The investment landscape changed this year when a new online investment model came to Canada. Already established for years in the United States with firms like WealthFront and LearnVest – robo-advisors have made their way north of the border with hopes to disrupt the current advice model.
What exactly is a robo-advisor? Essentially it is an online service that gives investors a choice of model portfolios that are built with low cost exchange-traded funds and regularly monitored and re-balanced for you. Think couch potato portfolio with a side of light advice.
All of this is offered for well below the cost of a bank mutual fund, which in Canada average as much as 2.42% for equity funds. Robo-advisors, on the other hand, charge roughly 0.50% to manage your account, plus whatever fees are associated with your ETFs – typically between 0.05% and 0.60%.
The robo-advisor firms that we’ll look at today include ShareOwner, Nest Wealth, WealthSimple. These firms are up-and-running now, although some in select provinces only. WealthBar and Smart Money Capital Management look like they’re ready to start accepting clients soon. For more up-to-date information check out Young & Thrifty’s complete guide to Canada’s robo-advisors.
ShareOwner isn’t new to Canada. The company has offered a portfolio building service for years – giving investors the opportunity to buy an entire portfolio of stocks with just one $40 trade and set them up on an automatic dividend reinvestment plan.
This year ShareOwner got into the robo-advisor game, offering five model portfolios for low monthly fee.
Pricing – Accounts under $100,000 pay 0.50% of their balance on an annual basis. Portfolios greater than $100,000 will pay a flat fee of $40 per month. There are no trading fees or rebalancing fees, but investors pay the cost of holding the ETFs.
Model portfolios – ShareOwner offers five model portfolios, depending on your risk tolerance and goals.
- Aggressive growth – This all-equity portfolio consists of ETFs in Canada, the U.S., developed markets outside of North America, and emerging markets. The average-weighted MER is 0.29%.
- Growth – This portfolio consists of a 75% allocation to equity ETFs and a 25% allocation to fixed income. The average-weighted MER is 0.31%.
- Balanced – The balanced portfolio consists of an even split between equity and fixed income assets. The average-weighted MER is 0.32%.
- Conservative – The conservative portfolio consists of a 25% allocation to equities and a 75% allocation to fixed income. The average-weighted MER is 0.29%.
- Income – The income portfolio consists of a 60% allocation to dividend-focused equities and a 40% allocation to fixed income. The trailing dividend yield is 3.62% and the average-weighted MER is 0.42%.
Re-balancing – On the first Wednesday of every month ShareOwner’s automated rebalancing process calculates and executes any transactions necessary to keep your portfolio aligned with your target asset allocation.
This monthly process ensures that your portfolio is updated frequently and the all-inclusive fee structure means that you benefit from more frequent rebalancing without incurring additional transaction costs.
Other fees and account minimums – With ShareOwner’s model portfolio structure there are no account minimums and the administration fee is waived for RRSP, TFSA, and non-registered accounts.
Availability – ShareOwner is open to all Canadians.
Clients at Nest Wealth each get a customized portfolio based on their current financial situation, goals and risk tolerance.
Pricing – Nest Wealth charges a flat $80 monthly advisory fee. Clients under 40 will pay $40 per month. The only other fees you incur are the costs of trading and holding the ETFs you will own. The ETFs in your customized portfolio average 0.18%, and when your account is rebalanced you’ll pay $9.99 per trade.
Model portfolios – Nest Wealth uses a combination of large low-cost broad ETFs from the largest ETF providers in Canada (iShares, Vanguard) to construct your portfolio.
Each ETF in your portfolio represents an asset class. The broad asset classes you will hold amongst seven ETFs are: equities, fixed income, and real estate.
Re-balancing – Nest Wealth will rebalance “as often as it’s needed and not any more often, but at least once a year.” They’ll continuously monitor your portfolio and periodically rebalance it back to your target mix, but are not able to predict when or how often they are likely to rebalance because that depends on the performance of each of the asset classes.
Other fees and account minimums – The account minimum for investors under 40 is $25,000. For investors over 40, the account minimum is $50,000. Nest Wealth currently supports taxable investment accounts including individual, joint and trust accounts, as well as most types of registered accounts including RRSPs.
Availability – Nest Wealth is currently only registered in Ontario but plans to roll out to other provinces soon.
When you open an account with WealthSimple, they’ll guide you through the entire process: from assessing your risk tolerance and determining your investment goals, to setting up regular monthly contributions. After a conversation with your dedicated “Wealth Concierge”, they’ll build you a customized portfolio and start investing for you.
Pricing – WealthSimple charges 0.50% for accounts under $250,000, 0.40% for accounts between $250,000 and $1,000,000, and 0.35% for accounts over $1,000,000. There are no trading commissions or administration fees. The only other fees you pay are for investment products, which average 0.25% per year, and currency conversion.
