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Selma vs. Bank - Episode #1

Sonja Egger
by: Sonja Egger10 min read

In the realm of financial service providers, Selma is a digital financial advisor. To give you the best overview of your investment options and what the differences are, we are launching this mini-series where Selma is entering the ring with banks, private bankers, DIY solutions, and robo-advisors. 🥊

In this first episode you will read all about the differences between banks and Selma, you’ll figure out what the advantages and disadvantages are and what you should consider.     

Before we start with the actual topic, what do robo-advisors and banks have in common? Both are financial institutions you can use to make your money work for you. The biggest difference is that a robo-advisor is typically an online service that uses algorithms to provide automated, low-cost investment management services, while a bank is a traditional financial institution that offers a wide range of services such as checking and savings accounts, credit cards, loans and other financial products.

Round #01 Accessibility, fees, minimum investment 

Let’s start with the question “how do you even get an investment account at a bank or with a robo-advisor”? 

Accessibility

Our first keyword here is accessibility, because how should your money get to work if you don’t have access to an account? Living in a very digitalised world we are used to doing a lot of things online whenever, wherever we want. While banks start to offer account openings etc. online there are still various actions that have to be done at a physical location during business hours. Robo-advisors, on the other hand, are accessible 24/7 wherever you are and account openings are usually quick and easy. In this particular case Selma is not just the friendliest financial assistant, but thanks to new procedures also one of the fastest to get your investment account up running. 🏎️

Fees

When thinking of investing money you also want to think about the fees of your chosen solution. After all, you don’t want to waste your hard earned money on fees for someone else. Everybody probably agrees when we say the financial industry is famous for complex pricing and hidden costs. Generally speaking, banks do have fees – a lot of them. Most of the time, robo-advisors are more transparent when it comes to their pricing and additionally are even lower in costs. Selma is even three times cheaper than an average bank. 

Minimum investment

Last but not least in round 1 we want to look at the minimum investment sum you need to have to even start with your investment journey. Banks, especially in Switzerland, usually require quite a high amount of an initial investment sum to even offer you their financial services, which can make them less accessible for “smaller” investors. Generally, robo-advisors have a lower minimum investment and here at Selma you can start with an investment of 2’000 CHF because investing should be accessible for everyone.

Round #02 Investment options and diversification 

Round 2 shows us all the jabs and uppercuts (these are fancy names for, well, punches) banks and robo-advisors have in terms of investment options and diversification. 

Investment options

Let’s talk product offering and investment options. Banks have a slight advantage when you want to have all your money business at the same place. They offer not only their investment solutions, but also other services like savings accounts, checking accounts, loans etc. Robo-advisors are frequently focusing on the investment management services, but are also starting to add other services. Since we are all about increasing your wealth let’s have a look at what choice you have when it comes to the different investment options. Banks may offer you a wider range of investment options, such as individual stocks and bonds, whereas the average robo-advisor might have a more limited range of investment options and is focused on ETFs (aka Exchange-traded funds). But Selma is not your average robo-advisor. Based on your investor profile you receive an individual low-cost investment plan that consists of independent investments (unlike banks, who may have an incentive to push their own products to you) including ETFs, shares, bonds, precious metals, real estate and private equity – or long story short: a well diversified investment portfolio. This leads us to our next topic: Diversification! 🌍

Diversification

Now you’re maybe wondering why is diversification a topic to discuss? A diverse portfolio helps you manage your risk so if one market goes down you don’t lose too much and you might have the chance to gain in other markets. To achieve this it is best to spread your investments around the world and across different asset classes. Banks may not have the same level of diversification in their portfolios as robo-advisors do.

Diversification

Rather than investing in a single company, industry, sector or asset class a diverse portfolio invests across a range of different companies, industries and asset classes. This is a good way to reduce your risk.

Round #03 Risk, rebalancing, expertise and the human interaction

Risk

No time for a water break as we head into round 3 with a risk discussion. Now you know a diverse portfolio can help you reduce your risk, but how is the risk management of a bank different from a robot-advisor? Banks rely heavily on the personal interactions with clients to determine their risk tolerance and to offer a suitable investment solution. Robo-advisor and Selma use a questionnaire to determine a client’s risk tolerance and create a portfolio accordingly. When it comes to managing the risk of your portfolio robo-advisors use a set of predefined rules to do so and can act quickly when needed. Banks may not have the same level of risk management capabilities. 

Rebalancing

When talking about risk, we should also talk about rebalancing. What is rebalancing, you ask? Over time, markets move your investments differently which can lead to a mismatch between your portfolio and your desired outcome. Rebalancing happens to bring your portfolio back to “balance” with your desired outcome. Selma has her eye on markets and your portfolio 24/7 and is rebalancing your portfolio when needed. Banks on the other hand, are most likely not rebalancing your portfolio automatically.

Rebalancing

Rebalancing refers to the process of returning the values of a portfolio's asset allocations to the levels defined by an investment plan. Those levels are intended to match an investor's tolerance for risk and desire for reward.

Expertise & human interaction 

A very important aspect these days is the question of “how much robo do I need in my life?” Do we lose the human touch and individuality with all these new technologies? Can an algorithm replace human brain work? For sure, banks provide more human interaction and personalised financial advice while robo-advisors rely on technology and automation to provide investment management services. Robo-advisors use algorithms to manage portfolios, while banks offer a team of financial advisors with expertise in a variety of financial areas. Selma combines both worlds. You get the efficiency from Robo-advisors and a digital finance assistant that makes sure your investments suit your life situations and goals. And you don’t have to miss the human interaction – you can always request a call with one of Selmas’ financial experts, hop in a chat or email conversation or join one of the informative webinars. 😉

Now it is on you to decide who won this boxing match. Bank or robo-advisor both offer different services and have different strengths. Robo-advisors are suitable for those who are looking for low-cost, automated investment management services, while banks are suitable for those who are looking for a wide range of financial products and services. The choice is yours and should reflect and match your individual needs, goals and preferences.

About the author
Sonja Egger

Sonja Egger

Sonja is a communication pro with background in Media and Intercultural Communication. She is here with the mission to keep your content varied, interesting and enjoyable. Outside of working hours Sonja is either swinging the paint brush or watching cat videos. 😺

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