Calculating fees

For the sake of simplicity, we have so far largely ignored fees. In a Robo-advisor, there are many levels and sources of potential fees. Fees will be imposed on your platform by all providers: broker, custodian, payment gateway(s), market data feed(s), and cloud hosting.

At the end of the day, it is up to you how you wish to pass those costs to your own customers, and how you wish to structure those fees. Some fees will be volume-based, such as transaction fees by the broker, or infrastructure consumption from cloud hosting. Others will be fixed in nature. How much you will need to charge your customers is an exercise left for you.

Generally, there are two broad fee mechanisms applied by Robo-advisors to their customers: subscriptions and Assets Under Management (AUM) fees. The latter is the more conventional approach and makes it easy for investors to compare AUM fees charged by other providers, such as mutual fund providers, hedge funds, and financial advisors...