’s way of thinking.

Earlier this year, I had proposed that Trust and performance would be the name of the game for robos this year instead of fees.

Show me WHY I should trust you and WHERE is the performance.

It is too early to evaluate this proposition. However, I am appalled by the crumbs of evidence that I am finding on robo-advisory performance. One can of course, argue that no investment portfolio is the same and therefore, benchmarking returns isn’t a clean business. But hey, this issue has been around forever whether the returns come from offline Mungers or super-algos. Performance network has made this easy and simple and is inviting individuals and institutions to join the “The performance transparency movement”. This is originating in Europe but has no inherent barriers.

It is so odd that standalone robo-advsiors aren’t reporting their performance based on the global GIPS standards, an investment management standard that isn’t a regulation or mandatory compliance rule.

The Global Investment Performance Standards (GIPS®) are a set of standardized, industry-wide ethical principles that provide investment management firms with guidance on how to calculate and report their investment results to prospective clients.

Yes we live in a world that crowd-sourced information, if processed appropriately, could offer value (e.g. Estimize). However, I am not looking to find crowd-sourced forecasts of future performance of robo-advisors. I am not interested either in back testing their performance, because I understand the shortcomings and advantages of such calculations and graphs (from the old days of working in the hedge fund investment management business). I simply want to be able to see, Actual Performance and be able to choose periods and benchmarks; before actually becoming a client. I want to make sure that reported results are not from “cherry picking” accounts, back testing, and inadequate opaque disclosures.

My findings of actual robo-perfomance are poor. I picked them (very few anyway) based on page authority, since none of them are what I am really looking for.

Hedgeable has been computing a Robo-index and has calculated a 2yr composite return using certain reconstructed portfolios from Betterment and Wealthfront. The Robo-index methodology is explained on their site. No intention to go into any details.

Then there is Meb Faber (not to be confused our Swiss compatriot with Mr. Gloom Boom Doom, Marc Faber) founder of Cambria, who launched in Fall 2015 the first no-fee global allocation ETF that we’ve already discussed. Meb Faber reconstructed the 2015 performance of 5 portfolio allocations from Betterment and Wealthfront. The allocations of each of these portfolios are described in Faber’s 2014 WealthFront And Betterment Allocations. He reports the reconstructed and backtested performance results for each of these:

Source: Performance Review of Betterment and Wealthfront

Now over to Europe. Nutmeg is only one that I sourced from a New year’s report on their website: Nutmeg’s three-year results: How we delivered great returns for our customers. Such delayed reporting cant become an industry standard. Neither can performance be presented in a company blog post, as a competition outperformance brag, which lacks many of the key requirements suggested in GIPS.

The lack of GIPS performance reporting from standalone robo-advisors is Odd and contradictory to their mission.

Any actual performance reports that I am missing?

Any robo-advisor showing at least on a monthly basis their actual GIPS performance?

Any industry led reporting standards for standalone robo-advisors, in the pipeline?

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Efi Pylarinou is a Digital Wealth Management thought leader.

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