Get’em while they’re young – that’s the ETFmatic way. The robo adviser charges just 0.5% to run its general ETF portfolios, but for children, the fintech startup has decided to waive fees on investments altogether. “It’s the sort of thing we believe should have been around for a long time. It’s not a lot of overhead to open additional accounts with additional portfolios. [Providers] with the right technology could have done this a while ago,” says Luis Rivera, CEO and co-founder of ETFmatic.
Rivera is calling from Madrid today but the company also has an office in London, where it received its FCA licence in 2015. According to the company’s own calculations, a parent using ETFmatic would be making an extra £100,000 on a £90,000 investment on behalf of their child, compared to the cost of paying 2.5% in fees over 18 years. “The standard 2% or 3% fee that gets charged across a lot of the European markets – it ends up being half of what you save for your kid. That’s a big deal, and a great or horrid example of how compounding works,” says Rivera.
In November, the startup began offering its services in three currencies (Pound Sterling, Euro, US Dollars), a service now available across 32 countries. The entire investment process can be operated via the app. “Our solution is quite sophisticated, starting with the name,” says Rivera – not everyone knows that ETF is short for exchange-traded fund. “We’re not making a huge push for the mass market. Most of the customers we have are relatively sophisticated, but we expect to bring in more of the [less financially savvy] types through the campaign.”
A personalised approach
Looking beyond the child investment campaign, ETFmatic is attempting to secure its position in the budding robo adviser arena as the builder of a “unique portfolio for every customer by combining ETFs”. Asked how a robo adviser finds the time to personalise a portfolio for each customer, Rivera explains that one of the company’s economic advisors is Raghu Rau from the Judge Business School at Cambridge University. ETFmatic has been working with Rau and other experts in behavioural economics to come up with sets of questions understand the needs of individual customers:
“Most of the insights are around gauging customers’ optimism levels, and how strongly they want their portfolio to react based on market news.” Rivera explains how one problem in private banking is that customers have different expectations as to what should happen following specific market movements. This is why ETFmatic customers have to answer questions such as, ‘How do you respond when you’re lost in the city – do you prefer to ask someone, or do you keep walking?’ “We match customers to a portfolio that behaves according to their expectations. In very simplistic terms, if they lose sleep after the first bad news, the portfolio is going to be really conservative. But other people may want lots of data points until they confirm a trend and adopt a strategy.”
ETFmatic isn’t revealing their assets under management, nor their customer numbers. Asked about the company’s path to profitability, Rivera says that ETFmatic is currently looking to raise funds: “We are still a very, very small startup, not only compared to other players but also in terms of the resources the big players have.” But Rivera asserts that 0.5% is the full extent of the ETFmatic fee – nothing is hidden: “This is about technology, and the right eliminating of unnecessary intermediaries. It works at a 0.5% fee. We hope that as we go along, we’ll be able to offer it even cheaper.”
This attitude is central to the motivation behind ETfmatic. “Part of the reason why Johan [Hellman, co-founder] and I started this company is that back in 2010, you couldn’t get proper asset allocation at a reasonable cost in Europe unless you were very rich,” says Rivera. “So we built a platform that aggregates and nets all the trades, and has some really nice economies of scale.” ETFmatic started out requiring a minimum investment of £10,000, but they’ve now nudged that number down to £100: “We’ve been progressively lowering it, as we’ve felt more comfortable that people who were less [financially] sophisticated would be able to properly understand everything.”