I recently penned the blog What and who are the Canadian Robo Advisors? That blog outlined how, true to the moniker, a robo advisor is an online financial advisor without the human. We’ll let’s say that at times there is no human present. In actuality the robo advisors are all quite human and they all have a unique personality. Think Star Wars and the loveable tin cans known as R2-D2 and C-3PO. They are very different in voice and personality.
Here’s R2 …
Here’s my robo mascot …
The answer to the question posed in the headline is that all of the robo advisors are different, at times very different from one another. That’s why it’s important to know and understand these differences so that you might be able to find the robo that’s right for you. Getting in the ‘right robo’ might make a difference of thousands to tens of thousands of dollars or more over an investment lifetime.
The ‘robots’ don’t think in a pure sense. In most cases, this is not artificial intelligence at work. The process involves investment concepts and approach(es) and then mountains of computer programming applied so that the robo platforms can follow the direction of the human financial gurus who set the course for each robo advisor. The Chief Investment Officers and their teams can and do also make adjustments on the fly. Some may react to market conditions. That may seem ironic that the robo advisors will mostly embrace and use the mostly passive Exchange Traded Funds, but they will then get a little more active with regards to asset allocation and types of funds used based on changing market conditions. All said, that will be one of the factors that I track moving forward as we compare the performance of the Canadian robo’s.
Some robo’s are more passive, some robo’s are very active.
One of the robo advisors, responsive, is consider AI based as the platform will automatically change the asset allocation (mix of stocks and bonds) based on many market and economic indicators.
At the other end of the spectrum, and likely the leader in simplicity and passivity is Tangerine Investment Funds. That Tangerine Portfolios are mutual funds, meaning there are no fees for when you buy or sell, and the funds are rebalanced quarterly (if necessary) back to the original asset allocations. For example a portfolio such as the Balanced Growth Portfolio that is 25% Canadian stocks, 25% US stocks. 25% International stocks and 25% Canadian bonds will be moved back to those allocations. It will maintain that geographic allocation and rebalance back to that 75% stock and 25% bond weighting.
Tangerine offers 4 portfolios at various areas of risk. Tangerine also offers their smart beta Dividend Portfolio. The robo advisor with the most offerings is Justwealth. They have 65 various portfolios at the ready that employ or use 38 ETFs. Offerings from BMO Smartfolio includes 5 portfolios created from 6 ETFs. The popular Wealthsimple has 21 portfolios with 10 ETFs in the mix.
Of course the robo’s all differ in their fee structure and the way they apply and disclose their fees. They all differ in how they conduct the onboarding and the Personal Financial Profile that will determine the appropriate investment mix. Some robo’s offer tax loss harvesting strategies, some do not. Some robo’s can offer a comprehensive Personal Financial Plan (conducted by way of a Certified Financial Planner) and some robo’s do not offer that service. Some robo’s are better suited to those who will invest small amounts, while a few of the robo’s have offerings that can be tailored to higher net worth investors.
As you can tell, they can be as different as night and day, or at least as different as R2-D2 and C-3PO. That’s why I’ll do a series that covers the Canadian Robo Advisor universe and details the important aspects that will help you select the robo that matches your situation and investment personality.
You might also ask yourself if ‘Going Robo’ is the right move for you. If you’re comfortable with creating your own ETF portfolio that may be the most advantageous route as you’ll be able to create a portfolio and keep annual fees in the area of .20-25% compared to .60-1.10% for the robo models. Of course, it’s not always about the fees, a robo such as Justwealth will tell you that if you have investments in a taxable environment the tax-advantaged portfolio approach can pay for the fees and more in a heartbeat. You may also benefit greatly from a comprehensive life and financial plan offered by one of the robo advisors. While I am a proponent of keeping fees low, some advice at the right price (and perhaps at a fee for service), is worth more than its weight in gold.
Stay tuned. I will cover each individual robo over the next few weeks. I will then track and compare their portfolio performance. I will also keep an eye on any changes with each robo and the industry as a whole.
First out of the gate will be the robo that often does not get listed with the robos even though it is the original robo and the robo with the most Assets Under Management (AUM), and that’s Tangerine Investments. Of course, I might know them quite well as I was an advisor and trainer with Tangerine for over 5 years.
Thanks for reading. Please help your fellow Canadians who pay the highest mutual fund fees in the developed world and use those share buttons at the bottom of this blog.
Dale @ firstname.lastname@example.org