Who is now the most cost-effective robo advisor in Canada?

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.

Questrade AnnouncementOn 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.

Questrade Fees

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 …

Dale Questrade Tweet

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. At the core, Robo Advisors are a wonderful advancement for investor-kind. As you may know, Canadians pay 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.

Once again, these companies are all so very different and it’s very important to know how to find the ‘robo that’s right for you’. Here’s my recent review of Wealthsimple.

Back to that smell of lower fees in the morning, and moving forward. 

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.

Nestwealth FeesIn 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.

Nestwealth Custodian Fees

Nestwealth Custodian Fees 2

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 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.

Questwealth – $960

Nest Wealth – $1,060 

Of course there are also the fees (MER) the portfolio ETF assets. On that front, Nest Wealth portfolios are cheaper by several basis points – .0007%. On a larger portfolio, that could add additional fees of $350 or more annual.

The advantage might swing back to Nest Wealth.

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 Quest Wealth on that $500,000 portfolio would be in the neighbourhood of $1850 (depending on portfolio model).

High Fee Mutual Funds – $11,750

Robo World / Questwealth – $1,850 

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?

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 more active asset allocation.

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.

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.

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One thought

  1. 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!

    Like

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