Compare the Best Robo Advisors in Canada in 2018
If you’d like to put some money in the financial market—and prefer a less involved, ‘set it and forget it’ approach to your finances—then the wealth management industry has heard you loud and clear.
Perhaps you don’t have the time or inclination to obsessively follow and react to every rise and fall of your investments? Perhaps you have some cash saved up, but it’s not enough to invest with a private financial advisor? Or perhaps you know the amount of financial risk you can take and the return you’d like to see, but you’re overwhelmed by the number of different investment vehicles out there?
In these cases you might want to turn to a new, automated investment technology—a robo advisor.
Best Robo Advisors in Canada 2018
|Nest Wealth||BMO Smartfolio||Wealthsimple||Questrade Portfolio IQ||WealthBar|
|Special Features||Focused on older advisors.||BMO Nesbitt Burns monitors funds||Extra financial planning features for $100K+ investments||Hybrid approach w/ passive ETFs and smart beta ETFs||Online financial planning. Sells insurance.
|MER||Avg. MER 0.13%||ETF MERs 0.20%-0.35%||MER 0.2% MER 0.2%||ETF MERs 0.21%-1.25% blended fee||ETF MERs = 0.26% to 0.32%
Private Investment portfolio MER: 0.83% to 1.22%
|Minimum Account Balance||None.||$1,000 (see stipulations under 'Compare Robo Advisors')||None.||$1,000. (see stipulations under 'Compare Robo Advisors')||$1,000. (see stipulations under 'Compare Robo Advisors')|
|Start Investing||Visit Nest Wealth||Visit BMO Smartfolio||Visit WealthSimple||Visit QuestTrade||Visit WealthBar|
What Are Robo-Advisors?
‘Robo-advisor’ is a bit of a misnomer. We’re not talking about an android in an expensive suit inviting you into its office and walking you through your investment portfolio (but let’s check in on that in 20 years). Rather, we’re talking about digital software platforms—usually an app and a website—that manage your investments automatically using algorithms that are programmed and overseen by humans.
If you’ve seen a commercial or a social media ad for the likes of WealthSimple, WealthBar, BMO Smartfolio or Questrade IQ, you’ve seen an ad for a robo-advisor. And more of them pop up every year.
How Do Robo Advisors Work?
These digital platforms ask you questions about your annual income and investment risk tolerance, and then customize your investment portfolio based on your responses. Pretty simple.
Investing may seem intimidating to some, but it’s based on the relationship between two concepts that we all understand: risk and return. The riskier the investment, the higher the return. The safer the investment, the lower the return. Once you specify the level of financial risk you’re comfortable with, the robo-advisor begins an investment strategy known as asset allocation. Asset allocation splits percentages of your money into assets (investments) that match the risk profile you specified—the higher the risk you’re willing to bear, the higher the percentage of your money is invested into more volatile assets within your chosen risk-modeled portfolio.
Whenever your investments start performing too much outside your specified risk level, the humans monitoring your robo-advisor will program it to re-balance your portfolio so your assets go back to performing within your specified parameters.
But what exactly are these assets you’re ‘robo investing’ in?
Where Does a Robo-Advisor Invest Your Money?
Robo-advisors in Canada build their diversified portfolios out of ETFs—Exchange Traded Funds. They are the go-to option for robo-advisors because they carry lower fees than other investments like mutual funds. And since they can invest in whole markets or multiple indexes like oil and gold, ETFs offer greater diversification than picking a few stocks or bonds, which lessens your risk as an investor.
Plus, since ETFs perform exactly like the stocks they track, they are easily accessible and cheap to trade on the market.
What’s Better, a Financial Advisor or a Robo-Advisor?
The answer to this million-dollar question comes down to a few factors:
- The amount of money you have to invest
- Your budget for managing that investment
- How active you want to be in tracking and maintaining your investment
- Your own personal preferences, such as your comfort with technology, the kind of returns you’re looking for and your need for human interaction.
