The Financial Technology (FinTech) space in Singapore has been heating up and consumers today are no longer restricted to plain vanilla methods of investing such as buying stocks and bonds from the stock market or choosing from only unit trusts or investment-linked plans (ILPs) from the banks they save with. Some consumers could want to try out new ways of investing such as Robo-Advisors who use only easily accessible ETFs, or invest in loans through P2P lending platforms such as Funding Societies.
Clearly, the FinTech revolution in Singapore is here to stay, but it requires investors to be familiar with the investment products that they intend to use. With greater options come greater responsibility. It’s only through understanding the various investment products that investors can truly make the best decision for themselves.
When it comes to investing, having easy and affordable access to a holistic and diversified approach is important and there is space for further innovation in this area of wealth management, or what is known as WealthTech. This is where Endowus is trying to shake up the industry with a new approach to a traditional way of investing by focusing on the most important part – financial advice.
Endowus, An Investment Platform That Offers Access To Best-In-Class Funds At Low Cost
Endowus is a FinTech platform that aims to help Singaporeans grow their wealth by investing systematically. The platform is independently owned and operated by experienced investment professionals who struggled to find efficient ways to invest their own savings in Singapore. With their institutional backgrounds, they wondered whether they could create a platform through which all Singaporean investors can invest efficiently like the major institutions such as university endowments, sovereign wealth funds, and the GICs of this world.
The investment team is led by Samuel Rhee, an experienced investor, and with more than 27 years of experience in the industry. He is the former CEO and Chief Investment Officer of Morgan Stanley Investment Management in Asia, managing approximately US$15 billion in assets for institutional clients. His expertise includes macro analysis, asset allocation, portfolio construction, and optimization. There is deep financial and technology domain knowledge within the team, and other founding team members have worked at both major global financial institutions and tech companies such as Goldman Sachs, Morgan Stanley, UBS, Blackstone, Nomura, HSBC, Zalora, Carousell, and Grab.
Endowus is a MAS-licensed financial adviser. It’s also an independent, fee-only firm. This means that Endowus is only paid by its clients (i.e. us, the investors) and not by any product providers, which allows them to independently choose the best investment products out there that are the most suitable to their clients.
Endowus only charge an all-in-one Access Fee, which includes advice, portfolio service, investment, rebalancing, transfers and brokerage services, as well as access to some of the best-in-class funds around the world. Endowus does not charge any sales fee or receive any trailer fees or rebates from the funds that they work with. Furthermore, Endowus is not paid on a transaction basis and therefore does not have any incentive to push its clients to trade and churn their accounts. If a trailer fee is paid by the fund to Endowus, this is automatically returned to the investors.
How Does Endowus Work?
Endowus believes in a systematic and evidence-based approach to investing. Underpinning their belief is Nobel Laureate Eugene Fama’s decades of work on asset pricing which deals with the power of markets, understanding that the market price efficiently reflects all available information. In equities, one should focus their efforts on building data-driven portfolios to get broad global market exposure with a tilt towards factors that have been proven to outperform over the long-term such as small and value companies.
They also focus on low-cost access, with the understanding that the lowest possible cost would ultimately give investors the highest chance of investment success over the long-term.
Endowus creates diversified investment portfolios, through investing in various types of funds, which generate the highest possible expected return for every level of risk taken by an investor. They invest, on their client’s behalf, in a portfolio of top funds which they have identified. Though they are agnostic to the type of funds they use to construct portfolios, they do not currently invest in ETFs, especially for fixed income where passive investing is more difficult and the benefits less than in equities.
The financial advice and the investment methodology are what Endowus focuses on. Endowus believes in key investment principles such as diversification, asset allocation, personal risk tolerance, tax efficiency, low cost and time spent being invested in the market.
What Does Endowus Invest In?
Independent fee-only financial advisers that provide sophisticated and personalised financial planning are quite popular in the US and other developed markets, but it is not prevalent in Singapore or Asia. Endowus is seeking to be like the independent financial advisors in the US by focusing on the most value-added part of providing holistic financial advice to its clients.
