On the Saturday morning of November 3, 2018 Questrade shocked or at least rocked the Canadian Robo Investor world with this announcement. Here’s a post from Jonathan Chevreau from the Findependence Hub, as seen on moneysense.ca.
On that rainy Saturday morning Canada’s largest discount brokerage firm Questrade brightened the prospects for many Canadian investors with the lowest management expenses in robo-land. Questrade has a robo advisor service offering, formerly named Portfolio IQ. When they slashed those fees they left that IQ handle behind, they are now Questwealth.
As you can imagine everyone at Cut The Crap Investing (that’s me and my dog Sampson) was pretty excited. I even had to break out a movie-inspired tweet with …
Many did love the smell of lower fees in the morning. The tweet was able to wrestle up a few retweets and likes. If you want to help the cause in the future you can follow me @67Dodge. Next time I might call on Forest Gump and will relate the next big robo news to the surprise we find when we first open that box of chocolates. Ya never know what you’re going to get. And we certainly have not seen the last to changes in fees or product offerings from Canada’s Robo Advisors. Of course, as with the Questwealth announcement, they are changes for the better.
An advancement for investor-kind.
At the core, Robo Advisors are a wonderful advancement for investor-kind. As you may know, Canadians pay some of the highest mutual fund fees in the world. Those are wealth-killers and those fees could eat up half of your investment gains over an investment lifetime. Many of the Robo Advisors will allow you to invest in the range of .60%-.70%, all in. With mutual funds you will be in the range of 2.2% annual and above.
And don’t fear the robo’s, they are all quite human. You can get help and speak with real live humans at all of these digital advice providers. The CEO of Wealthsimple Michael Katchen frames it nicely with …
Humans when you want them, technology when you don’t.
Let’s have a look at Questwealth vs Nest Wealth
Questrade had suggested that these are now the lowest-fee managed portfolios available in Canada and that looks to be the case. This from Jonathan Chevreau and the moneysense article.
An appendix to Questrade’s media backgrounder compares Questwealth Portfolio fees to Wealthsimple, WealthBar, Modern Advisor and the two major bank-managed robo services, BMO Smartfolio and RBC InvestEase. For $100,000 or more, Questwealth charges 0.2%; on the same amount Wealthsimple charges 0.4% while RBC charges 0.5% across portfolios of any size. BMO Smartfolio is 0.7% on the first $100,000, falling to 0.6% on the next $150,000, 0.5% on the $250,000 above that and 0.4% above $500,000.
Questrade’s data also shows that on small portfolios, WealthBar charges nothing at all on the first $5,000 and Modern Advisor charges nothing on the first $10,000. WealthBar then charges 0.6% on the next $145,000; 0.4% on the $350,000 after that and 0.35% and 0.35% above $500,000. Modern Advisor is similar, charging 0.5% between $10,000 and $100,000, 0.4% on $100,000 to $500,000 and 0.35% above $500,000.
While it’s not included in Questrade’s comparison, affluent investors with more than $500,000 should also check out NestWealth.com, since it charges a Netflix-like monthly subscription fee rather than charging a percentage of assets.
And here ya go, I’ve checked out Nest Wealth for you – and those Netflix-like monthly fees. Once again we have a Canadian Robo Advisor calling out and beating the crap out of traditional high fee actively managed mutual funds, and quite frankly we can’t do that enough. One day, Canadians are going to get the message.
Here’s my full review of Nest Wealth that will clearly break down the fees, and more.
Nest Wealth shows you how those low fees can be life changing.
In the lower range band we see that Questwealth will have the edge. The annual fees up to $75k are $240. For Questwealth at .25% the annual fee on $50,000 would be $125.
Also Nest Wealth does disclose additional Custodian fees. You’ll see that trading costs are capped at $100 annual.
Clients who were onboarded previous to November 5, 2018 will pay the NBIN fee, clients who are onboarded after November 5, 2018 will pay the FCC fee.
While Nest Wealth is a wonderful option for Canadian investors, and they are known to be one of lowest cost providers in Canada, the low-fee advantage in the lower band certainly goes to Questwealth.
Let’s have look at a portfolio with larger assets, we’ll move to a $500,000 portfolio.
At $500,000 the Questwealth portfolio has now moved to that .20% expense range, remember that band begins at $100,000. The annual fees on that $500,000 portfolio are $1,000. There are no fees to purchase the ETFs.
The fee for Nest Wealth is $80 per month = $960. Keep in mind that there would/could be trading costs as well with portfolio rebalancing and if you are adding monies on a regular schedule. Nest Wealth will cap those fees at $100 annual. If you are topped out on trading costs your annual fees would be $1,060.
@$500,000
Questwealth – $1,000
Nest Wealth – $1,060
Of course there are also the fees (MER) for the portfolio ETF assets. On that front, Nest Wealth portfolios are cheaper by several basis points. On a larger portfolio, that could add additional fees of $350 or more annual. We’ll use an estimated average of .20% for Questwealth for larger portfolios.
Nest Wealth ETF MER – .13% = $650 / Total fees on $500k = $1710
Questwealth ETF MER – .20% = $1000 / Total fees on $500k = $2000
Advantage Nest Wealth, but if robots had hair, well we’ve been splitting them all over the place right about now. We are talking rock bottom fees for managing your investments. If one held $500,000 in a traditional mutual fund that might have an
MER of 2.2% and a TER trading expense ratio of .15% you would pay annual fees of $11,750.
