In this review, we’ll be looking at the Edward investment platform, which focuses on giving investors a personalized experience while also using automatic portfolio management. Find out how the Edward platform works, who it’s for, and if it’s worth it to invest through Edward.
Review Edward in brief
Edward (Edward Invest) is a place for financial advisors in the Czech Republic to invest money. It has been in business since 2020. The Edward platform makes it easy and quick for financial advisors to build investment portfolios for their clients. Edward also gives them some of the fees that their clients pay when they invest.
The basic idea is simple: A financial advisor sets up an account for a client and helps him choose an investment portfolio. There are 10 model portfolios, and each customer chooses three (for short, medium, and long-term goals). The money that Edward put in is then automatically invested. The platform also lets you rebalance your portfolio and protect against currency risk.
Each portfolio is made up of several ETF funds that focus on stocks, bonds, real estate, or commodities. Edward’s investment committee puts together and runs the portfolios. Financial advisors don’t take part in managing portfolios, so their main job is to coach clients and keep an eye on how they invest.
The lowest expected annual return is 1%, and the highest is 7.50%. (the riskiest portfolio). The downside is that the fees are higher, especially the deposit fee (which can be up to 5%) and the performance fee (which can be up to 25%). The size of the fees, though, is up to the financial advisor, so they can be different. More will be said in the next part of this review.
Advantages:
- Simple, fast, online
- Regular portfolio rebalancing
- Support from an experienced financial advisor
- Support for Czech and payments in CZK
Disadvantages:
- High fees
- You cannot build your own portfolio
- Purchases and sales take place once a week
Edward Invest – Basic Information
Edward Invest is an investment service operated by WOOD & Company Financial Services in Prague, Czech Republic, and licensed by CNB, offering 10 portfolios composed of ETFs in bonds, stocks, commodities, REITs, and cash with portfolio rebalancing as needed, processed once a week on Wednesdays and evaluated at approximately 1.00% to 7.50% per year, hedged against currency risk in CZK, with a minimum investment of 1,000 CZK and payment methods through bank transfer, an administration fee of up to 1.99% per annum, and additional charges.
What is Edward and how does it work?
Edward is an investment platform for financial advisors that brings together the whole process of working with a client and working with a portfolio. Most of the tasks on the platform are done automatically, so it’s easy to manage the portfolios of dozens of clients and doesn’t cost much.
- The role of the advisor: The advisor will help the client figure out what he wants to achieve with his investments and help him choose a portfolio. Then, he should make sure that the client sticks to the plan for investing. The role of the advisor is also to answer questions and teach the client about investments.
- Role of the Edward platform: The Edward platform does everything that needs to be done to build or change an investment portfolio. And that happened completely by itself on the set schedule. So Edward buys and sells stocks, rebalances the portfolio, protects against currency risk, and does other things like that.
The money that clients give is put into low-cost ETF funds that focus on stocks, bonds, commodities, or real estate.
What are ETFs? ETFs are a type of investment fund whose shares can be bought and sold on a public market. ETFs are better than mutual funds because each fund has tens to hundreds of stocks or bonds. They also have lower fees than mutual funds.
Investment portfolios
Each client’s account has three “buckets”: one for the short term, one for the medium term, and one for the long term. Based on the answers to the questionnaires, each bucket is then given one of ten model portfolios.
So, each client chooses to invest in one of three model portfolios:
- 1st bucket: short-term investments that will be taken out within 3 years
- Second bucket: portfolio for the next four to ten years.
- The third bucket is for long-term investments that will be held for 10 years or more.
Edward has a total of 10 model portfolios, and each one has a different level of risk. The most conservative portfolios have returns of about 2%, while the riskiest portfolios have returns of about 7%.
Model portfolios are made up of 11 types of investments:
2% of each portfolio is left as cash that doesn’t earn any interest. This cash is used as “security” for currency hedging or as a reserve for possible rebalancing.
There is a simple way to keep more of the money you put in the bank as cash. For the first bucket, it’s enough to choose the MP1 portfolio, which is just cash (short-term goal).
