Robo-advisors have been around for several years now in Canada offering affordable online investing services with a light human touch.
You might picture the typical client as a smart young millennial just beginning his or her investing journey. After all, that’s how robo-advisors are often portrayed in the media.
But it might surprise you to learn that the average client at one of Canada’s leading robo-advisors is 48 years old and has $170,000 invested with them.
Why Nest Wealth Is A Clear Winner for Affluent Investors
Nest Wealth operates a different business model than the other robo-advisors in Canada. Rather than charging the industry standard “percentage of assets”, Nest Wealth charges a monthly fee that’s capped at $80/month.
So whether you’re an investor with a $200,000 portfolio or $2,000,000 portfolio you’ll never pay more than $960/year in management fees at Nest Wealth.
Boomer & Echo readers can try Nest Wealth free for three months
Other robo-advisors charge a percentage between 0.35 and 0.50 percent, which is great for smaller accounts and a fantastic alternative to expensive bank-managed portfolios that can easily charge 2 percent or more (check your year-end statements, folks).
But once your portfolio crosses a certain threshold – say $250,000 – Nest Wealth’s monthly fee structure really starts to shine.
- A $250,000 portfolio at 0.40 percent will cost you $1,000/year in management fees. That exceeds Nest Wealth’s monthly caps by $40/year and the advantage only grows from there.
- A $500,000 portfolio at 0.40 percent will cost you $2,000/year in management fees. With Nest Wealth you’d still pay $960/year.
- At $1,000,000 the comparison gets pretty ridiculous. You’d pay $4,000 under the percentage of assets model and – surprise, surprise – just $960 under Nest Wealth’s capped monthly fee model.
That’s an absurdly cheap 0.10 percent for Nest Wealth to monitor and rebalance your portfolio.
Adding up the fees
Of course, robo-advisor clients do pay other charges in addition to a management fee. The biggest expense is the MER of the underlying ETFs that make up your portfolio.
Most robo-advisors follow modern portfolio theory and the idea that a low cost, broadly diversified portfolio of ETFs leads to the best outcomes for investors.
This philosophy keeps fees low for investors and ensures your overall cost to invest stays well below 1 percent.
Nest Wealth constructs its portfolios using seven ETFs representing seven different asset classes, with MERs ranging from 0.05 to 0.39 percent. A typical portfolio will cost investors an additional 0.13 percent on top of the flat monthly fee.
Nest Wealth ETFs
- Vanguard Canadian Short-Term Bond Index ETF (VSB)
- BMO Aggregate Bond Index ETF (ZAG)
- iShares Canadian Real Return Bond Index ETF (XRB)
- iShares Core S&P/TSX Capped Composite Index ETF (XIC)
- iShares Core S&P 500 Index ETF (CAD-Hedged) (XSP)
- iShares MSCI EAFE ETF (IEFA)
- Vanguard REIT ETF (VNQ)
Finally, Nest Wealth also charges $9.99 per trade whenever it allocates or rebalances your account – however these fees are capped at $100/year per account.
It’s an extra charge that other robo-advisors don’t levy onto their clients, but one that’s acceptable when you consider the incredible savings that Nest Wealth offers on portfolios greater than $250,000.
When you consider the management fee, MER of the underlying funds, and $100/year in trading fees, a Nest Wealth client with a portfolio of $250,000 will pay approximately $1,385/year or 0.55 percent.
At $500,000 the annual cost reaches $1,710 or 0.34 percent.
And at $1,000,000 an investor would pay $2,360 per year or just 0.24 percent.
The Robo Solution
So here’s the bottom line. Nest Wealth blows away other robo-advisors when it comes to portfolios of $250,000 or more.
If you’ve even considered moving your money over to a robo-advisor, and your portfolio is in that range or higher, Nest Wealth is the clear winner with the absolute lowest fees.
And, well, if your sizeable portfolio is currently being managed by a bank advisor or investment firm that charges 1.5 to 2.5 percent then I invite you to do the math on how much you’d save by switching to Nest Wealth.
In fact, you can send me your portfolio details and I’ll do the math for you.
Robo-advisors are not the panacea for all investors. Some investors are perfectly happy, willing, and able to invest on their own – and in some cases can put together an even cheaper portfolio than the robos offer. That’s great.
But many investors do need a bit of handholding when it comes to their investments. Unfortunately the full service advisory model fails investors whenever an advisor positions himself as an expert stock or fund picker instead of a rational asset allocator and trusted financial planner.
A robo-advisor strips out all the excess fees that investors used to pay for a “skilled fund manager” and builds a cheaper and more efficient portfolio that will ultimately lead to better outcomes for investors.
Are you willing to give a robo-advisor a try?