Why is DIY considered better and cheaper than robos?

This is easier to understand when you illustrate with a larger sum of investment.

Let's say you invested $500,000 with Endowus. That will cost you an access fee of 0.50% p.a., along with whatever fund management fees come with the funds your money is vested in. Let's say the total fees you pay amounts to 1%.

So every year, you're paying $5,000 in fees.

Let's say you DIY invested $500,000. Let's say you're really lazy and you chose to just park it all in IWDA, purchasing through SAXO markets. SAXO has a custodian fee of 0.12%, and IWDA's TER is 0.20%.

So you every year you pay 0.32%, or $1,600 in fees.

It only makes sense that you're paying a slightly higher fee for a robo-advisor because they are curating the portfolio for you and rebalancing as time goes by. You literally have to do nothing other than to put money into your account.

Of course, if you DIY with one ETF, you can do nothing also. But in reality most people have more than one. And over time, you will need to monitor, rebalance etc, to make sure your portfolio retains the shape that you originally intended.

This is probably the biggest reason for the fee difference.

Disclaimer: these examples were arbitrarily picked to illustrate a point.​​​

Hi there, you're right that the commissions incurred will likely incur a larger upfront cost if you try to completely replicate a robo allocation in a broker account.

However, first, certain brokers such as TDA have free comms, so these costs may not apply to them.

Second, it is important to note that a robo allocation via ETFs often have many overlaps between the ETFs. As such, for a replication in a brokerage, not all ETFs have to be bought to recreate the same performance as the robo. Most DIY investors will likely pick a US-centred ETF and a global index ETF to form the core holding of their portfolio.

Third, robo management fees are pretty high tbh. In a robo, most charge around 0.6-0.8% fees for the first ~50k. On the other hand, in a broker, assuming you use one with no platform charges, after the comms are incurred, you only suffer the expense ratios of the ETFs, which your robo is subjected to as well if they purchase the same ETFs.

Let's do a simple computation:

Scenario 1: DCA 1k per month into robo (0.8% fee per year). Assuming the 0.8% applies to the entire 12k for easy computation, the fees add up to $96.

Scenario 2: DCA 1k per month into 2 ETFs in Tiger. With a low cost broker like Tiger, the total commissions for that will only be 3.98USD (1.99 * 2) per transaction. If you DCA every month, your total comms at the end of the year will be $48.

Last but not least, DIY allows more freedom in allocation and allocation to specific sectors (and even stocks) that you may be particularly bullish on. Most robos don't allow you to choose your specific ETFs and some investors prefer more control over their holdings which makes DIY a better choice for them.

Ultimately there's no better or worse, it's more of which is best suited to the needs of the investor at the point in time.​​​