A robo advisor is a wonderful option for Canadian Investors. Fees are more than important when it comes to investing, after all the fees are usually paid by the investments that you hold. And Canadians pay the highest fees in the developed world when it comes to mutual funds. It’s certainly not a good idea to hand over a sizeable portion of your investment portfolio every year. Canadians pay 2.2% on average for their mutual fund investments. With a robo advisor the all in fees are in the area of .50%-1.10%.
So what is a robo advisor? Well I answered that with the article What and who are the Canadian Robo Advisors? And of course not all Canadian Robo Advisors are the same, they all have their unique offerings and unique personalities as I outlined in Which one of these Canadian Robo Advisors in not like the other?
In that article is suggested …
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.
The main takeaway here is that the robo’s are all quite human, they are simply using technology to do some of the investment legwork. The strategy and ‘thinking’ is courtesy of real humans. And with all of the robo advisors you can talk to advisors at any time. Some of the advisors will offer the service of a full financial plan. Again, the robo’s are all quite different and that’s why I am writing this series on each individual robo advisor so that you might find the robo that is right for you.
The first robo advisor that we’ll look at is Tangerine Investments. Tangerine is often missed by those who review Canadian robo advisors, and that is more than ironic as Tangerine Investments is the original robo advisor in Canada and it is the robo advisor with the most assets under management at over $3.5 billion.
I’ll start with Tangerine as I know the service and the products and the clients quite well. I was an Investment Funds Advisor with Tangerine Investments for over 5 years. I also assisted in the training of the advisory group. Out of the gate you might recognize that there are humans in the mix – advisors. And yes this is a robo advisory service at its core but if you ever want to talk to a real live (and real nice) human you can pick up the phone and call one of my friends. During working hours of 8 am to 8 pm Eastern you can usually engage in an online chat service as well if you want that human touch without having to pick up the phone.
The most unique characteristic of Tangerine Investments is that the investment is a mutual fund. This is the only robo advisor that offers a mutual fund investment portfolio. What that means is that the regulatory body overseeing the process and operation also includes the MFDA or Mutual Fund Dealers Association of Canada.
Because the investment is a mutual fund you will pay no fees when you buy or sell. That can be a great benefit of course if you are investing on a regular schedule, perhaps adding monies every week, every 2 weeks or once a month. Of course it’s a great idea to develop a simple financial plan that includes investing on a regular schedule. You can ‘set it and forget it’ or ‘wind it up and let it go’ as we would offer to clients. As per the robo landscape these are managed portfolios – there’s nothing that you need to do other than provide those monies to invest. The portfolios can also be used to ‘pay you out ‘ and create income on a regular schedule if you are in the retirement life stage.
The ongoing fees, the management expense ratio, is at the higher end for robo’s at 1.07%. But once again that can be offset by the fact that you will not pay when you buy or sell. Keep in mind that the fees are quite reasonable when you are investing smaller or modest sums. An investor will pay, on an annual basis …
$10.70 for every $1,000 invested
$107.00 for every $10,000 invested
$1,070 for every $100,000 invested.
Mutual funds also have a TER or trading expense ratio. This is the trading costs generated by the fund manager when they are buying and selling the stocks and bonds. Because Tangerine Investments follows a passive Indexing Strategy those trading costs are quite low, generally in the area of just .01% or .02% annual. Keep in mind that trading expenses on the active and expensive mutual funds can be much higher than that .01-.02%. Chalk up another one for passive vs active investing.
And here’s another important distinction. While the ‘typical’ robo advisors such as Wealth Simple and JustWealth use ETFs as their investment vehicles, Tangerine Investments has a fund manager, State Street, that will buy the individual companies and bonds and manage the portfolios. For example to capture the growth potential of the US stock market the Tangerine Portfolios will directly hold the 500 US companies within the S&P 500 – the index that is most popular and most commonly used for the US stock market.
The 4 core Tangerine Portfolios combine broad-market US stocks, Canadian stocks and International stocks. To mange the stock market risks the portfolios will use Canadian bonds. The US and International investments are not currency hedged. The portfolios are the most ‘plain vanilla’ of the robo offerings, but that is not necessarily a negative. Many of the robos will use several or more investments within their portfolios and they might expose investors to additional stock market risks and currency risks. The Tangerine Portfolios essentially buy the stock markets of the developed world and they manage the risks with a broad-based Canadian bond component. Here’s the recent returns history of the Portfolio offerings. The most conservative portfolio (more bonds) is at the top, the most aggressive (all stocks) is at the bottom.
