Many people find themselves too busy to dedicate sufficient time to DIY investing and ensuring that their investments remain up to date, and want to explore other options.
Previously they had the choice of going it alone or using a stockbroker, wealth manager or financial adviser.
However, in recent years a number of other options have opened up, often using new technology to make services cheaper and faster.
‘My fund picks were rubbish so I’ve switched to an automated service’
Samantha Newman previously invested her £150,000 savings herself, but has adopted a new approach.
Until recently she used AJ Bell, the online investment shop, to buy funds, some of which were passive “trackers”.
While these “plain vanilla” investments performed as she expected, her more adventurous choices came unstuck.
“I had some emerging market shares and Japan funds,” she said. “My safe and boring FTSE 100 and Dow Jones ETFs [quoted tracker funds] all ticked along but all the stuff I took a punt on was poor. I thought I knew what I was doing, but I didn’t have any investments in bonds and didn’t know where to start.”
So she moved some of her money to a “robo adviser”. These providers operate online and gather information about customers before slotting them into pre-made portfolios that are aligned to their risk profile. The funds, which often invest in low-cost passives, are rebalanced automatically to ensure they stay on track.
Ms Newman, a mother of two from Oxfordshire who works in financial services, said she kept her lower-risk investments with AJ Bell but moved around £85,000 to robo adviser Nutmeg, putting her money in the firm’s high-risk portfolios.
“I don’t know what they are invested in, but it’s doing a vastly better job than I would. It’s easy and I trust them with it,” she said.
She said the move wasn’t prompted by cost, despite many robo advisers touting themselves as cheaper alternatives to DIY investing.
Nutmeg charges 0.75pc a year on the first £100,000 invested, and 0.35pc thereafter.
“They charge less than a wealth manager and they manage my portfolio. I could do it myself for nothing but I know I’d pick rubbish shares. I’m comfortable that they are delivering reasonable performance for my costs,” Ms Newman added.
Do it yourself or get help…
Investors have a range of options, each varying in how hands-on they are and how much they cost.
Lang Cat, the investment consultancy, has identified three categories: do it yourself, do it with you, and do it for you.
“Do it yourself” is where investors select their own funds and take responsibility for their suitability. They must also select the most appropriate and cost-effective fund shop to use.
“Do it with you” covers the providers that “help you choose, but don’t make the choice for you”, said Mark Polson, the head of Lang Cat.
This includes online brokers that have “buy lists” of selected funds to help guide investors to the right choice. These lists whittle down the vast number of funds available to more manageable numbers, giving investors a handful of options for each type of asset. Examples include Hargreaves Lansdown’s Wealth 150, Bestinvest’s Top Rated Funds and Fidelity’s Select 50.
“Do it for you” services make the investment decisions on your behalf. They include more hands-on robo-advisers, which operate online and use technology to reduce costs, and wealth managers and financial advisers, who match you to a portfolio and maintain the investments.
The options for those who shun DIY
One option is “all-in-one” funds, which spread investments across different asset types and different countries. They can invest in stocks, bonds, property, cash and occasionally other alternative assets.
The funds are usually selected on the basis of the investor’s risk appetite, which is affected by how long they are investing for and how much loss of money they can tolerate.
Examples include the often-tipped Vanguard LifeStrategy range, which invests in low-cost tracker funds. Vanguard’s funds offer varying levels of stock market exposure, ranging from 20pc to 80pc of the total. The funds are low-cost, with a 0.22pc “ongoing” charge.
Other options include BlackRock’s Consensus fund range, the eight L&G “Multi-Index” funds and Standard Life’s MyFolio Market range.
“Multi-manager” funds or “funds of funds” are similar, although they will normally invest in funds from other asset managers and consist largely of actively managed funds.
Another way to buy a ready made diversified portfolio is to use investment shops’ “model portfolios”; Hargreaves Lansdown, for example, offers them under its “Portfolio+” range.
‘Target date’ retirement funds
These multi-asset funds tailor investments to a particular date, usually the individual’s retirement date. They switch between different asset classes to adjust the risk level of the fund as the individual approaches their retirement date.
Vanguard has a range of “Target Retirement funds”, based on dates from 2010 to 2060 at five-year intervals. BlackRock offers LifePath funds and Architas, part of Axa, runs the Birthstar range. Fidelity offers similar funds.
These online services offer advice, but use technology to reduce the costs. Examples include Nutmeg, Wealthify, Scalable Capital and Moneyfarm. The cost varies but most charges are less than 1pc, plus investment charges.
Most will run investors through a questionnaire to determine how much they have to invest, how long they want to invest and how risky they want their investments to be. From there they will slot investors into existing portfolios.
Financial advisers or wealth managers
These options offer a fuller service, including tax planning, help with insurance and often more comprehensive cashflow forecasts, looking at how much money you will need in different stages of life. However, this comes at a higher cost. It typically involves face-to-face meetings and then an ongoing relationship, with the adviser monitoring investments and advising when switches are needed.
Many advisers have minimum investment levels, typically £50,000.