Minimum Portfolio Value
The minimum investment is often much smaller with a robo-advisor than it would be with your standard financial advisor. For example, WealthBar requires a minimum investment of only $5,000. Some bank-owned firms and smaller wealth management firms match that, but other high net worth wealth management firms start at $50,000. Meanwhile, other robo-advisors like Wealthsimple and Nest Wealth require no minimum investment, but fees might be prohibitive on smaller amounts.
Robo-advisors have human advisors beat here too. Account management fees for robo-advisors are usually comparatively low. For example, Wealthsimple, which holds 80% of the Canadian robo-advisor market as of 2018, charges an annual fee of 0.50% for an account between $0 and $99,000. After $100,000 the fee goes down to 0.40%. On top of these management fees to the robo-advisor, accountholders also pay the Management Expense Ratio (MER), which is charged by the market to the robo-advisor. It can be as low as 0.2% or as high as 1.22%, depending on how much money you invest and whether you select a traditional ETF or a Private Investment Portfolio.
On the other hand, financial advisors often charge commissions on top of these fees and some are not very forthcoming with how they charge you. Obviously, this is case by case, but even if you’re dealing with a fee-only advisor and their fee structure is much more straightforward, their fees are still higher than robo-advisors, with the average advisor charging about a 1.31% management fee.
There’s nothing more convenient than simply opening an app on your phone or logging into a website, rather than trekking out to your financial advisor’s office every few months. But some accept this inconvenience because they like the tailored goal setting provided by an advisor, as well as the comfort of person-to-person interaction. A financial plan is usually much more customized to the entire scope of your financial goals, whereas a robo-advisor only works with basic numbers and information you provide it.
WINNER: Human Advisors
If you want large returns, passive investing and ETFs aren’t going to get you there. Though most robo-advisors now offer a hybrid approach that pairs the convenience of a digital platform with the advice of a human advisor, robo-advisors are still designed to appeal to the most general of audiences. With a financial advisor you can get much more strategic in your investing, leading to a much larger, but hopefully more managed risk for a potentially bigger payout than robo-advisors can offer.
WINNER: Human Advisors
Go with robo-advisors if you:
- Are looking to invest a small amount of money (i.e. less than $250,000)
- Are comfortable navigating online platforms
- Can’t afford the fees charged by a wealth management firm
- Are satisfied with more conservative, consistent returns
- Don’t have the time or desire to constantly monitor your investments
Go with human advisors if you:
- Are looking to invest a large amount of money (i.e. over $250,000)
- Prefer human interaction or are not computer savvy
- Have no problem paying more for value
- Are interested in strategic risk-taking for potentially higher returns
- Want to take an active role in your investment strategy
|Robo Advisor||Financial Advisor|
|Minimum Portfolio Value||$5,000||$50,000|
|Customazibility||Algorithm-based goal setting|
|Tailored goal setting
|Returns||Relatively small||Large returns|
How to Choose a Robo-Advisor
When looking for a robo-advisor to invest with, keep the following criteria in mind:
- Fees and Minimum Investments – It’s safe to say that all robo-advisors are cheaper and require a lower minimum portfolio value than human advisors. But keep in mind that fees and minimum investments vary within the strata of robo-advisors in Canada. Robo-advisors don’t all charge in the same way, with variations depending on how much you’re investing and whether you’re looking for hybrid or algorithm-only service.
- Account Types Supported – Canadians can invest their TFSAs, RRSPs, RESPs, Corporate//Personal/Joint savings accounts and more. Always look to see what’s available from the robo-advisor you’re considering and make sure it’s compatible with what you have to invest.
- Investment Destinations – Do you prefer your money go into the industry standard ETFs or in-house funds? Some robo-advisors also offer socially responsible investment options or F-class funds geared to those with more than $100,000 in investment assets.
- Hybrid or Automated Only – More and more robo-advisors are pairing the industry standard of automated re-balancing and algorithms with human advice. So if you want a little human guidance with your automated portfolio, a hybrid option could be the best of both worlds and is absolutely worth looking into.
- Promotional Offers – Every robo-advisor has its own promotional offers you should be aware of. Example: waiving fees for a year on the first $10,000 invested. There are many different offers out there that may sway you toward a particular robo-advisor.