The Tangerine Portfolios also have an outlier portfolio with the Tangerine Dividend Portfolio. That smart beta portfolio combines big dividend payers in Canada, the US and International markets. I used to call that the Big Juicy Dividend Portfolio. I will leave that portfolio for another day, as it does deserve its own exclusive blog. I am a big fan of the juicy dividend.
Getting into a Tangerine Portfolio is quite simple, but you do need to be a Tangerine client. You can start on their landing page and most new clients can complete the entire process online. Now that’s certainly not a bad thing, having to sign up with Tangerine. With Tangerine you can essentially and usually bank free of fees and you’ll get paid interest in your savings and chequing accounts. In my opinion, Canadians should not be paying bank fees, that’s a personal choice to line up to pay bank fees. Tangerine also has a wonderful and award-winning cash back credit card. I have that card and it pays me $50-60 a month in cash. Yup, my credit card pays me.
What makes the Tangerine Investments a robo advisor is that you can do the investment application online, and conduct your own Investor Profile that will then offer the most suitable investment. But of course you can certainly pick up the phone to chat with one of the advisors. Having a chat with an advisor is a good idea. We know that those investors who had contact with advisors were more likely to invest on a regular schedule and in turn they were more likely to invest more monies and generate greater returns.
More monies = bigger portfolio = better retirement
You can have a look at the simple but effective investor profile and portfolio recommendation process with this portfolio selector tool. This is a great introduction to the online portfolio recommendation process used by robo advisors. Once again, all of the robo’s are different in how they conduct their portfolio recommendations. Tangerine keeps it simple with 3 questions that (mostly) will determine your portfolio recommendation. Those 3 questions are …
- How long are you investing for?
- What is your risk tolerance level?
- What is your objective? eg, income, balance or growth
Now there are certainly other questions on age and net worth and such, but those 3 questions are key in determining the appropriate investment. Have fun, play around with that portfolio selector tool. Once again, if you have any doubts about how to answer any of the questions, pick up the phone and speak with an advisor. You might also want a personal Portfolio Analysis. A senior advisor will look into your current investments and will offer you a simple comparison on the fees that you currently pay and your returns compared to the Tangerine model. If you’re currently in a high fee mutual fund mess, I can guess (from experience) what model will come out on top.
So given that Tangerine Investments is at the higher end of the fee structure for Canadian robo advisors, who would or who should choose the Tangerine model? As has been suggested at CanadianCouchPotato, the Tangerine Portfolios might be suitable for those who have smaller to modest portfolios, generally in the $50,000 or less area. They can even be more cost-effective than creating an ETF Portfolio due to the free transactions, depending on how often you are adding monies. Keep in mind that some of the robo advisors do cover transaction costs or a component of the transaction costs. If you are getting started with a Canadian robo, and have a modest portfolio, ask about the transactions costs and total fees.
That said, the attractiveness of the Tangerine Portfolios might go well beyond the ‘smaller portfolio’ argument. Some investors like having a big bank behind their monies and investments. Tangerine is large in its own right, and is of course a division of Scotiabank. Investors might choose the Tangerine Portfolios due to that ‘plain vanilla’ approach. Investors are not always rewarded for taking on additional risks and additional complexity. And of course existing Tangerine clients should look at this option. We know most Canadians and likely most Tangerine clients, are invested in high fee mutual funds. A better investment option is sitting right in front of your nose, on your Tangerine landing page.
Other its and bits – Tangerine Investments does not offer RESP accounts. They do not offer portfolios that provide tax loss harvesting. You can invest in taxable accounts, RSP, TFSA, RRIF accounts. And you can bring in your Locked In Retirement Account as well. You can buy and sell online or over the phone. You can even use the Tangerine mobile app to buy or sell.
Whether the ‘cheaper’ robo’s are a better option than Tangerine is yet to be seen. Tangerine Investments has been at this robo stuff for over 10 years. Most of the other robo’s were launched 3-4 years ago. The proof will be in the returns history. When we know the score I might be writing ‘chalk one up for simplicity’.
Only time will tell.
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