If we’ve learned anything over the past 10 years, thanks to the likes of Uber and Netflix, it’s that no industry is immune to the impact of disruptive technology. Now Canada’s big banks and wealth management firms have been put on notice: The robo-advisor revolution has arrived.
Robo-advisors – or online portfolio managers – offer a number of advantages over traditional banks and investment firms; namely low costs, ease of use, unbiased advice, and the use of technology to limit or even eliminate behaviour that often leads to poor returns.
Furthermore, research from business consultancy firm EY suggests that the adoption of financial technology services among Canadians will triple over the next 12 months.
Two of Canada’s leading robo-advisors are Wealthsimple and Nest Wealth. Here’s how these two platforms stack up:
|Getting started||One of the only institutions in Canada that allows for same-day funding. Their fastest mobile signup was eight minutes.
Clients fill out a risk questionnaire that asks about financial goals, time horizon, risk tolerance, past investment experience and level of investment knowledge.
From this, you will be assigned a risk score and portfolio.
|Opening an account is completely online, secure, and encrypted – taking no more than 5 to 10 minutes.
There’s no need to print anything out or leave your house.
Each client gets a customized portfolio based on his or her risk profile, goals, and financial situation.
|Minimum deposit||No account minimum. First $5,000 is managed free.||No account minimum. Accounts up to $10,000 are managed for free.|
|Fee for service||0.50% – 0.35% management fee based on account size.||A monthly subscription plan starting at $20 per month and capped at $80 per month.|
|Annual fee at $25,000 invested:||$125 (0.50%)||$240 (0.96%)|
|Annual fee at $100,000 invested:||$500 (0.40%)||$480 (0.48%)|
|Annual fee at $250,000 invested:||$1,000 (0.40%)||$960 (0.38%)|
|Annual fee at $500,000 invested:||$2,000 (0.40%)||$960 (0.19%)|
|Types of ETFs used||Purpose, iShares, Vanguard and BMO.||iShares, Vanguard.|
|Average management expense ratio of ETFs||Average MER is 0.18%||Average MER is 0.13%|
|Charge per transaction||No charge per transaction.||$9.99 per trade for re-balancing capped at a maximum of $100 per year.|
|Rebalancing||Portfolio is monitored daily and automatically rebalanced if it drifts beyond certain thresholds.||Portfolio is monitored daily and automatically rebalanced if it drifts beyond certain thresholds.|
|Availability||Available across Canada in all provinces and territories.||Currently available to residents of Ontario, Alberta, B.C., and Manitoba.|
|Investor protection||CIPF protected up to $1M per account.||CIPF protected up to $1M per account.|
|Automation + human advice||Everything is automated, from rebalancing to dividend reinvestment, even tax efficiency.
Wealthsimple does offer advice – clients can reach out to a Wealth Concierge team to discuss financial goals and objectives over the phone, text, email or Skype.
|The onboarding and forms process is all automated but a Nest Wealth representative speaks with every client to discuss portfolio options.
In addition, Nest Wealth offers advice on which accounts to open, investing time horizons, goals and risk tolerance by phone, email, or in person visit.
Wealthsimple’s platform is geared toward Millennials and indeed may be the best fit for the 20-and-30-something investor who is just starting to save. The company has embraced Gen Y, with a slick website and mobile app, and its cost structure is better suited for investors making regular contributions to portfolios under $250,000.
Boomer & Echo readers get their first $10,000 of investments with no management fees for one year. Sign-up by June 30, 2017 to add this offer to your account.
Investors with more sizeable portfolios might find Nest Wealth and its monthly subscription plan more appealing. That’s because instead of taking a percentage of assets – a fee that increases as your portfolio grows – Nest Wealth’s fee is capped at $80 per month, meaning the fees in relation to your account size actually decrease over time.
That’s a good reminder that robo-advisors are not just built for Millennials, but investors at any age and stage can benefit from a low-cost and hands-off approach to investing.
More resources: Learn more about what all of Canada’s online investment providers have to offer with this handy comparison fee calculator.