With those criteria in mind, we’ve taken a closer look at some of the leading robo-advisors in Canada to see what they offer and give you a chance to compare them as a potential investor.
Compare Canadian Robo-Advisors in 2018
Nest Wealth is a robo-advisor that caters to the retirement age crowd over younger, less risk-averse individuals. It’s also more accommodating to those who prefer investing relatively higher sums of money with their robo-advisor, though its model doesn’t impose any minimum investment limit. Beware of keeping a low-investment account, however, because fees will then be disproportionately larger.
An investor with Nest Wealth can choose from a solid array of customized portfolios that generally invest in broad-based ETFs with a low average Management Expense Ratio (MER) of around 0.15%. All trades are made automatically only, and the algorithm used does not vary your portfolio’s asset allocation to time with the market. Prices for robo-advising and automated trading depends on one’s level of investment, starting at $20 per month for $0-75,000, $40 per month for a portfolio of $75,000-150,000, and $80 per month for $150,000-500,000. Additionally, each rebalancing costs $9.99 up to a maximum of $100 yearly.
It’s important to note that although Nest Wealth itself is not a member of the Canadian Investor Protection Fund (CIPF), its accounts are held by National Bank Independent Network, subsidiary of CIPF member National Bank. Nest Wealth investments will therefore still be accessible in the event of Nest Wealth’s bankruptcy, and will be safeguarded up to $1M in the event of National Bank’s bankruptcy.
This bank-owned advising platform provides a blend of services to investors who desire the automation of robo-advising but also the accessibility of human investing talent, via BMO Nesbitt Burns Asset Managers. With human expertise involved, it makes sense that Smartfolio requires a minimum investment of $1,000, though BMO will hold uninvested cash for you in amounts less than $1,000.
BMO Smartfolio is primarily concerned with investing in Broad Index ETFs, Smart Beta ETFs, and BMO’s own active tweaks based on real-time in-house forecasts. The average Management Expense Ratio is between 0.20% and 0.35%. There is a minimum quarterly fee of $15, but this will be waived if you invest $250 or more. Annual management fees follow a tiered schedule based on the capital in your account, with a small percentage taken from your total assets yearly. It starts at 0.70% for under $100,000, then scales to 0.60% for $100,000-250,000, 0.50% for $250,000-500,000, and then 0.40% for $500,000 or more.
BMO Smartfolio is a member of the Canadian Investor Protection Fund.
WealthSimple is an appropriately-named robo-advisor with a straightforward approach to investing. With no minimum investment amount, it’s accessible to all, and generates returns passively from broad-based ETFs with low average Management Expense Ratios around 0.20%. Its pricing plan is easy to comprehend with just two levels—WealthSimple Basic and WealthSimple Black—at 0.50% (on your first $99,000) and 0.40% (above $100,000), respectively.
WealthSimple Black is an upper-tier investing package that is also accompanied by unique perks in addition to a lower management fee. Members will receive tax-loss harvesting, VIP airline lounge access, and special goal-based planning capabilities that focus on personal preferences more closely. There’s also an automated Smart Savings account charging just 0.25%, and over 10 other portfolio options, though none of these WealthSimple funds are part of the CIPF.
Questrade takes a hybrid approach to investing, employing both passive ETFs and smart beta ETFs (average MER of 0.21% to 1.25%). It’s also guided by the Questrade investment department, which balances your asset mix based on their in-house forecasts and analyses. There’s even an option to reduce your fees by connecting your other Questrade portfolios (or those of your family members) to the MyFamily program.
The minimum investment with Questrade is $1,000, and like the BMO Smartfolio, deposits less than $1,000 in total will simply be held in cash. There are more pricing tiers than average, which start at 0.70% for $1,000-100,000 and end at 0.35% for accounts totalling $1 million or more. Between $100,000 and $250,000 you’ll pay 0.60%, 0.50% for between $250,000 and $500,000, and then 0.40% for $500,000 – $1 million. Investors will appreciate that their money is held by a member of the Canadian Investment Protection Fund (CIPH).
