Swiss bank UBS’s new robo advice service, SmartWealth, has been released primarily to target the UK mass affluent – a new segment for the private bank that has traditionally serviced only millionaires. John Schaffer gets a first look at what the new offering is all about
UBS’s new robo advice service, SmartWealth, has been released to target the UK mass affluent – a new segment for the private bank, which has traditionally only serviced millionaires.
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The fees for UBS’ new digital service are markedly higher than other fintech robo advice competitors. UBS is charging a 1.7% management fee for its active management proposition and 1% for its passive management service. The entry level investment requirement is £15,000 (which matches up with the maximum UK ISA allowance). However, the minimum entry requirement acts more as a primer as the bank looks to target individuals with £100,000 – £2m in investable wealth.
Nick Middleton, co-head of UBS SmartWealth, says that the service’s differentiating factor is how it provides advice to clients, rather than merely being an online discretionary portfolio manager. He notes that post RDR, financial services providers moved away from giving advice to the mass affluent sector. Middleton adds that SmartWealth gives a “tangible solution to the advice gap”.
Middleton defends the service’s high fees, noting that all the service’s investments are held within a fund. He suggests that other robo advisors incur hidden fees when ETF positions are re-balanced. Middleton says: “We are actually cheaper than other robo advisors when you factor in all the costs”.
Middleton adds that the fund wrapper used for SmartWealth will also be efficient from a capital gains tax perspective for UK domiciled clients.
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By GlobalDataSmartWealth’s investment proposition is not based upon an algorithm. Instead, decisions are made by the chief investment office, with 900 people working on research for the robo advisor.
Sophisticated passive
One of the investment propositions included within the new service is a US equities smart beta fund, which is only available to SmartWealth clients. The smart beta fund is available to both active and passive clients.
Shane Williams, co-head of UBS SmartWealth, says that SmartWealth’s passive proposition is “actually not very passive at all”. Clients can also use the SmartWealth app to compare the smart beta fund against the benchmark.
The US equities smart beta overlay is the only benchmark beating proposition within the new service offering. UBS plans to roll out European and UK smart beta funds later in 2017.
Although SmartWealth investments will draw heavily from the bank’s asset management expertise, active management robo advice clients will not have access to more complex financial products such as hedge funds, private equity or real estate investment.
Robo in onboarding, not in investment
SmartWealth’s onboarding facility uses a range of sophisticated artificial intelligence (AI) and neuro linguistic programming (NLP) techniques to asses the client’s appetite for risk. Middleton is keen to note that this is the only real “robo” element of SmartWealth, as all of the investment is human lead.
Where the majority of online wealth management services use a sliding scale to asses a potential client’s risk appetite, UBS’ service puts the prospective client through an array of questions that are designed to truly asses risk tolerance. Examples include whether the client would be prepared to lose the whole value of the amount invested in order to achieve substantial growth.
Williams notes that if there is not a suitable proposition available based on the risk appetite of the client, UBS will reject their application.
The advice element of SmartWealth is heavily oriented around goals based investing. Its “wealth planning module” allows for the client’s goals to be quantified by marking them with either feasible, uncertain or out of reach tags.
The SmartWealth app also allows clients to access a range of research articles that comment on news events (with a specific bias towards UK focused content), as well as educational articles that focus on financial topics.
It should be noted that UBS’ robo advice service is completely digital – SmartWealth clients will not be able to contact human advisors if they experience any jitters.
