Understanding the differences between self-directed and managed portfolios

The quintessential Robo-advisor journey is one whereby the platform advises the investor on a choice of portfolio, through the proxy of one or more risk questionnaires. These are typically referred to as managed portfolios. The keyword here, however, is advises. The exact definition will depend on the country, but in most countries, advice implies more stringent regulation and, often, licensing with significant implications. This isn’t to be taken lightly, as there could be regulatory, legal, operational, or commercial reasons why, ultimately, you are unable to launch such a platform.

The alternatives to managed portfolios are called self-directed portfolios. This is a legal definition that implies the investor is making an explicit choice of portfolio without any explicit advice from the platform. Looking back at our implementation thus far, a self-directed platform would likely omit this last step...