The Top Robo Advisory Companies in Canada
Robo advisory services are the ultimate tool for the hands-free investor. If you’re actively in pursuit of the best passive investment strategy, it could be just what your portfolio needs. Maybe you work in a completely unrelated field to finance, but you still a high degree of intelligent wealth management? Or perhaps you’re simply too busy to research speculative investments all day, and prefer the “set and forget” approach to the “monitor the market daily” technique. If you’ve been sitting on cash for some time and have an idea of the amount of risk you’re willing to take, there’s no time like the present to take advantage of automated investing technologies made possible by a digital world.
After reviewing the most sought after robo-advisory offerings in Canada, we highly recommend choosing WealthBar for your robo-advisor investing services.
WealthBar is a robo-advisory firm that operates Canada wide and is available in all provinces. They offer premium online investing portfolios coupled with personalized commission-free advice. The company will find the right investment types and account considerations for you, and to make the deal even better, they make the signup process fast and simple.
HIGHEST QUALITY ROBO-ADVISORY SOFTWARE IN CANADA
WealthBar Financial Services Inc. is a registered Portfolio Manager in all provinces and territories in Canada. If the company were to ever go insolvent, up to $1 million of the savings and securities in your account are guaranteed by the Canadian Investor Protection Fund (CIPF).
Established in 2014, WealthBar came into this newly emerging industry as Canada’s first official robot-only guided investing service. As their reputation grew and news of robo-advisory services quickly spread across the nation, WealthBar acquired over $300 million in managed assets as of today. WealthBar takes pride in offering competitive-fee digital portfolios from robo-advisors whilst including access to traditional human advisors in the mix. The company uses a tier-based fee system that is dependant on your account balance (all rates are charged annually). For accounts over $500,000 the fee is 0.35%, less than $150,000 the fee is 0.60%, and forany account balance between these two values the fee is 0.40%. Since the algorithm behind WealthBar’s robo-trading leverages reputable ETFs, there will also be an added MER charge which can be anywhere from 0.19% to 0.26% depending on the structure of your portfolio.
WealthBar Robo-Advisory Features:
- High degree of variety in investment types
- Private portfolios that have access to a greater range of investment vehicles for additional fees (available to all WealthBar clients)
- Spectacular historical performance as a company
- Hybridized human/machine advising
- Relatively low minimum account balance: $1000
Wealthsimple is another one of Canada’s oldest robo-advisors – although calling it old would be doing it a diservice, considering how new the robo-advisory industry is. The company has also developed roots in the US and parts of Europe. As the company name suggests, their goal is to make your wealth management simple. The company’s robo-advisory service comes with a zero dollar minimum account balance, so it is available to anyone looking to start investing. The company also utilizes a tier-based pricing structure, except there are only two tiers: accounts under $100,000 are managed at a 0.50% fee (Wealthsimple Basic) while accounts over $100,000 are managed at a 0.40% fee (Wealthsimple Black). Wealthsimple Black is a form of premium account that also comes with perks like airport benefits and personal financial advice from a Wealthsimple portfolio manager. Their robo-advisor algorithm is also focused on ETFs, so account MER charges will come as an additional 0.20% per year on average.
Wealthsimple Robo-Advisory Features:
- Very clean user interface and product design
- Fairly broad variety of investing options
- Lowest average MER in the robo-advisory setting
- Zero minimum account balance and no initial deposit size requirement
Questwealth Portfolios is a branch of the Questrade Wealth Management company that specializes is robo-advisory services. Questwealth specializes in a hybridized portfolio approach that leverages human capital to actively monitor your algorithmically-driven investments. These human financial experts can help manage your account more effectively during rapid market fluctuations. Questwealth offers five different portfolio setup types that are based on your desired risk tolerance level: Conservative portfolios are for individuals who are completely risk-averse, Income portfolios are for generally low risk levels, Balanced portfolios are for medium risk levels, Growth portfolios are for more risk tolerant individuals, and Aggressive portfolios are for extreme risk seekers. The company’s software develops client portfolios on a mixed assortment of bonds, stocks, and ETFs in order to generate a return. Questwealth charges a 0.25% annual fee on account balances less than $100,000 and 0.20% over this amount. Charges to your portfolio will also include an MER fee from around 0.19% as well.