Endowus is also focused on trying to provide access to the best funds at the lowest cost. They access what is known as institutional share-class funds that have no rebates or kickbacks and thus have the lowest fees possible. These funds are managed by top global investment management companies such as Dimensional and PIMCO with long track records of delivering great returns which are not normally available to retail investors. Basically, Endowus allows investors to access institutional share-class funds at institutional-level fees, similar to how major sovereign wealth funds would invest.
The funds selected are denominated in Singapore Dollars to avoid currency inefficiencies and are tax-efficient for non-US Persons (unlike US-listed ETFs, where you are exposed to US withholding taxes that eat into your returns). Endowus portfolios are truly purpose-built for Singapore-based investors.
You can invest with Endowus via cash, SRS or your CPF monies. Do note the individual funds that you invest in via Endowus have to be approved specifically for SRS or CPF investments. In other words, there may be some funds on Endowus that you can invest in using cash, but not your SRS or CPF monies.
Endowus Core Advised Portfolio
Endowus makes the asset allocation and portfolio construction decisions to create a customised portfolio for its investors. They use a top-down, data-driven, institutional asset allocation framework for portfolio construction, and do extensive due diligence and analysis to select the best-in-class funds to implement the asset allocation and create the optimal portfolio for the investor.
They apply quantitative and qualitative screens to find funds that have delivered outperformance with long track records, and not backtested numbers that are not real returns. The funds selected would have outperformed their peer group and benchmarks over various periods of time and have a consistent investment philosophy and process. They look at performance consistency, volatility and downside risk relative to their peer group and benchmarks. They take away the difficulty in evaluating the multitude of funds that are available to invest in, making it easy for investors to build and invest in a globally diversified, low-cost, holistic portfolio.
Normally these funds will be very expensive or not available for retail investors, but Endowus has made it possible by working with these fund managers to access the low-cost institutional share classes of the funds.
They also advise clients to invest in portfolios that are appropriate for their investment goals, time horizon, and risk tolerance. This is key because the biggest drag to returns over the long term is the behavioral biases that exist in investors that lead them to panic or become too exuberant at the wrong times. Endowus will help investors to invest in the right way for the long-term, allowing them to stick to their investment plan through market ups and downs as a proper independent financial advisor should do.
According to the company, Endowus Core is typically the first portfolio of choice for most clients.
Endowus ESG Portfolio
Endowus also offers investors the opportunity to invest in ESG portfolios. This is an advised portfolio by Endowus that helps you gain investment exposure to a well-diversified ESG portfolio comprising equities and/or fixed-income products, across developed and emerging markets and across different investment strategies.
For both the Core Advised Portfolio and the ESG portfolio, we will choose our risk tolerance level and Endowus will help us build a customised ESG portfolio that is suitable for our risk profile. You can read our review of the Endowus ESG Portfolios.
Endowus Fund Smart
To provide investors with more choice and control over their investment portfolio and at the same time, provide robo-advisory services such as allowing investors to have a hands-off approach towards managing their portfolio, Endowus also offers the Endowus Fund Smart to help investors create their own best-in-class unit investment portfolio, guided and advised by the Endowus platform.
How it works is that investors can pick a combination of up to 8 funds from a carefully curated list of more than 200 funds. Endowus has done the heavy lifting of identifying these funds as best-in-class. This includes the likes of Shariah-Compliant Funds (Templeton Shariah Global Equity Fund), Asian Growth Fund (Schroder Asian Growth Fund) and bond funds (PIMCO GIS Income Fund). You can also sort out the funds based on your criteria such as investment style (dividends, ESG, Growth, etc), risk level, geography and many more.
Unlike the Endowus advised portfolio, the Endowus Fund Smart will require you to select 1) the funds that you want to invest in (from 1 to 8 funds out of a list of more than 200 funds) and 2) the allocation that you wish to set for each fund. You decide this, not Endowus. Read our review on Endowus Fund Smart.
Endowus Income is a portfolio designed to provide regular income payouts to investors. According to Endowus, the portfolios are built with resiliency in mind, to manage risk through market volatility and changing macro environments. This portfolio provides investors with some of the best-in-class income-generating funds and opportunities worldwide.