Total fees for Nest Wealth on that $500,000 portfolio would be in the neighbourhood of $1710 (depending on portfolio model).
High Fee Mutual Funds – $11,750
Robo World / Nest Wealth – $1,710
That’s the big picture, folks. Imagine giving away those monies every year. Imagine the lost compounding when those monies go in the wrong pocket?
The tipping point or hand off for lowest fee provider would be an estimate of $400,000, when Nest Wealth takes over from Questwealth.
Fees are very important; but that consideration should not necessarily drive the bus in your search for the right robo. It should not be your only consideration. When you read my recent review of Justwealth it becomes obvious that they will offer several advantages to investors with larger portfolios and a more complicated financial arrangement. The advantages of more advanced tax planning and portfolio transitioning could deliver an annual net gain of 1% annual or more. That will more than compensate for any difference in fees of .20% or .30%.
In my review of Wealthsimple, we see that they have unique offerings by way of the Halal and Socially Responsible Portfolios. They also offer a higher interest savings account and some unique savings programs such as Roundup. For you, that may swing the decision over to Wealthsimple.
You might like BMO SmartFolio to take advantage of their global asset management team and expertise that will employ active asset allocation, as does Questwealth.
You are unique. All of the robo’s are unique. The idea, the goal, is to find that most compatible long-term relationship. You can use my Robo Advisor articles as that matchmaker.
For any questions on Questwealth vs Nest Wealth, you can reach me at cutthecrapinvesting@gmail.com.
While I do not accept monies for feature blogs please click here for more about Dale and ‘how I might get paid’ disclosures.
Kindly share this post to help Canadians discover that low fee investing is here.
Who cares if my return after fees suck! I rather pay a higher fee to get a net better return. Until the ETFs or smart portfolios can play with big players such as fidelity it’s a no contest. I have looked at every questrade portfolio risk level for 1, to 5 years not a single one in any single year has outperformed a top quartile mutual fund. In fact its embarrassing that even alot of the typical mutual funds found at the banks like RBC or TD on avg 80% of the time out perform. So again I dont care if I pay more if i get more. But if I am wrong please show me and I will be glad to switch. ( if you need some proof of my analysis I will be glad to show you as well)
Thanks,
Happy investor!
See Dalbar studies. And it can take time for the effect of high fees to show their true damage. We’d expect a segment of actively managed funds to outperform over shorter periods. Some of them will get lucky, some of them will make some good calls through one market cycle. The active winners in one cycle largely show up as the greatest losers in the next cycle. I will certainly be comparing the returns of the robo vs robo, and robo vs avg mutual fund returns. My experience of doing Portfolio Analysis at Tangerine (1.07%) was about a 95% win rate or better for Tangerine. Thanks for stopping by, and for your comment. And certainly send me your examples – cutthecrapinvesting@gmail.com
I’d love to see your analysis, if you’re able to send it somehow? I can’t find any current info with Questwealth. The most recent info is 4 1/2 months old, and given the finish to 2018, that’ll tell the true story of how these low fees stack up to truly active fund managers.
Dale’s take is fairly interesting to say active managers only last a single cycle. I wonder how the boys at Fidelity, Manulife, and Mawer (to name a few) have managed to out perform indexes by massive margins consistently for 20+ years and net of fees. If that’s the cycle he’s referring too, then sign me up, maybe Questwealth will make me lots of money in 2040.
It’s weird that I can’t find up to date fund facts for Questwealth or compare them in morningstar. I guess I better take everyone’s word who’s on their payroll.
Hi Andrew, I am a big fan of Mawer, they have a permanent place on this site. Be Boring. Make Money. They have some funds that beat over the longer term for sure. Their fees are sensible. They are sensible value investors. If folks want to pick an active manager that they trust that’s fine. That said, I’ve seen the results that Canadians get most often. It’s beyond terrible.
Excellent overview and very helpful as I plan my transition to lower cost financial management. One area for couples that there seems to be little commentary on relates to transition when one spouse dies. Often, if the one who dies was more interested in financial issues, the surviving spouse often wants simplicity and handholding at time of crisis. Roboadvisor may not provide that transition support in a meaningful way. I read one article that after a death >70% of surviving spouses change their advisor!
Thanks Stephen, that’s an excellent event to bring up. I think a main benefit of a robo advisor is that the surviving spouse (assuming they are both with the same Robo) is in managed portfolios, any transferred accounts are in managed portfolios, no investment knowledge is required – the portfolios are rebalanced and kept in check.
The advisors at Robo’s should know the drill on Beneficiary Successor Holder treatment, and on non registered accounts, single and joint. I used to handle the situation quite at bit at Tangerine, and there were also estate specialists on the bank side.
That said, after taking care of monies there is the financial planning moving forward, for surviving spouse. The level of advice will be different at each digital wealth manager. Here’s where a fee-for-service advisor may come into play. One would access that advice at a sensible cost and then they know how to have their monies arranged at a Robo or by way of an ETF portfolio if they self-direct.
I’d think most ‘leave’ their advisor at that point of death of spouse as they don’t really have an advisor if they were invested with a big Canadian bank or by way of the mutual fund sales offices – those are sales people not advisors for the most part. Certainly if you have a lot of monies and are at a big bank they will often move you to a real advisor, but that’s the norm.
All said, great topic and I will investigate the capabilities at various Robo’s.
Dale