Canadian Robo Advisors – BMO SmartFolio.

The next robo offering that we’ll look at is also offered by a major Canadian bank – SmartFolio from BMO’s brokerage arm BMO Nesbitt Burns.

SmartFolio’s portfolios were designed by and are supervised by BMO Global Asset Management. BMO Global Asset Management is an industry leader with over $300 Billion of assets under management. At the helm of the actual investments and investment strategy is this more than sizeable local and global team of investment professionals. BMO GAM (for short) is likely the greatest differentiator between BMO and the other Canadian Robo Advisors.

BMO has those boots on the ground and ears to the wall in Canada and regions around the globe. The management teams meet on a quarterly basis with their global counterparts to decide upon ongoing portfolio strategy and asset allocation. SmartFolio is about .20% more expensive than ‘typical’ robo’s such as Wealthsimple or Justwealth. For your .20%, you’re getting that large and international BMO Global Asset Management Team.

The personal accounts are managed by the advisory group, BMO Nesbitt Burns. As always, don’t be fooled by the robo advisor moniker, the investments are created by humans – investment professionals who developed the portfolio ideas and asset allocation (mix of stocks and bonds) and they monitor the markets and economic conditions. The managers of SmartFolio’s portfolios will and can make adjustments to the mix of stocks and bonds based on market conditions and economic events. While they’re called robo advisors – there are real humans running the show and keeping a close eye on market conditions. The technology platforms simply lend a big robotic hand in the execution of the plan.

For starters you would need to set up your account through SmartFolio’s site, even if you are already an existing BMO account holder. And in most cases, everything can be done online from start to finish. The onboarding process is clean and simple. The portfolio selection process is very friendly. Of course, that’s the process where you tell a little something about yourself including your personal situation, your goals and your risk tolerance and the online system recommends a suitable portfolio. The goal of course is to put you in the portfolio that will allow you to (potentially) reach your goals while you invest within your ‘comfort level’. I like how the investor profile process does take an ’emotional approach’ to discover your risk appetite. After all, your comfort level for risk is about how you would feel in a market correction. It’s a measure of our personal and emotional attachment to our monies. As I often write, there is perhaps nothing more important than investing within our risk tolerance level.

The management fees range from .40%-70% of total account assets. These are account fees charged on a quarterly basis. When SmartFolio’s clients open an account or invest new monies a portion of that amount is held in a cash account within the overall account. The fees are pulled from that cash account, again on a quarterly basis. That cash account may earn interest if the interest earned is above $5 for the quarter.

The cost of ETF trades are free, or included.

Here’s the breakdown on the fee categories.

And here’s an example, remember it is a sliding scale with thresholds as demonstrated below.

In addition to the account fees, there are the Management Expenses for the ETF portfolio holdings. The annual ETF fees will be in the range of .20%-.35%. For ETF portfolio construction, SmartFolio’s managers pull from the extensive suite of BMO ETFs. BMO is Canada’s 2nd largest ETF provider which means they have a very comprehensive suite of Global ETFs to pull from when shaping the ETF portfolios.

Keep in mind that if you check in on the portfolio performance returns on the fund fact sheets – the returns are based on a $100,000 investment with the management fee at .70%, plus the costs (MER) of the ETFs. If one has more monies invested, the fees would be lower, and the returns higher.

There are 5 portfolio options ranging from a very conservative Capital Preservation Portfolio that has a target of 90% bonds and 10% stocks. The most aggressive portfolio is the Equity Growth Portfolio with a target of 90% stocks and 10% bonds. SmartFolio’s portfolios are currently more heavily weighted to US markets. The portfolios will be rebalanced every 2 to 6 months. And back to that human touch, the management team with also make adjustments to that asset mix based on market conditions. They may be more active in periods of market turmoil compared to the current market conditions where we are mostly cruising to the upside for Canadian, US and International stocks.

The Portfolios currently use between 13 and 18 BMO ETFs. They do include some of the BMO smart beta ETFs such as those designed for lower volatility or higher quality stocks. Here’s a blog post that answers What is Smart Beta? Using smart beta funds allows the managers to shape the risk return profile of the portfolios.

As an example, here’s an overview for the index that seeks a company that would fit the definition of quality.

Aims to capture the performance of growth stocks by identifying those with high-quality scores based on three main fundamental variables – high return on equity (ROE), stable year-over-year earnings growth and low financial leverage. The fund then looks for industry leaders that meet the criterium.

SmartFolio’s portfolios are not designed to beat any traditional indexing benchmark. The managers seek better risk adjusted returns. Their goal is to generate very generous returns but with less overall portfolio volatility compared to traditional plain vanilla indexing. Once again, that is why an investor might choose to pay a slightly higher fee to gain access to that approach, and that management team.

Other housekeeping. You can invest in Taxable, RSP, TFSA, RRIF and RESP Accounts. The account minimum is $1000.

In addition to the portfolio managers behind the scenes SmartFolio’s advisors are ready to help by phone, live chat or email. They can help with account set up, transfers and ongoing questions and concerns. You can chat online or on the phone 8 am to 8 pm Monday to Friday, holidays excluded of course. You can also arrange for a call back. You can send an enquiry via email. You can have very little or no contact with the ‘humans’ or you can take full advantage of the personal touch and services.

As I suggested in my Tangerine Investments review, some investors seek the comfort of the well known and very large Canadian banks that stand behind the investment offerings. Keep in mind though that all of the Canadian robo advisors do carry insurance to the tune of $1 million. That is protection against default or bankruptcy, not market investment losses.

Another benefit of the BMO offering is the full suite of wealth offerings. Let’s use a piloting or flight analogy. The BMO investor can choose …

• Auto Pilot – SmartFolio
• Co Pilot – BMO InvestorLine adviceDirect
• Fly Solo – BMO InvestorLine Self-Directed

That may be a benefit as an investor would be able to stay with BMO as they evolve as an investor. They may start on auto pilot and eventually gain the knowledge and confidence to self direct their portfolio. Also, the financial situation of an investor may become more complicated and they need to access more extensive investment advice and financial planning.

I will be back one day soon with a full review of the full suite of BMO wealth offerings.

If you feel BMO SmartFolio is right for you, you can get your first $15,000 managed with no fees for one year by using my promo code CTCSF.

Please leave a comment if you have any questions on BMO’s SmartFolio. I am happy to answer or reach out to the folks at BMO. You can also send a note to cutthecrapinvesting@gmail.com

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Thanks for reading.