Investors can choose from three different portfolios – Stable Income, Higher Income & Future Income.
Stable Income is a portfolio that is ideal for retirees and those seeking regular income. It provides a stable and dependable monthly income of between 5.0% to 6.0% p.a. with an estimated total return of about 3.5% to 7.0% per year. The portfolio is 100% allocated to fixed income only. It also takes a lower risk to preserve your capital.
The Higher Income portfolio has a 20% equities allocation and an 80% fixed income allocation. The payout target is at 5.5% to 6.6% per annum, with an estimated total return of 3.5% to 9.0% per annum. It takes a higher risk to achieve the higher payout and some capital growth.
The Future Income portfolio has a 40% equities allocation and a 60% fixed income allocation. It has the highest level of risk among the three income portfolios but also provides the highest potential for growth. The payout target is at 3.5% to 4.5% per annum, with an estimated total return of 4.0% to 10.0% per annum. It takes a higher risk to grow your future wealth with an allocation to global equities.
Do note, figures are all-inclusive of fund-level fees, but they do not include trailer fee rebates and Endowus Access Fees. The current payout target, estimated capital appreciation and estimated total return are not guaranteed and are estimates only.
The Endowus Satellite portfolios are portfolios that allow investors in specific sectors. These include 1) Global Real Estate, 2) Technology, 3) China Equities, 4) China Fixed Income, 5) Megatrends & 6) Low Volatility Fixed Income.
With the exception of the China Fixed Income and Low Volatility Fixed Income portfolios, all of the other portfolios are considered very aggressive portfolios. Investors that have a strong belief in the growth story of a specific sector can consider investing in one or more of these themes. However, we should see these portfolios as complementary to our Endowus Core Portfolio, rather than as a substitute for it.
Endowus Cash Smart Account
For those who prefer holding cash, Endowus also has its Cash Smart Account. This is an account that allows you to park your cash in extremely low-risk and high-liquid cash funds and money market funds. These funds typically hold only short-term debt instruments issued by high-quality issuers such as the government or corporations rated with high credit scores, or even Singapore Dollar deposits with eligible financial institutions, making them extremely safe.
The Endowus Cash Smart Account provides investors access to three different cash offering portfolios: Secure, Enhanced and Ultra. Secure is a portfolio that takes on lower volatility while Ultra is a portfolio that can give you the highest yield among the three cash management accounts offered by Endowus. Do note that unlike the other portfolios offered by Endowus, the Endowus Cash Smart is meant primarily for investors with a shorter-time investment horizon, or who just want to earn extra interest on their emergency savings.
What Endowus Does NOT Do
When you invest via Endowus, actual investments in the funds are made by the fund managers that Endowus works with such as PIMCO and Dimensional. These fund management experts manage the underlying funds in the portfolio, and in this way, Endowus is able to leverage its global resources, investment expertise and trading capabilities.
Endowus works with global fund management houses to select and gain access to the best funds in each asset class and focuses on the advice including asset allocation and portfolio construction, as opposed to trying to reinvent the wheel by creating new funds using underlying ETFs.
Endowus does not directly handle your investment monies. As part of onboarding with Endowus, investors will need to create an UOB Kay Hian trust account in your own name, which will act as a custodian for all your Endowus investments. This means that Endowus does not directly touch your money, adding a layer of security to your account, and your money is safe in a trust account under your name. There is no additional cost involved as it is included in the transparent all-in fees.
There is no lock-in period for the funds, meaning your investment can be invested or redeemed on a daily basis.
How Much Does Endowus Charge For Its Fees
The only thing Endowus earns is a simple, transparent, all-in-one Access Fee, based on the assets invested. The Access Fee is paid to Endowus for advice, portfolio service, investment, rebalancing, transfers and brokerage services. There are no separate fees such as sales charges or custodian fees and there are no additional fees paid to UOB Kay Hian.
|All-in-one Access Fee||Fee Per Annum, Based On Assets Under Advice|
|$200,000 and below||0.6%|
|$200,001 to $1,000,000||0.50%|
|$1,000,001 to $5,000,000||0.35%|
|$5,000,001 and above||0.25%|
CPF & SRS Investments
All-in-one Access Fee is at 0.40% p.a for both CPF investments and SRS investments.
