Is Digital Wealth Advisor Right for Me?

We know that investing isn’t a one-size-fits-all solution, and that no financial product is right for everyone. So, we thought we’d help you determine what investing service is best for you.

There are fundamental differences between digital wealth advisors and traditional financial advisors that you should know to understand what’s best for your personal investment preferences and needs.

But first, what’s a digital wealth advisor, you ask? A digital wealth advisor is a commonly used term for a digital wealth manager that both produces and delivers financial advice and portfolio management through a digital platform, rather than through in-person meetings.

Reasons to invest with a digital wealth advisor

Low fees

Digital wealth advisor generally charge significantly lower annual management fees than traditional advisors do. For reference, traditional advisors typically charge between 1.25% and 3% annually, while digital wealth advisors typically charge between 0.2% and 1% annually.

Why does this matter? It turns out that all fees have a compounding effect that eats into your returns over time. The higher the fees, the less money you’ll accumulate in your portfolio. Conversely, the lower your fees, the more you’ll earn overall. This compounding effect of fees is relevant for both large and small portfolios.

The chart below shows how fees have a direct effect on your long-term gains.

*We applied StashAway's fee structure to this example.

Assuming 6% returns for two separate portfolios-- both with identical deposit plans of $10,000 USD initial deposit, and $2,000 USD monthly deposit for 30 years. The unit trust charges an entry on top of the management fee for 1.5% annually, and thedigital wealth advisor have a tiered fee structure* of 0.2% to 0.8% annually. You can see that with the only difference being the annual management fee, the portfolio with the lower fee earns almost $600,000 USD more in the 30-year period.

Intuitive and straightforward

Starting out as new financial players gives digital wealth advisors many advantages. One is that they can provide modern, user-friendly services. These companies have invested in developing top-quality user experiences that are intuitive to just about everyone from the tech-savvy to the timid.

Signing up and setting up accounts with most digital wealth advisors are easy, secure processes. As digital wealth advisors are digital-only, have well-designed interfaces that make it easy for you to sign up, track your performance, withdraw if you need some money, and more.

Digital wealth advisors also cut back on the many financial products that seem to vary only in the fine print. This makes for easy-to-understand and transparent financial products. 

Some traditional banks and financial advisors are working towards transitioning many of their offerings into digital products, but their numerous financial products still make it difficult for experienced and unexperienced investors alike to understand the benefits and differences.

Hands-off and low-maintenance

The idea with digital wealth advisors is to “set it, and forget it.” The quick, simple, and comprehensive, online sign-up and set-up processes with a digital wealth advisor are about as involved as you’ll ever have to get with your investments.

Trades happen automatically on your behalf, while you’ll always be able to check the status of your portfolio by just connecting to the digital platform. Traditional advisors, on the other hand, will generally include you in more of the decision-making and portfolio adjustments. 

More sophisticated asset allocation strategies

Because of the scale that technology enables, digital wealth advisors will increasingly be able to offer sophisticated investment strategies that traditional advisors generally cannot manage.

The reason for this is that the application of these strategies can be centralised and managed by a team of sophisticated investors - the ones that would manage large institutional funds - and then carried out with robust technology. Without the technology, these institutional-level investment teams would not be able to apply their strategies at scale.

Digital wealth advisors deploy sophisticated investment frameworks that involve advanced asset allocation strategies, such as the one by StashAway, or incorporating tax-loss harvesting, as done by Betterment in North America. 

Further, digital wealth advisors inherently cut the human emotion out of determining financial plans and managing the portfolios, which helps in avoiding misreading the market. But, if you prefer human interactions and decision-making, a traditional advisor may be more suitable for you.

Reasons to Invest with a Traditional Advisor

Helps with ‘big-picture’ planning

If you aren’t comfortable organising your money and assets, having a professional sounding board guide you through your options could be of great value. Digital wealth advisors can design and manage a portfolio for you, but if you need to figure out how to best manage various assets, such as properties and other illiquid assets, consider starting out with a traditional financial advisor.

Manages complex set-ups

Good financial advisors can help you solve unusual personal finance circumstances, such as managing a complex tax situation or setting up a trust fund. These activities are difficult to standardise and automate, and therefore, digital wealth advisors usually don’t offer them.

Digital wealth advisors’ predetermined forms are comprehensive and designed to assess a person’s financial situation, financial knowledge, and financial goals, but do not account for complex situations.

So, if you have a complex financial situation that would be difficult for a standard (yet thorough) form to capture, a traditional financial advisor could be a good place to assess your financial situation and figure out where to go from there.

More specific investment options

Traditional financial advisors can provide you with the flexibility to choose which securities and allocations you prefer.

This concept differs from digital wealth advisors that usually have a pre-determined investment strategy with pre-selected securities in which they invest. This means that you can’t choose how much money you want in a particular stock, for example.

Although digital wealth advisors’ investment strategies are not meant to be limiting, and are meant help expose you to an optimal portfolio with minimal work on your end, they ultimately won’t allow you to deploy your personal security preferences.

So, if you have a particular opinion regarding asset allocation or particular securities, it’s probably best that you go with a traditional financial advisor.

Is there room for both in my financial plan?

Absolutely! Digital wealth advisor can manage as few or as many portfolios as you would like.

That means you can invest some, or most, of your money with a digital wealth advisor. This could be a great solution if you have a unique financial situation, and want specific portfolios to be managed by a digital wealth advisor and other amounts of your wealth to be with a traditional financial advisor. With digital wealth advisors, you can ease into them if you prefer to test them out first, too.


Make the most of your investments

Your money is very personal, and there really is no one-size-fits-all financial plan. But now that there are more options than ever for you to make the most of your money, test out what works best for your personal financial situation and personal preferences. Whether low fees or a sounding board is most important to you, what matters is that you are aware and in control of your finances.

Michele FerrarioCo-founder and CEO
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StashAway Hong Kong Ltd. is a licensed corporation (CE No. BQE542) under the Securities and Futures Ordinance in respect of Type 1 (Dealing in Securities), Type 4 (Advising on Securities) and Type 9 (Asset Management) regulated activities.

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