You can’t build your own portfolio with Edward. In the same way, you can’t choose which bucket your deposit will go into. An algorithm will make this choice based on the investment goals that have already been set. You can, however, make more than one account with different goals and then send any deposits to those accounts.
DEPOSITS AND WITHDRAWALS
You can invest regularly or just once, and the least you can put in is 1,000 crowns. The money you deposit is automatically invested, but between 0.25 and 1% stays in your wallet to pay for fees. Once a week, on Wednesdays, the platform buys and sells securities.
A bank transfer is used to put money into a collection account at Fio banka. Crowns can be put down as deposits at Edward Invest. In theory, you can also deposit euros, but they have changed into crowns right away, so you have to pay a small fee for the conversion. Edward does not support dollar deposits.
Even before the end of the investment horizon, the money that has been put in can be taken out. Just ask your financial advisor to send you a cash withdrawal request for an SMS signature. In 10 business days, the money will be in your account.
Expected returns
Historical returns from January 1, 2010, to April 30, 2021, are used to figure out expected returns. But there is one thing we must stress: past performance is not a guarantee of future returns, so the numbers are only a guide.
The acceptable decline shows the amount that the portfolio’s value can drop. Theoretically, a higher decline is also possible, but it is unlikely to happen.
Special features
INTEREST ON CASH
The CNB’s two-week repo rate determines how much interest is paid on money put into the MP1 cash portfolio.
As a client deposit, cash that earns interest is put in a Czech bank and is insured up to 100,000 euros.
Interest isn’t taxed when it’s paid out, so clients must include it on their tax return and pay taxes on it the next year. You can do this with the tax forms that Edward sends to his clients at the end of January and the beginning of February. You can also find the amount of interest that has been added up over the past year and instructions on how to put it on your tax return.
HEDGING FOR CURRENCY RISK
Most ETFs are traded in a foreign currency, usually USD or EUR. This is a big problem called “currency risk.” If, for example, the US dollar got stronger against the koruna, the koruna value of dollars would go down.
Currency risk can go up or down, so it can either make an investment more or less valuable. Currency hedging lets you stop these changes from happening if you want to. Edward uses futures contracts to protect himself from currency risk (currency forwards and swaps).
PORTFOLIO REBALANCING
The markets are always changing, and so will the prices of funds. Some funds will go up, while others will go down, so their proportion in the portfolio will always be changing. In turn, this will change the expected return and the overall risk.
To keep the spread of his portfolio the same, Edward rebalances:
The system keeps an eye on how the portfolio is put together and makes changes if there are any big changes. Funds that are going down are bought back, and funds that are going up are sold in part. The end result will be a portfolio with the same amount of each type of investment as at the start.
An algorithm is used to make sure that rebalancing happens as quickly as possible. Also, the system is set up so that most of the rebalancing is done with new deposits (i.e. it rebalances by purchasing). During rebalancing, the least amount of funds is sold so that clients don’t have to pay extra taxes than they need to.
SMART RISK AVOIDANCE
Portfolio risk is also reduced over time, which is another function. In practice, it works so that as the end of the investment horizon gets closer, the algorithm starts to sell off risky items (especially stocks) from the portfolio and buy safer assets (e.g. bonds).
The goal is to make sure that the portfolio doesn’t go down a lot before the money is taken out, like if there is an economic crisis.
Fees at Edward
The fees that investors will have to pay are set by the Edward platform, as well as how much these fees can vary. But the size of the fees depends on the adviser, so they can vary quite a bit:
- One-time entry fee: Depending on the investment plan, a client pays a one-time entry fee when they open their account. The size of the fee is based on the goal amount, which includes both one-time (prepaid) deposits and regular (recurring) deposits
- Subsequent entry fee: The client will pay a “subsequent entry fee” if he or she makes a deposit that wasn’t planned and the total of all the deposits doesn’t reach the goal amount. Regular investments with a non-prepaid fee option are also charged the fee.
- Managers can charge more or less, or they can set a limit on the total entry fee. When the total entry fees reach the limit, all deposits after that will be free.
- Management Fee: This is a monthly fee for managing your portfolio. The amount of the management fee is based on how much money is in the account. The monthly fee is equal to 1/12 of the annual rate times the property’s value in the given band.
