Be careful when you transfer investments to a Canadian Robo Advisor.

Off the top, I think it’s a great idea. That is, when you transfer investments to a Canadian Robo Advisor. You will gain access to well diversified low fee investment portfolios. You will have access to investment advice and planning of various levels. Compared to high fee mutual funds it’s a no-brainer. Over longer periods you’re likely to build considerably more wealth in a low-fee environment.

Most Canadians want a combination of investment advice and managed portfolios. That’s the Robo offering. You certainly might do ‘better’ with a one ticket asset allocation portfolio. But there is a major distinction between using a Robo or entering those 4 letter tickers to purchase your own comprehensive ETF one ticket portfolio. That steps into the land of self directing. The investor is then taking control of their own investments. If you are willing to put in the time to learn the investment basics, go for it. You will reduce your management fees by some .20% to .60%.

But after talking to Canadian investors for decades, I know most want and need that hand holding. Enter the Canadian Robo Advisors. Keep in mind, they are quite human.

Humans when you want them, technology when you don’t.

Michael Katchen, CEO Wealthsimple

Checklist for when you go Robo.

Keep in mind that it can be a mostly digital experience if you choose to go that route. If you’re done speaking with investment types, no problem. But the transfer of investment funds process is when you want to pay special attention. And you want to seek help, you know, from humans. From experts.

The transfer process can go smoothly. Or it can land on the rocks. Take a few precautions to ensure that you go the route of smooth sailing when you transfer investments to a Canadian Robo Advisor.

Don’t get hit with fees and taxes.

Justwealth offers a hands on approach when clients are moving in funds. Here are a few boxes to tick.

Higher net worth individuals however should have a much higher standard and understand the importance of taxable consequences.

James Gauthier, Chief Investment Officer of Justwealth

Of course even if you have modest amounts in taxable accounts you should consider the tax consequences. More often than not, with a transfer of taxable monies the investments are sold and turned into cash. That of course creates capital gains. You might face an unwanted and unnecessary tax hit.

With a few of the Robo’s you have the option to bring in those non registered assets ‘in kind’. That means that they are not sold, they will be held by your new investment firm. There is no capital gain being created.

Here’s a further list of considerations from James Gauthier of Justwealth.

Taxable account considerations.

Specifically for taxable accounts (particularly larger size), if you are considering switching, you should also find out:

• Does the receiving institution accommodate in kind transfers? (if not, and you have unrealized capital gains – perhaps move on).
• If you need regular income from your investments, does the receiving institution have a range of tax-efficient income portfolios? (low risk to high risk).
• If you don’t need regular income, does the receiving institution have a range of income-minimizing growth portfolios?
• Does the receiving institution use tax-loss harvesting strategies?
• Is the receiving institution willing to work with portfolio transitioning over multiple tax years?
• Would you trust the receiving institution to work directly with your lawyer or accountant for tax or estate planning?
• Will the receiving institution have a dedicated professional to work directly with you?

A point of clarification here, a firm such as Justwealth will allow you to bring in taxable investments (in-kind) and then a strategy is employed to sell over time. Of course the funds will be drawn down in the most tax efficient manner. You may have the option to hold on to specific investments.

As per my review Justwealth is the ‘Robo’ that knows when to get personal.

The cost of saying goodbye.

Mutual funds are known for their high fees. They can hit you coming, going and just for hanging out. But in this case of course, we’re on the way out.

Financial planner Graeme Hughes and blogger at The Money Geek reminds us to check those DSC or deferred service charges. If you’ve recently purchased a DSC mutual fund you could get hit with 6% or 7% on the way out. Know your fees.

Graeme suggests.

Easiest thing is to contact your institution and have them confirm, in writing, what fees would apply to a full transfer out.

Financial planner Graeme Hughes

If you’re with a brokerage, there may be commissions on all transactions. It depends on your fee arrangement. I think it’s very smart what Graeme is suggesting – get the total fees IN WRITING.

With respect to taxable accounts Graeme suggests that you consider selling over a longer time period. You can spread the transfer over a few years, or several years. That said, I’d suggest you look at that Justwealth option to let them handle that for you, under one roof. But if you find a Robo that you like who will not accept in-kind transfers you can follow Graeme’s suggestion.

If it’s a large sum consider that you might be out of the market for a week or two if not an in-kind transfer. You may choose to do that transfer in stages to minimize the potential of bad timing. If markets go up while you’re in transit you will be buying at higher prices.

That strategy may apply for registered accounts as well.

The deferred transfer strategy for DSC funds.

You might also employ that staged transfer if you have DSC funds. Those DSC charges decline year by year and eventually disappear after year 7. You may do the math though, on when it’s simply best to bite the bullet and pay some fees to break free.

On segregated funds Graeme offers …

If you have seg funds, is there any value to your guarantees at the time of transfer? Usually applies only after a significant correction… such as 2008.

Financial planner Graeme Hughes

Talk. Talk. Then talk some more.

The key is talk to your current advisor or firm. Talk to your receiving investment firm. Know all fees and tax considerations. Don’t just press that button.

It’s not all or nothing. Maybe you have a fund or a few stocks that have treated you very well and you’d like to hold onto them. Your call.

All said, if you’re just starting out on that investment journey, no worries. You’d simply find the company that suits your style and your needs. You might simply go the lowest fee route. The lowest fee Robo is Questwealth offered from Questrade.

Nest Wealth becomes the lowest fee option for family portfolio values above $350,000.

When you have taxable accounts and a more complicated situation, you might have a look at Justwealth, WealthBar and ModernAdvisor.

If you’re approaching retirement or in retirement I would suggest you speak with an advice-only planner before the transfer process.

And don’t forget to ask the receiving institution to pick up any transfer fees. They typically range from $50 – $150.

Thanks for reading. These are important considerations. If you have any other tips for when you transfer investments to a Canadian Robo Advisor please fire away in the comment section. Or if you’ve had a great or not-so-great transfer experience, please share that as well.

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