At the Globe and Mail Rob Carrick and his team did some research to provide a nice update on the Canadian Robo Advisors. Today we’ll have a look at that report and provide some of the key insights. I continue to believe that the Robo Advisors are the answer for the majority of Canadians who want a managed portfolio and are stuck in high fee mutual funds.
If you’re new to the concept of a Robo Advisor, I’ll attempt to give that to you in a couple of sentences. A Robo Advisor will allow you to access comprehensive and globally-diversified portfolios at about one-fifth to one-third of the cost of typical advisor-series mutual funds. With a Robo Advisor you can complete everything online. If you want to talk to a real live human, no problem. Assistance and investment advice is available at all of the Robo’s. Financial planning is available at a few of the Robo shops.
Yes you can have it all. That’s why I continue to be surprised that while the growth rate is very generous, Canadians have generally given Robo’s the could shoulder. I expected a massive wave, instead we are seeing a steady and modest flow of Canadian investors breaking free of high fee funds.
The Robo fees.
There are two Canadian Robo Advisors that lead the pack with respect to fees. They are Questrade and Nest Wealth. This post outlines the most cost-effective Robo Advisor in Canada. It begins with Questwealth and then Nest Wealth takes over at about the $350,000 portfolio value level.
But of course fees are not everything. If you have greater assets and need to access a financial plan you might consider Justwealth.
Justwealth is also a wonderful option in Canada for RESP portfolios. They offer target date portfolios that adjust and manage the risk level as the student approaches the education start date.
Rob Carrick’s Robo report then shows that the Robo fees are in the range of .30% to 1.0%. The management expense ratios (MER) for the portfolios of ETFs are .12% to .27%. An investor would pay the MER on top of the Robo service fees.
The Robo advisors that I would favour have all-in fees in the range of .40-.80%
Portfolio returns and asset allocation.
We now have a 3 year and 5 year total return history for many of the leading Robo Advisors. While that can give us a hint of ‘how they are doing’, it is too short of a period for a complete evaluation or rating. That said, we can read some tea leaves and observe some trends.
CI Direct Investing (formerly WealthBar) provides the typical returns for a Robo with 5 year returns.
| CI Direct Investing returns history – average annual |
| 5.03% One year total return |
| 5.96% Three year total return |
| 7.54% Five year total return |
The returns can certainly vary. And the spread is largely due to the allocation to US / Canada / International stocks. As you may know the US stock market returns have trounced that of Canada and International developed markets.
CI Direct Investing allocates 30% to US stocks, 15% for International stocks and 10% to Canadian stocks for their balanced portfolio.
US stocks have been leading the way.
On the other side of the returns ledger ModernAdvisor allocates 18% to Canadian stocks, 13% to emerging market stocks and 18% to total International stocks (that includes the US component). With less US stocks, their returns are weak in comparison.
| ModernAdvisor returns history – average annual |
| 1.14% One year total return |
| 3.15% Three year total return |
| NA Five year total return |
That allocation to Canada and emerging markets may pay off or close the gap over time. There is considerably more current earnings and dividend yield available today in Canadian and emerging markets. The US market is home to the wonderful growth of tech and healthcare other sectors. With the US, we’re paying for that ongoing growth and growth potential.
And for the record the best total return performance to date belongs to Invisor. Invisor topped the field in US stock allocation at over 44%.
Once again, you can use those CI Direct Investing numbers as a benchmark to compare your personal returns history. On CI Direct, here’s a recent review at Savvy New Canadians.
More Weekend Reads.
On MoneySense Jonathan Chevreau asks if retirees should speculate with their investments. We might call that fun money or play money. As Jonathan suggests, perhaps only play with money that you are prepared to lose. I am not a fan of any loose play with my investments. In my TD Direct accounts I can still see some hot stock tips from decades ago, showing their current $12 or $23 value from investments of several thousands of dollars.
For many great reads, with one click, here’s the Weekend Reads on My Own Advisor. Thanks again to Mark for the link to my weekly MoneySense column. The big story this week was the positive news on the vaccine front, courtesy of Pfizer. Of course the stock markets initially were very enthusiastic, but then perhaps some sober reality started to set in.
On GenYMoney – do I need mortgage insurance – No!
Also on the insurance front, from eastsleepbreathfi, 8 reasons why you might need life insurance, even if you don’t have kids.
And here’s a timely article from our friend Ellen Roseman on lowestrates.ca. As we continually do more shopping online (and it doesn’t always go to plan) Ellen shows us how we can arrange for a credit card chargeback. There are also some insights on chargebacks for cancelled flights due to COVID-19.
On stocktrades.ca Mathiue Litalien looks at the dividend increases for Canadian stocks this past week.
And this week from John Mauldin, A Chance for Normalcy. Some wonderful commentary on the (still pending) Biden election victory and that shot in the arm from that Pfizer vaccine.
And one of my favourite subjects from Mike The Dividend Guy – the best renewable energy stocks.
Thanks for reading. You can follow this blog (it’s free) by entering your email address in the subscribe area – top right on this post.
Partnership links.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me pay the bills for this site. That will allow me to keep this site free of ads, and hence, easy to read.
Check out EQ Bank for those who want to make their cash work a lot harder. The current high interest savings account rate is 1.5%. They also offer generous rates for GICs. I opened an account my for my wife this week, and it was very easy and seamless.
I also have partnerships with several of the Canadian Robo Advisors such as Justwealth, BMO Smartfolio and Wealthsimple.
With thanks ,
Dale
What is the advantage to a robo (other than re-balancing) over just buying the 4-5 index funds covering the US, Canada, and developed and developing markets? Or even a all in one fund like VBAL or ZGRO?
I Steve, thanks for dropping by. A robo advisor is for those that want a managed portfolio, and advice. And that’s most folks of course. Most are not comfortable, even pressing that button for a one ticket.
Certainly if one has the knowledge and confidence they would likely be better creating their own ETF Portfolio, or buying a one ticket. If one needs advice, they can access a fee for service advisor.
Dale
Hey Dale! Thanks for the post, definitely learned a lot about robo-advisors. I’m just starting off with my investment journey and was wondering how WealthSimple’s robo-advisor compares to Questrade and Nestwealth? Any feedback is appreciated. Thanks!
Hi Jeff thanks for stopping by. If you are starting out you might consider the lowest fee option with Questrade. That said, Wealthsimple has a lot of other bells and whistles. Nest Wealth can be expensive for someone who is starting out.
I’d suggest you have a read of the reviews on my site and then feel free to follow up with questions. You can use that contact form, and/or post a comment on any individual blog post.
I’m happy to help.