A special hybrid investment methodology is practiced by WealthBar—another member of the CIPH—which emphasizes managing volatility and cash flow while remaining largely passive. Like other funds, the minimum investment is $1,000, but anything less than $5,000 has no management fee, and amounts less than $1,000 are held in cash.
Invest between $5,001 and $145,000 and you’ll be charged 0.60%, though this is reduced to 0.40% and then 0.35% for holding $145,001-$350,000 and $500,000 plus, respectively. In terms of Management Expense Ratio, the robo-advisor trades ETFs with an average MER between 0.26% and 0.32%, while private investment portfolios managed by WealthBar have MERs between 0.83% and 1.22%.
Robo-Advisors: a Leap into the Future of Investing
With lower fees, the convenience of technology and an autopilot approach to investing, robo-advisors are perfect for people who want to get into the investment game but get confused and bored as soon as an investment advisor throws out terms like ETF and MER. They’re a great opportunity for those who have a little bit of money saved up but are (justifiably) intimidated by DIY investing.
Helpful Terms and Definitions
- Asset Allocation – An investment strategy that distributes the investment among the assets in a portfolio according to the risk tolerance of the investor (e.g. the investor is 25 years old, nowhere near retirement and their risk tolerance is high). As a high risk tolerance investor, a portfolio manager may put 90% of that investor’s money into stocks (the more volatile investment) and 10% into bonds (the more stable investment). As market prices rise and fall, so too does the percentage allocation of the investor’s portfolio and it must be re-balanced every so often to reflect the age and/or the continued or changing risk tolerance specified by the investor.
- Canadian Investment Protection Fund – A not-for-profit corporation created by the Canadian Investment Industry in 1969 that protects investor assets in the event that one of its investment firm members goes bankrupt.
- ETFs – The abbreviation for Exchange Traded Funds. Most ETFs track an index of assets such as stocks, bonds, commodities or even currencies. When you buy shares in an ETF, you’re buying shares of a portfolio that tracks your selected index. ETFs don’t try to outperform their selected index, they just try to replicate its performance on the market. This yields moderate, conservative returns.
- F-Class Funds – A share class of mutual funds that are ‘no-load.’ This means there are no commissions owed upon their purchase, but there are ongoing expenses for the investor, which vary for each fund and are usually paid to the brokerage firm and not the advisor who may have recommended the fund.
- Hybrid Approach – An approach to investing that combines the automated algorithms of a typical robo-advisor with the practical advice of a traditional investment advisor. Many hybrids will also try to mix in other better-performing securities with ETFs in order to reflect higher returns and occasionally beat the market.
- In-House Funds – A ‘homemade’ mutual fund or hedge fund offered by an investment firm and managed internally by its own asset managers.
- MER – The abbreviation for Management Expense Ratio, which is the money that goes toward the cost of running the fund you are invested in. It is not charged directly to you the investor, but rather to the fund itself, and it is separate from the management fees you pay to the robo-advisor firm. It is not charged directly to the investor, but as a percentage of the fund itself.
- Private Investment Portfolio – A portfolio that isn’t as vulnerable to the ups and downs of the market so the investment is better preserved and yields higher returns more consistently. Typically more expensive than traditional ETF portfolios and therefore utilized by a smaller, more exclusive investment pool. WealthBar offers these to its clients.
- Smart Beta ETFs – Exchange Traded Funds designed to outperform traditional ETFs by also factoring in active, as well as passive investment strategies. A Smart Beta ETF can assess factors like the quality and value of a stock within a passive ETF portfolio framework. Ideally, this gives the investor greater returns, greater diversification and more consistent performance at the lower ETF price.
- Tax-Loss Harvesting – The deliberate selling of securities in a portfolio in a bid to incur losses and offset capital gains tax or taxable income for the investor, so the investor can pay the lowest possible taxes on accounts that are not tax-sheltered. When a robo-advisor client chooses Tax-Loss Harvesting as an option, securities are automatically sold off from their portfolio by the algorithm for this purpose from time to time.
- Timing Asset Allocation to the Market – Some portfolio managers will try to allocate assets in a portfolio according to market forecasts or what the market is doing. This is ill-advised for all but seasoned investors, since it’s difficult to predict when the market will move and by how much.