By Aman Raina, Sage Investors

Special to the Financial Independence Hub

When we last checked in with our ROBO (Robo-adviser) portfolio in January it was taking some hits along with the overall stock market. Since then the market has recovered quite nicely. Let’s see if the Robo Portfolio has bounced back.

Performance

After being underwater in January, the ROBO portfolio has bounced back and is now in the green again. Year to date in 2016 it is up 2.28 per cent. Since my ROBO started investing in January 2015, my portfolio is up 2.7 per cent. Since the January correction, ROBO is up about 5 percent. Back in January, almost every asset class was losing money. Now we’re seeing some more green shoots. The Real Estate asset class which was down almost 15 per cent in January is now down 3.8 per cent.

The dividend ETF, which was down 5.4 per cent in January, is now up 3.2 %. The Canadian ETF that was tanking in January as oil and commodity prices were free falling is now down only 2 per cent. It appears the ETFs have been participating in the rebound of the past few months, which is what we want to see.

UPDATE-July 18 2016:

Since I took this snapshot in June, the markets have been on a roller coaster. After Brexit the portfolio, like the market, took a direct left hook. However. like the markets, it recovered quite nicely and is now back in the black. As of July 18, my ROBO portfolio was up 4.6% year to date and 4.9% since inception. A little more palatable.

Transactions

In the last few months, the ROBO service has made some back-office changes in how they execute and process transactions, which is supposed to make the process more efficient and ensures I get the best prices for my orders. They are using a new service and I was asked to provide authorization to transfer the assets to the new provider. When I checked on the transacation page, I was at first surprised to see the page filled with all kinds of transactions, but it was really administrative moves to formally transfer the assets. Besides that there were no sell transactions that involved a rebalancing or recalibration of the portfolio, which is good to see. ROBO made only two buy trades. It added to the positions in the Vanguard US Equity ETF and the Emerging Market ETF.

So far it seems the ROBO is not trying to churn or turn over the portfolio. It is keeping the allocations tight within the predefined amounts and tweaking them at the margin. This seems reasonable.

Another reason why the portfolio has bounced back is that the portfolio has been picking up dividends on the way. Since January, the portfolio has earned $37.57 in dividends.

Other observations

My only correspondences with my ROBO continue to be through email. Since January 2015, I’ve yet to speak to a human being.

The Up-sell Begins

My ROBO reached out to me a couple of times and on both occasions it was to offer me something.

In the first instance it was this opportunity:

It appears the ROBO service I am using is branching out beyond generic portfolio management. The margins perhaps are too razor thin? In a recent email I was informed about a new type of portfolio that is geared towards investing in Socially Responsible companies that are trying to make the world a better place. The service would invest in a basket of ETFs that would track broad-market Socially Responsible indexes (SRI). Below is a breakdown of ROBO’s SRI portfolio

Some notes:

• They were pretty upfront and detailed into what specific ETFs would be used, as well as the MER costs.
• They were also upfront that yes this will cost you more than what you’re paying in your current portfolio. We’re talking about another 0.15 basis points, but if you layer additional “value-added” products over a long period of time, it can add up and eat away at your savings.

One of the failures of investors is people take a carefully designed portfolio and “tweak” it to add new products and securities that they either heard about from someone or that their adviser pitched to them. People think they’re not altering their portfolio much, but with a tweak here and a tweak there, you can end up with a dramatically different portfolio that may not get you the results you want.

This is the first time my ROBO has pitched me on tweaking  or adding to my portfolio. The reality is it’s trying to upsell me to a higher-cost product that may or may not be in my best interest. ROBO is clearly going after the Millennial crowd and appealing to their yearning to make the world a better place. It may very well succeed. Whether the customer benefits is like almost everything with this robo-adviser model, up for debate.

Cramping my space

One of the services my practice offers is analyzing portfolios and providing input on whether they are in alignment with the client’s overall investment plan. It’s not a huge component of my practice, but I get a few people here and there looking for a third party, unbiased assessment and I’m happy to help them.  So as I was thumbing through Twitter, I caught note of a Tweet from my ROBO indicating that it is introducing a portfolio review service that does the following (I’ve removed references to the actual ROBO service):

“one of (ROBO’s) resident financial geniuses will look at your entire financial picture and give you a diagnosis and, using a methodology based on Nobel Prize–winning academic research, some simple, actionable, and really good advice….”

And oh yes … it’s free. Talk about eating into my gig.

As much as my initial thought was I’ve just been disrupted — by Nobel Prize winning people no less — I’ll admit that free is catchy and free will bring in a lot of people to the ROBO and not to me. Again, disruptive feelings are entering my space. They seem to hitting all the notes I hit in my service offering, evaluating costs, making sure assets are not too concentrated domestically … good things. The premise seems quite appealing.

Then I came to this piece on execution:

“…Before we can give you advice, we’ll have to know all the details. We understand you might be shy. But we assure you that it’s totally safe, private, and completely judgment-free! All you do is upload your investment account statements. Then one of our portfolio managers—an actual human!—will comb through them and do a comprehensive, personalized analysis. Once that’s happened, you’ll set up a call with your ROBO portfolio manager and he or she will go over what we’ve learned. After that, the lines of communication are wide open if you want to talk more. You’ll even have your portfolio manager’s personal cellphone number in case you have a question about RRSPs (or fantasy football)…”

This is where it gets tricky. ROBO is asking someone to upload personal financial information to a company with which they have no business relationship. So many questions enter my head. How secure is it? Besides reading my statements and analyzing them, what else are they doing with my personal information? Are they building a database? Will they be using this data to curate and sell me products like that Socially Responsible Portfolio above?

The whole thing has a Facebooky feel to it. The more info you provide, the more the ROBO can build up a profile of people like you and potentially target products … higher priced products, that may or may not be in your best interest. It has a sort of bait-and-switch where they lure you in with free and then have a captive audience to sell you their service.

We’ve been interviewing contractors the last few months for some reno work we would like to do on our house: every contractor that comes in has told us the previous people who did our kitchen or painted the place or laid the roofing down did a horrible job and that they would never do anything like that. This narrative I suspect is something of a tone I’d expect to hear from the ROBO if it looked at my financial portfolio. I wouldn’t be surprised if they said their methodology is vastly superior than anything I or my own adviser has come up with.

Having said that, I’d be quite curious to see what my ROBO thinks of my finances. I’ll have to ponder that.

In the case of my own portfolio evaluation service, I look at client investment information but after I’ve worked with the client I delete it, shred it, or even return the statements to the client. I’m not going to lie, I am going to introduce them to my company’s value proposition and see if there is opportunity to further work together; however, my value proposition revolves around teaching and education. I’m not selling an ETF or stock or mutual fund or target wrapped account. I’m selling my time to help them become more financially savvy with investing their hard earned money. I can’t compete with free and I won’t compete with free. My time is valuable and I, like any other self-respecting person or entity, would expect to be appropriately compensated for the work effort put into it.

I never really thought about how these type of services could up-sell me. I have been focussing more on the mechanics of how the ROBO service is investing my money. But as I can see with my experience, it appears this up-selling program is a very central component of their business model, no different from a cell-phone company or a cable company or a traditional bank. Get them in with cheap fees but then move them up the fee scale.  I will be playing close attention to how ROBO continues to try to upsell me and convince me to tweak my portfolio or even to get me to switch teams. It’s a dynamic that I don’t see getting discussion and of which investors should be cognisant.

Aman Raina, MBA is an Investment Coach and founder of Sage Investors, an independent practice specializing in investment coaching and portfolio analysis services. This blog was originally published on his website on June 27 and is reproduced  here with permission.