Model portfolios – WealthSimple works with you to assess your risk tolerance and financial goals. Through a combination of a questionnaire and a conversation with your Wealth Concierge, they will match you to a portfolio that meets your long-term investing needs.
ETFs are carefully selected from several different companies including Vanguard, iShares, BMO, Purpose, and others.
A wide array of asset classes includes cash, Canadian investment grade bonds, U.S. high yield bonds, real estate, Canadian stocks, U.S. stocks, foreign stocks, emerging markets, dividend stocks, and risk managed stocks.
Re-balancing – If an asset class drifts more than 5% from your target position, WealthSimple will reset your asset mix to keep your portfolio balanced. By selling some of your investments that are up and buying some that are down, you’ll smooth the impact of market movements.
Other fees and account minimums – WealthSimple’s management fee covers transactions, rebalancing, advice, and account administration. Their account minimum is $5,000. They support all major taxable and registered investment accounts including: individual and joint taxable, TFSAs, RRSPs, and LIRAs.
Availability – WealthSimple can only service investors who are residents of Ontario and British Columbia at present time, but plans to roll out its services to the rest of Canada as soon as possible.
This firm describes itself as “Canada’s only full-service online wealth manager.” At WealthBar, an expert financial analyst actively monitors and adjusts your portfolio.
Pricing – WealthBar offers an all inclusive management fee based on the following tiers:
- Up to $5,000 – Free
- $5,000 – $150,000 – 0.60%
- $150,000 – $500,000 – 0.40%
- Over $500,000 – 0.35%
The management fee covers automatic rebalancing, insurance needs analysis, discounts on other financial services, and all trading fees.
Managed investment accounts – WealthBar’s website says that access to its managed investment accounts will be available “very soon”.
*Update – Shortly after entering my email address I got a notification that I was “ready to invest”. Here’s a brief overview.
A series of risk-related questions will lead you to a recommended portfolio of ETFs. There are five model portfolios ranging from safety to long-term growth. Average MER is between 0.40% and 0.48%.
Products – The firm uses iShares equity ETFs, Vanguard and Horizon fixed income products, and BMO for REITs, corporate bonds, and currency hedging. All five portfolios use the same funds with different weightings.
- iShares S&P/TSX Equity Income
- iShares MSCI EAFE IMI
- iShares Gold Bullion
- iShares S&P500
- Vanguard Canadian Short-Term Corp. Bond
- Horizons Active Floating Rate Bond
- BMO Equal Weight REITs
- BMO High Yield US Corporate Bond Hedged to CAD
- BMO Covered Call DJIA Hedged to CAD
Availability – WealthBar is registered as a Portfolio Manager in Alberta, British Columbia and Ontario. Investors will have to open an account directly with Virtual Brokers – WealthBar’s “custodian”.
Smart Money Investments
With Smart Money, investors will get an optimized global portfolio of equity and bond ETFs that are regularly rebalanced. Investors will always have someone to talk to about your money, and you’ll pay a low fee of 0.45% annually.
Smart Money is registered with the Ontario Securities Commission as a Portfolio Manager. The Toronto-based company is launching soon.
Call it a robo-advisor, or a light advice model. The fact is, these online investment services have found a niche that helps the do-it-yourself investor overcome their bad behaviour by automating processes like fund selection and rebalancing. In most cases, an actual human advisor is there to guide you along the way.
While true DIY investors may scoff at paying a management fee for building a simple portfolio of ETFs and rebalancing them once a year, many Canadians would stand to benefit from an online, light advice model.
Not only are the fees just a fraction of what the majority of Canadian investors pay for mutual funds, but investors can avoid the inherent conflict of interest that comes from dealing with their bank “advisor” or salesperson.
Anyone who has ever asked their bank advisor about index funds and ETFs were surely met with objections and obstacles as to why they should stay in high priced actively managed mutual funds.
Finally, someone who uses a fee-only advisor but who isn’t comfortable investing on his or her own should consider a robo-advisor.
This tale of the tape isn’t much of a contest at the moment. The experience, pricing, and simplicity of its model portfolio structure puts ShareOwner ahead of the competition today. An added bonus is that its services are available to anyone in Canada, rather than just in select provinces.
WealthSimple offers the most sophisticated model, complete with Wealth Concierge and value-added services like tax-lost harvesting for larger accounts. The fee structure is also very competitive, but the large number of investments and asset classes available seem to contradict its “simple” objective.
Kudos to Nest Wealth for offering a discounted pricing option for investors under 40, however the large account minimums and additional trading fees make them best suited for more affluent investors, as the service scales up well – becoming more cost effective as your assets grow.