- Performance fee: If the account is worth more than 1 million crowns, the advisor can charge a performance fee of 0% to 25% of the net profit each month. The performance fee is only taken out if the net profit in a given month is higher than the highest net profit made so far, which is how the client paid the fee.
- Fund Operating Expenses (TER): ETF fund managers charge this fee, which you pay even if you invest separately. Since the fee is taken out of the fund’s assets instead of the investor’s account, the price of the ETF goes down. The amount of the TER will depend on how the portfolio is put together, but it won’t be more than 0.39% per year.
FEE COMPARISON
The adviser decides on the final fees at Edward Invest, but we already know they won’t be the lowest. We compare the costs of Czech investment platforms so you can get a better idea.
Cheaper alternatives
Fees at Edward Invest are pretty high because clients pay not only Edward for managing and building investment portfolios, but also the financial advisor for setting up the investment.
But each percentage point you lose because of fees has a big effect on your bottom line.
Czech investment platforms are a cheaper alternative. They let you invest in model portfolios without a middleman or a financial advisor. Portu and Fondee are two companies that offer this service.
Investing through the platforms mentioned is almost the same as investing through Edward, but there is no financial advisor involved. You have to sign up for an account, set investment goals, and choose a portfolio on your own.
Platforms for investing are made so that even people who have never done it before can understand them. Based on the answers to the initial questionnaire, the platform will suggest one of the model portfolios and then invest all the money automatically. The system also rebalances the portfolio and protects against currency risk. Investors only have to pay 1% per year for management fees, which is a big saving compared to Edward.
If you want to go even further, you can use a brokerage firm to buy the securities yourself (eg XTB or Degiro ). In this case, you won’t have to pay a management fee because you’ll be building and running your own portfolio.
Where to put your money? Index ETF funds that track the S&P 500 or Nasdaq 100 are especially popular. The mentioned indices and the ETF that is tied to them have an average return of about 10% per year, but they are not good for short-term investments because they are more volatile.
Experience with Edward Invest
From the point of view of a financial advisor, Edward is a great platform.
Edward automates most of the processes, builds portfolios, and sends all important documents to investors. This saves advisors a lot of time and work. Edward also says that it pays advisors up to twice as much in management fee commissions as regular funds of funds.
But should investors put money into Edward?
Higher fees, which can add up to tens of thousands of crowns, are the price you pay for the comfort and guidance of an experienced advisor.
The performance fee is especially surprising. We don’t see any reason why any of the money should go to advisors who don’t take any risk (the investor does) and can’t take credit for how well the portfolio did (Edward builds and manages the portfolios).
We should also keep in mind that advisors get paid through commissions, so their advice and tips may not be in the best interest of the investor.
WHO IS POWERING EDWARD INVEST?
Since September 2020, the Edward platform has been in use, but work on it started in 2017. The Czech company WOOD & Company, which also runs the well-known investment platform Portu, runs the platform.
Since 1991, WOOD & Company has been helping people with their investments. Today, it is one of the biggest stockbrokers in Central and Eastern Europe. Large international institutions like foreign banks and pension funds, as well as private clients with assets worth more than 50 million crowns, make up most of WOOD & Company’s clients.
What clients value:
- Simple investing for beginners
- Automatic portfolio management
- 10 model portfolios for conservative and daring investors
- Any amount can be invested
What clients criticize:
- Higher fees
- You cannot build your own portfolio
WATCH OUT FOR WHAT?
- The only way to get the Edward service is through a financial advisor.
- The reported returns aren’t changed for inflation, and they don’t take into account taxes.
Summary of Edward’s review
Some people say that how investors act is more important than how the investors themselves act. And Edward is one of the few places to invest where this idea is used.
Edward manages your portfolio automatically and gives you direct access to investors, which most other platforms don’t do. The downside, though, is that the fees are higher, which will hurt the overall return.
The same company that runs Edward also runs the investment platform Portu, which is less expensive than Edward. Portu works the same way that Edward does, but there isn’t a financial advisor there. Investors must therefore set their own investment goals and choose their own portfolios. But, just like with Edward, the management of the portfolio, the buying of securities, and the rebalancing of the portfolio happen automatically.
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