What is InvestEngine?
InvestEngine are a relatively new business which began in 2019. They have an interesting history. This is the product of the co-founder of Gumtree, Simon Crookall and his family wealth management firm Ramsey Crookall. The site offers a combination of these two elements – it is an online-only investment service which gives users the ability to invest in curated portfolios for a low competitive fee.
This service, however, is nothing new. Other firms such as Moneyfarm have been offering more or less the same service for some time now. And there is nothing to stop existing users from making a portfolio themselves by purchasing exchange traded funds (ETFs). However, at lower levels of investment this is likely to be not very efficient as minimum fees for ETF purchase is likely to eat into the returns. So by investing with a service such as InvestEngine, there is a benefit from economies of scale.
InvestEngine have certainly grown quickly and it seems that they have been aggressive in their expansion. Their site offers the ability for users to hold their investment both inside or outside an ISA, and choose between either cautious or growth portfolios. In future, it should be possible for users to choose their own ETFs and negate the platform charge.
Here is how my InvestEngine returns compare to other robo-advisors:
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InvestEngine Review Sign Up Offer
Currently there is a very generous sign-up offer for InvestEngine. This pays £75 if you are referred by an existing user – which is £25 more than the standard sign-up bonus. The terms are quite generous: all you need to do is to create an account and invest £100 into a portfolio inside the first 30 days of registration.
After this, your bonuses will be shortly credited into the same portfolio you made. There is a minimum holding period of 12 months, and a minimum holding balance of £150. This is pertinent for those only depositing the minimum amount – you cannot withdraw your bonus before the 12 months is up.
For more information, please visit the website here.
Is InvestEngine profitable?
InvestEngine is a trading name of InvestEngine (UK) Limited. This company has been registered since 2016, although operations only began in earnest in April 2019. The last accounts were filed on 19 Nov 2020 which cover the year to 31 March 2020 – basically the first years trading. Unsurprisingly, this year resulted in a loss of £1.225m which was comprised entirely of admin expenses, with the company having virtually no turnover.
This was financed by an issue of shares in the previous year which raised money for the business. At the reporting date, the cash at bank stood at £2.458m, so covered the loss.
Considering the generous sign up bonuses, I would expect the next years accounts to be heavily loss making as well. The name of the game is the amount of assets under management, as the fees charged by InvestEngine are a percentage of this. It seems heavily likely that one or more rounds of financing will be required before the business becomes profitable.
InvestEngine Operating Model
InvestEngine works much like other black-box investment sites such as Moneyfarm. Signing up is straightforward, and you will need to provide identification to get your account verified. The site is integrated with Internet Banking of most UK providers. This generates a code for you to insert in your app which automatically pre-fills the details – no more worrying about making a mistake with the account number. You can also fund your account with a a monthly standing order.
Once you have funded your account you can choose your investment type. There are nominally two types of product: Cautious or Growth. The difference between these should be self-explanatory. Growth targets larger returns although comes with a higher risk of losing money, typically being invested into equities. Cautious does the reverse and seeks to limit the downside at the cost of higher returns. You can also choose whether to hold these investments inside or outside an ISA tax-free wrapper. It is possible to hold more than one portfolio at one time.
Helpfully, Investengine is not a black-box product by which you cannot see where your money has gone. In some ways this is also more transparent than Moneyfarm (which breaks it down by category by not product). Whilst compositions may vary, here is the contents of a ‘Cautious’ portfolio:
The nature of these investments also underscores an important fact. Unlike other P2P investment sites, there is no guaranteed rate of return. Bonds are theoretically pretty safe products which pay regular interest payments. But the price of the bond can vary which means that an interest gain can be wiped out by a loss of value of the bond. Conversely it can swing the other way and bonds can become more valuable, for instance if interest rates go lower.
Equities (which the growth product invests in) are more volatile, which in theory grant bigger potential returns but at the expense of greater downside risks. Some of these risks are mitigated somewhat as InvestEngine will invest in ETFs, which comprise holdings made up of many companies and not just one. Many of these however may be correlated or in the same segment of the market.
Tracking your account is very easy. This can be done online, or alternatively InvestEngine have their own app which is available in either the Google Play or Apple app stores.
The important part here is costs. This service does not come for free. The current cost comprises three elements: the ETF fees, the spread (difference between buy and sell prices) and the platform fee. The InvestEngine platform fee is fixed at 0.25% of funds per year. The ETF fees and spreads vary depending what products you are invested in. Typically these are large, liquid products with low fees and InvestEngine estimate that these fees may be around 0.32% p/a for the Income products and 0.22% p/a for the Growth products.
Putting this all together in an example, InvestEngine estimate that for £10,000 invested in the Income porfolio, the fees may work out to be £57 a year. This is roughly half the cost of other sites such as Moneyfarm.
How are funds protected?
This is an important question, as InvestEngine are a new company and are not publicly traded. The parent company is also loss-making currently and reliant on further equity injections to keep going. However, the site is based in the UK and regulated by the FCA, which means that it qualifies for the Financial Services Compensation scheme – this covers losses of up to £85,000 in the case of insolvency (although poor investment performance is not covered).
An additional layer of protection is provided in that client money and investments are segregated from company funds and held at EuroClear UK. This would mean that in the event of InvestEngine becoming insolvent, those funds are protected from being used to pay company expenses. The nature of the investments should make this a much easier site to unwind if things should go wrong, although that’s in theory only.
InvestEngine Review: Pros
There are a few things to like about InvestEngine:
- Low fees: The current fee-set up is lower than competitors, which over the course of several years translates into significant savings especially if your portfolio is of size. There are also no fees to exit your investment
- Ease of use: The platform is very hands-off once you have decided which product you want to invest in. There is no further admin required and the choice of ETFs, position sizing and allocation is all done for you.
- The platform is beginner friendly; you can open an account from as little as £100 and top up money every month.
- Platform is regulated in the UK and whilst it is new, the management team have a proven track record elsewhere.
InvestEngine Review: Cons
There are also some things to be wary of:
- Only two investment attitudes: growth or income. Whilst there is a risk questionnaire which allows some tailoring, it may be the case that a lot of investors fall somewhere inbetween.
- Fee structure is the same for every level of investment, which removes the motivation to save more.
- So far the site has much less history than something like Moneyfarm, where we can see the performance of its portfolios dating back to 2016.
- An approximately similar ‘safe’ portfolio can be created at a place such as Vanguard at much lower fees.
InvestEngine Review: Conclusion
InvestEngine are an interesting new entrant to the robo-advisor scene. Their site has scaled up pretty quickly to offer a good experience to users. They are backed by proven figures in the industry and also currently feature a very generous new user incentive for signing up. At present there are not enough results to determine if using the InvestEngine robo-advisor outweighs the 0.25% fees it charges. But certainly, this fee is a lower one than its competitors.
Disclaimer: This InvestEngine review represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the same way bank deposits are. There are no guarantees that you will receive the returns advertised (or even a return at all).