Endowus Cash Smart
For the Endowus Cash Smart, the access fee is just 0.05% p.a.
These fees are not inclusive of the fund management fees that are charged at the fund level. According to Endowus, the fund-level fees for its portfolios are at institutional levels ranging from 0.50% to 0.56% per annum, which is significantly lower than typical retail fund charges.
In other words, by using Endowus and the funds in which it invests, investors will pay a total fee of between 0.75% to 1.16% per annum including advice, use of the platform, brokerage, transfers, and fund-level fees.
This compares very favorably to all-in fees for retail investors which are generally around 4-6%. Retail share-class funds typically charge fund-level fees of 1.6~2.0%, of which half is taken out of your investments without you knowing it and paid to the distributor normally in the form of rebates. There are also upfront sales charges of 2.00-3.00%, and other distributors or fund platforms may also have additional charges including platform/wrap fees (0.50%-1.00%) and transaction charges (0.25%-0.50%). The total burden to the normal investor is exorbitant and weighs on returns. This is why the most powerful predictor of future returns is in fact the cost of fees. Higher fees result in meaningfully lower returns in the future and vice versa.
Do note that based on our observation, the ESG funds tend to have higher fund management fees that could be more than 1%. Thus the ESG portfolios would likely cost more in term
Endowus Wants To Remove A Big, Inherent Conflict Of Interest Situation
One of the biggest value propositions, in our opinion, is that Endowus solves the inherent conflict of interest situation where fund distributors (e.g. your broker/financial adviser) are taking a distribution commission from the funds that they sell you as an investor. This fee is known as a trailer fee. You can read more about what trailer fees are in this article.
Trailer fees are typically between 0.5% to 1.0%, and this could be more than half of the fund-level fee. In other words, it’s possible that of the 1.80% fund management fee that you are paying for your unit trusts today, over 0.90% of the fee is actually going to the financial adviser who sold you the unit trust on a recurring basis.
Most retail investors do not know of this trailer fee, as it’s already included as part of the fund management fee and taken out of the NAV. However, it’s important for investors to realise that this creates a natural conflict of interest situation since the fund distributors are earning an ongoing fee from each of the funds that they are selling to you.
Endowus does not accept trailer fees. This makes their financial advice completely independent as they are not receiving any fee from the funds they recommend. As mentioned earlier, investors pay an Access Fee to Endowus directly (0.6% or lower) and a fund-level fee (0.50% to 0.56%) to the fund managers. Any trailer fee that is received is automatically given back as a rebate to the client.
What Does Endowus Offer For Investors In Singapore?
Firstly, Endowus provides sophisticated advice on investing, which is much needed in Singapore. They build holistic and globally diversified portfolios personalised to your risk profile, and deliver it in a seamless digital experience, thus satisfying the need of the modern investor through a great customer experience.
Secondly, the company provides access to some of the leading investment funds around the world managed by top fund managers, which are not readily available to retail investors. These funds are able to charge low management fees of between 0.50 to 0.56% because they do not pay trailer fees to their distributors and Endowus can access the institutional share classes.
Thirdly, Endowus helps investors find the right global funds that they should be investing in. Endowus also helps investors actively monitor and manage their asset allocation, rebalancing their portfolios when needed. This ensures that the client’s portfolio continues to remain in-line with their objectives and risk tolerance over a long investment period.
Last but certainly not least, Endowus does not accept any trailer fees from the funds it distributes. So while it does partner with global fund management companies like Dimensional and PIMCO, it does not earn any revenue or commission from these companies. The only fee it earns is a transparent and aligned all-in-one Access Fee from its investors.
Invest Better With Endowus
If you’re interested to start investing with Endowus, you’ll be happy to know that DollarsAndSense readers can enjoy $20 off their access fee (equivalent to $10,000 advised free, assuming an access fee of 0.40%). Sign-up using this link to claim this special offer. Terms & Conditions apply.
This article was written in December 2018 and we have updated it to include additional portfolios that Endowus have launched.
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