is slashing management fees on some portfolios that are included in its robo-advisor.
Unlike other digital advice offerings, Interactive Advisors (the name of
‘ robo) does not charge customers a flat fee. Instead, the firm offers investors 75 portfolios to choose from and each portfolio charges a different fee, with some as low as 0.08%, or eight basis points. Interactive Advisors is now capping management fees on its 22 actively managed portfolios at 0.75%, down from 1.5%.
Executives hope the move will help the robo-advisor attract more customers.
“We want to be a low cost provider of a wide range of portfolios,” says Sanjoy Ghosh, chief investment officer at Interactive Advisors.
The firm thinks 75 basis points is “a reasonable ceiling,” Ghosh says.
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Some of Interactive Advisors’ portfolios are developed in-house, while others are developed by outside asset-managers. The portfolio offerings cover a variety of themes, such as ESG, value, and small cap growth. Investment minimums are as low as $100 for the portfolios, and clients can invest in more than one portfolio.
Bimal Shah, chief technology officer, says the company is not aiming to dramatically expand the number of portfolios available. “If we add more, it should add something [different] to it,” he says. “It won’t become, say, 200 funds that are all the same.”
Once the purview of fintech start-ups, robo-advisors are now a standard investment offering at many banks and brokerage firms. Robos managed nearly $1 trillion at the end of 2021, the most recent year available, according to research from Condor Capital Wealth Management. They offer investors professionally managed portfolios for a fraction of the cost of a traditional financial advisor. Robo-advisors also have lower investment minimums.
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As the robo-advisor sector has matured, firms have been tweaking their approach to digital-advice. For example, Fidelity Investments previously offered a pure digital advice service and a hybrid service that pairs automated investment management with human financial planners. Last year, Fidelity said it would combine the two. Vanguard, meanwhile, recently added a suite of actively managed funds to its pure digital advice offering, giving investors more investment options to choose from.
Interactive Brokers acquired Covestor in 2015, which it rebranched as Interactive Advisors in 2019. The firm does not disclose how many assets the robo-advisor manages. Interactive Brokers is one of the nation’s largest online brokerages. Headquartered in Greenwich, Conn., the company executes nearly 2 million trades per day. It also offers custodial services for registered investment advisors.
Write to Andrew Welsch at andrew.welsch@barrons.com
