evaluating robo advisor options - interactive brokers...case study: robo advisors emerging on ib...
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Affordable Active Alpha | Built to Beat Behavioral Bias | We Empower Investors Through Education
EVALUATING ROBO ADVISOR OPTIONS
Patrick R. Cleary, COO and CCO
T: +1.215.882.9983 F: +1.216.245.3686
[email protected] 213 Foxcroft Road
Broomall, PA 19008
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Introduce who we are Walk through the full spectrum of “robo advisors” Highlight key things to consider when selecting a robo advisor (for individuals and RIAs) Discuss key trends in the robo landscape and what that means for investors and advisors
Objectives
Feel free to ask questions at any time!
Source: Alpha Architect, LLC
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Rule #1: Always start presentation with a joke
Feel free to ask questions at any time!
A humorous reminder to always understand ALL of the costs…
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Rule #2: Share relevant news developments
The robo industry is changing fast for investors, brokers, and RIAs
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Bottom Line Up Front
When selecting a robo, brokerage costs and capabilities matter There is no “one-size fits all” option for RIAs / Investors Programming is getting cheaper. Don’t overspend
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A quick introduction to Alpha Architect
Founded in 2010 by Dr. Wesley R. Gray Systematic, active manager with ~$275M in AUM Long-time user & advocate of Interactive Brokers Developed white label robo advisor Free educational tools, books, blog
blog.alphaarchitect.com Twitter @alphaarchitect [email protected] (215) – 882 - 9983
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The robo marketplace has exploded
Key to understand all in core value proposition and all-in costs.
AlphaArchitect.com
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Five key dimensions of a “robo-advisor”
Trading Costs
Active vs. Passive
Fees (all-in)
User Interface
For RIAs: White label?
What are the “all-in” trading costs?
Trend following? Active Strategies? Hedging?
Underlying? Management? Technology?
How does the robo enhance the user experience?
For RIAs only: Can this technology be white-labeled?
AlphaArchitect.com
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Trading costs matter!
• 7 ETF portfolio, equal weight
• Risk management applied to each ETF
• $100k total account size, $25 / share
• Rule “triggers” 2x (7 x 2 = 14 trades)
• Flat Fee = $7.95 / trade
• AUM Based = 20bps total AUM / year
• Rebalanced quarterly, 5% drift (each asset)
AlphaArchitect.com
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Case study: robo advisors emerging on IB platform
“Matchmaker” for managers & investors White label IB App Mgmt Fees: 0.3%-1.5% Brokerage Fees: Low
Private Wealth Mgmt, for active investors White label IB App Mgmt Fees: 0.25% Brokerage Fees: None
White label robo platform for Advisors White label IB App + Portal + Portfolio Mgmt $100-$200 / month (AUM dependent) Brokerage Fees: Low
For investors & advisors For investors For advisors
We expect more to come
AlphaArchitect.com
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Where are the robots going: trends for the future
Trading Costs
Active vs. Passive
Management Fees
User Interface
For RIAs: White label?
Pricing pressure will push trading fees downward. Passive BDs will get “creative” while active strategies migrate towards IB.
Actively managed strategies will incorporate / develop robo offerings
Management fees for passive strategies will push lower. Active mgmt fees will reside in underlying assets and / or risk management
User experience continues to improve as programming costs decline
RIAs will incorporate some aspect of robo advising in their practices (ignore at your own peril)
AlphaArchitect.com
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Recap – the bottom line
When selecting a robo, capabilities and brokerage costs matter There is no “one-size fits all” option for RIAs / Investors Programming is getting cheaper. Don’t overspend
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Email [email protected] with specific questions / requests for more info TradingFront (white label robo platform at IB, launch March, 2016) www.tradingfront.com Alpha Architect Advisor (PWM for active clients) www.alphaarchitect.com/robo Covestor (matchmaker for emerging managers) www.covestor.com
Where you can learn more
Source: Alpha Architect, LLC
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Questions?
Feel free to contact us on our site: www.alphaarchitect.com/contact
Source: Alpha Architect, LLC
Interactive Brokers Contact:
Emmet Peppers, [email protected] Interactive Brokers, Sales Representative
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Affordable Active Alpha | Built to Beat Behavioral Bias | We Empower Investors Through Education
QUESTIONS?
T: +1.215.882.9983 F: +1.216.245.3686
[email protected] 213 Foxcroft Road
Broomall, PA 19008