Keytrade Bank is launching a robo-investment advice service in Luxembourg. Pictured: Thibault de Barsy, the bank’s CEO, in a portrait taken for the Paperjam Guide in 2015
Photo: Mike Zenari
Type in a few details about your personal financial situation, give a few details about your risk appetite, and an algorithm will design an investment portfolio to match. This is the essence of “robo” financial advice, and it has just come to Luxembourg.
Robo advisors have the advantage of being cheaper than services provided by a human wealth manager. Also minimum investment levels are often lower than for with standard private bank. Thus those with modest wealth can get involved easily.
These systems started to emerge early this decade, but they are still a niche activity. From about $19bn under management by robo advisors in the US in 2014, this figure has since quadrupled. However, this is still small compared with traditional financial services. For example, the Luxembourg wealth management industry alone had four times these assets under management in 2015. Nevertheless, these are early days.
Tap in financial details
The grand duchy is now part of this trend with the launch of the KeyPrivate service by Keytrade Bank Luxembourg. Residents and non-residents alike can use the service. You tap in how much you want to invest, for how long, and with what risk profile, and then there’s a questionnaire to check that you have the necessary financial means.
The site will then design a portfolio based on 12 funds invested principally in shares and bonds in different international markets. The system doesn’t take into account the very latest news and potentially risky events, hence KeyPrivate have an investment committee which will double check that suggested portfolio allocations match investor requirements.
After investment, each portfolio is reviewed automatically by the robot to take the latest market developments into account. There is also the option of changing the various investment parameters. KeyPrivate chose exchange-traded funds (ETFs) to power this system. Not only is it easier and cheaper to move in and out only of ETFs than with standard funds, but these “tracker” products seek to mirror industry benchmark indexes that tend to give average returns. Importantly, KeyPrivate investors own the funds directly and not via any intermediary.
The minimum investment is €15,000, and the service is provided at “a fee that is two or three times cheaper than a traditional wealth manager,” said Thibault de Barsy, CEO of Keytrade Bank Luxembourg. It is a flat fee on total assets of 0.75% plus VAT per year. There is no up-front fee, nor is there an extra charge even if the client rebalances their portfolio.
The KeyPrivate service has been available in Belgium for 14 months. Regulatory approval has been received in Luxembourg and the firm hopes that the service will attract €100m assets by the end of the decade. This would be a significant win for a small bank such as Keytrade, which currently has €900m assets under management.
The grand duchy has been relatively late to the robo-advisor trend. De Barsy thinks this is due to existing wealth managers being nervous that this concept could cannibalise their core investment advice business.