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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Page 1: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

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

Page 2: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2015 © Alpha Architect. All Rights Reserved. Back to Outline

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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

Page 3: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2015 © Alpha Architect. All Rights Reserved. Back to Outline

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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…

Page 4: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2015 © Alpha Architect. All Rights Reserved. Back to Outline

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Rule #2: Share relevant news developments

The robo industry is changing fast for investors, brokers, and RIAs

Page 5: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2014 © Alpha Architect. All Rights Reserved. Back to Outline

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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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Page 6: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2014 © Alpha Architect. All Rights Reserved. Back to Outline

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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

Page 7: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2015 © Alpha Architect. All Rights Reserved. Back to Outline

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The robo marketplace has exploded

Key to understand all in core value proposition and all-in costs.

AlphaArchitect.com

Page 8: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2015 © Alpha Architect. All Rights Reserved. Back to Outline

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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

Page 9: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2015 © Alpha Architect. All Rights Reserved. Back to Outline

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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

Page 10: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2015 © Alpha Architect. All Rights Reserved. Back to Outline

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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

Page 11: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2015 © Alpha Architect. All Rights Reserved. Back to Outline

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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

Page 12: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2014 © Alpha Architect. All Rights Reserved. Back to Outline

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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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2015 © Alpha Architect. All Rights Reserved. Back to Outline

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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

Page 14: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

2015 © Alpha Architect. All Rights Reserved. Back to Outline

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Questions?

Feel free to contact us on our site: www.alphaarchitect.com/contact

Source: Alpha Architect, LLC

Page 15: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

Interactive Brokers Contact:

Emmet Peppers, [email protected] Interactive Brokers, Sales Representative

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Page 16: EVALUATING ROBO ADVISOR OPTIONS - Interactive Brokers...Case study: robo advisors emerging on IB platform “Matchmaker” for managers & investors . White label . IB App . Mgmt Fees:

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