Last Updated on March 18, 2024

Over the last decade trillions of dollars have flown into automated wealth management platforms all over the world. The basic idea is that technology can help anyone, regardless of how much money they have, get access to a low-cost, globally diversified passive investment portfolio that is automatically rebalanced. Given the abysmal results of the overwhelming majority of active money managers, why pay more to get lower returns?

While independent investment advisors often provide far more services and value beyond just investment management, they are generally only available to high net worth individuals. Robo advisors put professionally managed investment portfolios in the hands of just about everyone.

What robo options are actually available to those of us living in Israel? How do the cost of local platforms compare to the options available in larger markets like the US? This article will take a deep dive and help you understand what robo investing platforms might be beneficial for you and what to watch out for. As new platforms become available in Israel, we will add them here.

Before getting started

I regularly sit down with Olim to discuss options for getting started investing. Very often I hear something like “I opened an account at XYZ platform and sent some money over. I’m going to give it a few months and see how it does.” “Seeing how it does” rarely leads to more clarity on its own. If you don’t set proper expectations before getting started you will have no objective measure with which to judge a platform and make an informed decision on whether or not it is right for you.

So, what are some of the key questions to ask about any platform before opening or funding an account? Lets run through it:

• What are the fees for using the platform and service?
• Do I have a basic understanding of how my money is being invested?
• How does it compare to similar investment opportunities?
• How quickly can I get my money off the platform? What happens if the company goes out of business?
• What conflicts of interest exist w/in the platform and the agents promoting the platform?

Local robo investing services

We will start by looking at Israeli robo advisors – FJord, Videa, and Meitav Manager. At this stage, the local options are very limited.

Fjord

WARNING: We have received complaints about this product from our readers and other financial professionals. While we can’t independently verify all the claims that have been made, we have concerns. Please make sure you review the fees and trading strategy carefully before investing using this service.

Fjord is a robo advisor which builds and actively manages an investment portfolio for you based on US ETFs. Portfolios are made up of traditional asset classes including: stocks, bonds, real estate and natural resources. This is the only local option relevant for US citizens (all the others invest in PFICs).

Fjord is using the “Interactive Israel” (אינטראקטיב ישראל) platform, a service based out of Cyprus. Even though your account will be held at Interactive Brokers, because of this partnership with אינטראקטיב ישראל you will likely pay more than 7X the trading fees you would pay for a regular IB account on each transaction.

Fjord is unique in that it has deployed a fairly active market timing strategy using sophisticated order types based on “high-value data-streams”. Because of its active trading algorithm which periodically buys and sells different ETFs, some users have discovered that it can at times generate disproportional fees from trading commissions alone.

Historically, active trading strategies are very unlikely to beat the market, regardless of how much “big data” they have access to. This is especially true when high commissions are involved.

What we like

Fjord’s use of US based ETFs can help Americans in Israeli avoid punitive PFIC taxation unlike any other local robo advisor. Additionally, given that assets are held on the Interactive Brokers platform it is relatively easy for a customer to leave Fjord and transfer the asset to a self-managed account should they not be satisfied with the service or fee structure.

What to watch out for

• The fees – Fjord makes money both from a % of the value of your investment (0.5% +VAT) and a fee on every transaction ($2.50 per trade). You may not see this second fee mentioned in their marketing material but it can be extremely significant.
• Minimum – You need 10K in order to open an account.
• The strategy – Fjord uses an active investment strategy which often involves frequent buying and selling. Do you understand and trust this type of strategy to produce positive results?
• The wash sale rule – For US citizens, you must be aware of this tax rule before using any active trading platform. Platforms that trade frequently can lead to violations of this rule. This is especially true if you have more than one investment account.
• Accounting expenses – platforms that frequently trade create many taxable transactions that need to be reported. Depending on how your Israeli (and US) accountant operates, this can lead to extra reporting costs. In addition, unlike other Israeli platforms, with Fjord you will need to report any income earned to the Israeli Tax Authority every year (unless within 10 year aliyah holiday).

Videa

Videa is a robo advisor owned by Bank Leumi. It is similar to more traditional robo advisors in that it passively manages your portfolio based on your desired risk preferences. It will automatically allocate your initial contribution and future transfers based on the portfolio you choose.

While Videa is owned by Leumi, you can use it with any Israeli bank and your investments will continue to be held at that bank. This ensures that your investment account is seamlessly integrated with your existing עו”ש (Checking account) making contributions and withdrawals relatively simple.

What we like

Videa’s structure helps avoid several significant conflicts of interest prevalent with some of the other platforms mentioned in this article:

• Videa makes it very clear that their investment strategy is designed to limit trading as much as possible. We strongly believe that investors are far better served by a passive investment portfolio that limits transaction costs.
• They are not a fund company and are therefore not incentivized to choose specific investment funds. This allows them to choose index funds that are generally lower cost and more efficient than active ones.

