Are Robo-Advisors The Future Of Investing?

Posted on November 3, 2014 and updated August 18, 2015 in Life Insurance Canada News 5 min read
 
robo advisor future

The world of financial investing has changed. More people are getting involved with personal financial investments and they are not using financial or banking advisors. Some people do it themselves and others are acquiring the assistance of robo-advisors.

Robo-advisors have been around since 2005 and have now started to gain traction in Canada over the past year. These advisors are computers that run algorithms which will determine the best investments for you using your own wants and goals. This algorithm examines your ETF portfolio and weighs the maximum risk you are willing to take against your idea of long-term investing.

Computers are getting smarter. The most famous computer in existence, IBM Watson, is learning how to diagnose patients with increasing accuracy. If Watson is able to diagnose patients as well as a doctor can, it is easy to imagine a computer that will be able to instantly provide accurate, safe and unbiased advice just as well as a human can or better.

Financial advisors already use management programs and models to help them with their job. In this aspect, robo-advisors are able to perform the same type of work with the same quality with a lower cost. Robo-advisors that operate today are cost effective for the end user because the companies that run them do not charge exorbitant amount of fees. In fact, companies like Wealthsimple do not charge commission or administration fees at all.

Below are four robo-advisors operating within Canada. Listed are their prices, minimum balance required and their availability.

Wealthsimple

This robo-advisor will guide you through a process that involves a wealth concierge that will help you build a customized portfolio.

Pricing
First $5,000 No management fee
Standard Account – $5,000 – $100,000 – 0.5%
Premium Account $100,000 – $250,000 0.5% plus tax-loss harvesting included
Gold Account $250,000 – $1,000,000 0.4% plus tax-loss harvesting included
Platinum Account $1.000, 000+ 0.35% plus tax-loss harvesting included
No trading commission fees or administration fees
Other fees include investment products; according to their website is 0.25%/year, and currency conversion.

Minimum
The minimum required to work with Wealthsimple is $5,000

Availability
Wealthsimple’s availability has expanded rapidly across Canada. They are now registered in all Canadian provinces and territories.

ShareOwner

ShareOwner has been around since 1987 and has decided to step into the ring of robo-advisors this year.

Pricing
Accounts under $100,000 pay 0.5% of their balance on an annual basis
Accounts over $100,000 cost $40/month

No trading fees or rebalancing fees.
Investors pay the cost of holding the ETFs.
Administration fee is waived for RRSP/TFSA/and non-registered accounts.

Minimum
ShareOwner’s model portfolio structure does not require a minimum balance.

Availability
ShareOwner is available across Canada.

WealthBar

Pricing options are more expensive than Wealthsimple but WealthBar does not require a minimum balance.

Pricing
First $5000 no management fee
5,000 – 150,000 0.6%
150,000 – 500,000 0.4%
Over 500,000 0.35%

The management fee covers your rebalancing, insurance needs analysis, discounts on financial services and trading fees. RRSP accounts have a $50/year registration fee for accounts less than $15,000 are suggest you to hold your savings in a TFSA or basic account. The fee also includes ongoing personal financial planning with a real financial advisor. 

There is also a fee for internal costs of ETF investment products that are in your portfolio. This can cost between 0.4% – 0.45%. 

Minimum
There are no minimums required to have an account with WealthBar. However, if you have less than $5,000 to invest your funds will be held in a simple money market ETF with no cost.

Availability
WealthBar is available in Alberta, British Columbia and Ontario.

NestWealth

NestWealth has taken to the idea of offering a discount towards those under the age for 40 however require having a minimum investment of $25,000.

Pricing
Unlike the previous robo-advisors NestWealth charges an $80/month advisory fee. However, if you are under the age of 40, the fee is $40/month.

Minimum
The minimum amount of investment required is $25,000 for those under the age of 40. If you are over 40, the minimum amount you can invest is $50,000

Availability
NestWealth is only registered in Ontario but plans to give access to potential clients in other provinces soon.

What does it mean for financial advisors?

Robo-advisors are taking over, there is no denying this. The service that robo-advisors offer appeals to an untapped market of people starting to invest and do it yourself investors. The cost is significantly cheaper than having a human advisor. Also, the pressure from bank advisors and sales representatives is non-existent.

Considering the fact that robo-advisors are both just as accurate as humans and cost significantly less, robo-advisors are, without question, the future of investing.

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Philip
Philip

I will never trust my health nor my wealth to a computer. Sure it may offer diagnosis and adice faster than a human. However, I do not know who wrotr the program, where it was written nor what security is used the database. Because of this I have no idea whether the program has my best interests at heart. In fact I know for sure the program has no heart. The main reason of concern is security. Three of the four companies take security seriously enough to encrypt their entire site. The fourth only encrypts the login page. They also… Read more »

Syed Raza
Syed Raza

Hi Philip,

Thank you for the interesting points. I agree client security is a major issue and as the robo-advisory industry grows, so will the need for a more secure environment. These added costs will no doubt be passed on to the client.

Great point on the algorithms being limited to the standards set in place by the humans who write them. I laughed at the ‘has no heart’ part, so true.

Cheers,
Syed

Shiv
Shiv

One thing for sure, Robo-Advisors won’t be emotional about your money. But nothing like H2H experience.

LSM Insurance
LSM Insurance

Good points Shiv.