What And Who Are The Canadian Robo Advisors?

Most investors want or need investment advice. I learned after many decades in and around the industry, including over 5 years as an advisor at Tangerine Investments.  Canadians are not all that interested in their investments. Nope, folks are more interested in making money and well, living. So most need, or seek advice. Unfortunately most Canadians simply line up at their big bank or mutual fund sales office and sign up to pay some of the highest investment fees in the world. With a Canadian robo advisor you can access globally diversified portfolios and advice with fees in the range of .45.90%. The ETF portfolios are managed for you.

Just because you might need an advisor does not mean that you have to pay some of the highest investment fees in the world. And yes the fees are important. We know that the fees typically and greatly impact the returns. From Justwealth here’s a comparison of the potential portfolio returns impact over longer periods, based on an initial $100,000 investment.

We can see that the effect of high fees that can become exaggerated over time. Remember you pay investment fees every year, throughout the year, and as your portfolio grows over time you pay more in fees as the fees are based on your portfolio value. That’s a nasty kind of negative compounding.

So just what is a robo advisor?

Yup, just as per the image, a robo advisor is an investment advisor that’s well, not human. But don’t be scared. If you want to talk to a human the companies that offer robo advisory services can also put you in touch with real flesh and blood advisor types.

So if a robo advisor is not human, just what is “it”? A robo advisor is simply an online platform that asks you questions to help you get into the right investment portfolio. A robo advisor will ask the same type of questions as would a human advisor. Based on your answers the robo advisor will put you in the appropriate portfolio.

What type of questions do robo advisors ask?

The robo advisor platform may try and gauge your investment knowledge. There may be questions on your net worth and salary and employment status, basic personal details. Each robo advisor offering has its own nuances and I will dig deeper into that in future articles. But mostly importantly a robo advisor wants to know …

1. Your time horizon for the monies that you are about to invest.
2. Your tolerance for risk (the amount or percentage that the portfolio could decline)
3. Your objectives for the investment, whether you’re looking for more growth, a more balanced approach or a very conservative approach that might include a lot of bonds and fixed income.

And once again, each robo advisor will have its own methods (robo personality?) for asking those questions and discovering your investment personality and needs. If you want to ‘play around’ with a basic robo question and answer process have a look at Tangerine Investments’ Portfolio Selector Tool.

Here’s what it can look like, robo’s are not so scary eh?

You see, you input the answers and the online robo model (yes you can’t see him or her) suggests the appropriate mix of Canadian companies, US companies, International companies and Canadian bonds and International bonds. A more growth oriented portfolio will have more stocks, a more conservative portfolio will hold a more generous amount of bonds. When I was an advisor (human) at Tangerine Investments I would call those bonds “shock absorbers” for the portfolio. That was a simple analogy to help investors understand how bonds work and why they are in most portfolios. You can see that this portfolio in the above graphic is right down the middle with a Balanced approach and a Balanced Portfolio recommendation.

Not all portfolios are made the same.

Once again, each robo advisor will have their own nuances when it comes to the types of stock and bond funds they recommend, but the basic principles of sensible investing hold true. We should invest within our risk tolerance level (our comfort level for the portfolio changing in value) and we should keep our fees low. As we like to say – concentrate on what you can control. We can control our asset allocation (our mix of stocks and bonds and other assets) and our costs, our fees. At times it’s not a bad idea to check in with your accountant as well on taxation issues. It’s not just what you make, but what you keep.

You may be able to get some help on that front as well from those human advisors that share the halls with those robo’s. All of the robo advisors offer access to investment advisors. A few of the firms offer financial planning.

Hello Robo, bye bye high fee funds.

Robo advisors are a much superior choice compared to traditional high fee mutual funds in Canada. Most robo advisors keep it simple enough, and they keep the fees low. They also differ to traditional mutual funds in that they (almost exclusively) follow an Index Investing approach. What is Index Investing and why is it superior? You can have a read of my previous blog that is entitled, not by surprise, What is Index Investing?

Once your portfolio is set up (whether you exclusively use the online robo or with help from a traditional human advisor) the robo will take over and handle your investments for you. These are managed portfolios meaning there’s nothing for you to do but add those monies on a regular schedule. The robo will direct those new monies and will rebalance the portfolio for you to keep things in order and to keep the portfolio within your desired level of risk. Keep in mind that each robo offering is different on this front; at some robo’s the portfolio managers (those humans behind the scene) will move in and make changes to the asset mix based on market conditions.

So which robo is right for you?

It may not always be the robo with the lowest fees. If you want the comfort of a larger bank you may choose to go that Tangerine route or the BMO Smartfolio option.

Tangerine recently released the Tangerine Global ETF Portfolios.

If you have greater assets and a more complicated scenario, Justwealth might be the robo for you. And they are certainly the choice in Canada for RESP investments.

Here’s a post if you are looking for the lowest robo fees in Canada. That post looks at the Questwealth Portfolios and the subscription-based offering from Nest Wealth.

Of course the robo making the most noise and perhaps having the most success is Wealthsimple. They will offer many add-on services and features such as savings accounts.

Another unique offering is from CI Direct Investing. At CI Direct you can access core portfolios in addition to private equity assets that can deliver better risk adjusted returns.

ModernAdvisor offers more active asset allocation with respect to ETF selection. At ModernAdvisor you can also access a financial planner.

Invisor has been delivering some very impressive returns.

If you have any questions about what might be the right robo for you, please send me a note and I will do my best to point you in the right direction. In the end it may come down to you contacting a few robo’s so you can explain your goals and needs.

Thanks again for reading. Don’t be shy, post a comment. You can use that contact form if you have any questions.

Dale