What to watch out for

• Management fees – 0.7% including VAT for a typical portfolio. See here for more information about their management fees.
• Bank specific fees – Beyond Videa’s management fee, there are also fees charged by the specific bank you are using. Typical bank fees include monthly maintenance fees (דמי ניהול פיקדון ני”ע/דמי משמרת) and trading commissions (עמלות קניה, מכירה). Videa claims to have a special arrangement with each bank for the lowest fees available – make sure you have reviewed the terms for this offered by your bank before proceeding
• Minimum – You need 50K in order to open an account.
• If you are an American citizen, this is not a good option for you.

Meitav Manager (מיטב: מנג’ר)

Meitav Manager is a robo investing option offered by Meitav, a major Israel investment company. The robo advisor will automatically allocate your contributions toward specific investment funds managed by Meitav.

What to watch out for

• Fund fees – “Metav Manager” doesn’t charge any fees because they are specifically putting you money in their own funds. This incentivises them to allocate your funds toward their highest fee products in each category.
• Active management – Your funds will be allocated toward actively managed mutual funds. Make sure you are confident with Meitav’s investment philosophy and track record before proceeding.
• Minimum – You need 25K in order to open an account.
• If you are an American citizen, this is not a good option for you.

US based options

For those who are US citizens and maintain a verifiable US address, you can consider using a lower-cost US based platform instead. There are so many different options to choose from and all will have significantly lower costs (0.25% total average fee) then any of the Israeli options mentioned.

Beyond the need for a US address, these platforms are generally only efficient for an Oleh who meets one of the following criteria:

• Earning a US based income in to a US bank account
• Looking to invest money already in a US bank account
• An Oleh with a cost effective method for exchanging currency and regularly transferring money to the US from Israeli based income.

One of the most important parts of any investment plan is being able to contribute on a consistent basis. This isn’t easily accomplished for someone earning an Israeli salary while trying to use a US robo advisor.

Leading US robos

Some of the best and most popular US based robo advisors include Betterment, Vanguard Digital Advisor, Schwab Intelligent Portfolios, and Wealthfront. All of these platforms provide low-cost access to professional globally diversified portfolios that are automatically rebalanced. They are generally well designed and make it easy to open an account.

What we like

The high degree of competition amongst US platforms has lead to low costs, a better user experience, and a plethora of options for long term investors to choose from.

What to watch out for

• Municipal bonds – Obviously these platforms are designed for US residents, not Israeli residents, and their investment strategy will reflect that. One common example is that US robo advisors tend to invest in municipal bonds. These bonds pay a lower interest rate in exchange for specific US tax advantages. An Israeli who is also subject to Israeli tax will get the low interest rate without any tax advantages.
• Tax loss harvesting strategies – Most US robo advisors offer automated tax loss harvesting. Platforms that frequently trade create many transactions that need to be reported and can increase your tax reporting costs. Most robos allow you to disable this feature.
• Transferring money – There isn’t a cost effective manner for transferring money to one of these platforms directly from an Israeli bank.
• Tax reporting – As with any non-Israeli investment platform, you will need to report any income earned to the Israeli Tax Authority every year (unless within 10 year aliyah holiday).

M1 Finance

M1 is purely an automated investment platform rather than a robo advisor. In other words, the platform won’t tell you what to buy but will allow you to completely automate your investments once you have decided on your desired portfolio.

What we like

M1 makes it extremely easy to automate your investments, implement a buy&hold strategy, and rebalance with the click of a button. With the ability to completely customize and control your investment portfolio, you can avoid municipal bonds and build a simple investment strategy that reflect your unique needs.

What to watch out for

• Self-reliance – Many find the process of choosing specific investments on their own to be intimidating. If you are specifically looking for a platform that will decide exactly what to buy, M1 is not the right option for you.
• New monthly fee – $3 monthly if you have less than $10,000 in M1 assets
• Transferring money – There isn’t a cost effective manner for transferring money to M1 directly from an Israeli bank.
• Tax reporting – As with any non-Israeli investment platform, you will need to report any income earned to the Israeli Tax Authority every year (unless within 10 year aliyah holiday).

A better alternative?

Given the high costs and limited options available for most Israelis, it’s hard to see robo advisors as the best option for getting started investing. As John Bogle famously said, “In investing, you get what your don’t pay for.” In other words, keeping fees low is one of the most important pieces of any successful investment strategy.

By consistently purchasing 1-2 low cost index funds and avoiding the costs and complications mentioned in this article – DIY investors are likely to achieve better returns in the long run.

Getting started on your own doesn’t have to be overwhelming. We have seen over 200 beginners get set up with just a little support and guidance. Building a successful long term investment strategy that you can manage on your own in Israel is easier than it has ever been before.