Questwealth Portfolios Robo-Advisory Features:
- Extremely competitive fees (management charge plus MER averages out to only 0.45% per year if you have an account balance below $100,000)
- Diverse investment offerings plus SRI-compatible portfolio structuring (Socially responsible investments)
- High degree of human financial advisory involvement
- Relatively low minimum account balance: $1000
Nest Wealth is a robo-advisory firm that prioritizes older clients with a mature asset collection. The company operates on the low-risk principal, and as a result caters to modestly wealthy indivuals that are nearing their retirement. The company’s competitive edge resides in their interesting pricing model, which differs from traditional yearly management charges. Signing up for a Nest Wealth robo-advisory portfolio is done on a monthly subscription basis. If your account balance total is over $150,000 it costs $80 per month, balances under $75,000 cost $20 per month, and any balance in between these values cost $40 per month. This is really attractive to wealthy individuals who would rather pay a flat fee than sacrifice a fixed percentage of their balance every year. While this subscription model replaces the standard management fee percentage, it does not replace the Nest Wealth MER – which averages somewhere close to 0.13% annually.
Nest Wealth Robo-Advisory Features:
- The ideal payment model for an affluent investor
- Zero minimum account balance and no initial deposit size requirement
- Subscription fee aside, relatively low MER costs within the industry
Justwealth puts slightly less emphasis on their robo-advisory software to provide their clients with portfolio manager level investing advice. While they use machine-operated portfolios to generate returns on individual accounts, they place a larger focus on human advisory than most robo-advisors. To elaborate on this point, the company also offers financial planning and investment strategy reviews for an additional charge. Justwealth’s competitive edge in the industry comes from their ability to optimize RESP based robo-portfolios. Their unique strategy involves “date setting” within a clients robo-RESP, so the right investment vehicles will mature on time for a student’s educational requirements. Like many other robo advisory firms, Justwealth also follows a tier-based pricing model – but smaller balances are subject to a monthly subscription. It costs 0.40% annually to manage balances over $500,000 and 0.50% annualy to manage balances under $500,000. However, if your Justwealth account balance is less than $12,000 your management fee will be replaced with a $5 per month flat charge. Note that there is a minimum deposit of $5000. Their robo-advisory has a slightly high MER fee as well, averaging 0.25% annually.
Justwealth Robo-Advisory Features:
- RESP friendly operations
- Incredible selection of portfolio types
- Supplementary human financial advice
WHAT YOU NEED TO KNOW ABOUT ROBO-ADVISORY SERVICES
What is a Robo Advisor?
Considering the robo-advisory industry has only been around for roughly a decade, they are steadily gaining clients and developing a strong reputation in the world of automated investments. At their core, robo-advisors are complex, algorithm-based trading software that use a set number of hidden metrics to determine the compatibility of investment types for a specific account. In layman’s terms, a robo-advisor will listen to your inputs/instructions and follow them closely to give you personalized investing recommendations and advice. Throughout the past few years, newly emerging Canadian digital banks have been focusing on optimizing this service at the consumer level. Since a robo-advisor requires significantly less active involvement than a human financial advisor, they’re recognized as a cheaper alternative to traditional investment services.
How Does a Robo Advisor Work?
From a general viewpoint, a robo-advisor receives your inputs and utilizes them to produce an output. Your inputs typically involve personal information such as yearly income, financial goal settings, and your willingness to handle risk (risk tolerance level). The advisory machine takes this information to produce the output, which is essentially your return on investment. Most if not all robo-advisors operate on the basic principal that returns and risk levels are positively correlated, so if you allow your automated portfolio to take on more risk then you should theoretically benefit from higher returns – although this is obviously not a guarantee. Once you’ve locked in the preliminary requirements, the robo-advisor platform will begin optimally allocating your assets in investments that suit your financial needs. You can safely discontinue the use of your robo-advisor if you feel like it’s time to actively manage your funds.
Where Does a Robo Advisor Invest Your Money?
In Canada, robo-advisors perform asset allocation within strict parameters, as to minimize risk for the client and financial liability for the firm. For the most part, these algorithmic trading platforms will invest your money in exchange traded funds (ETFs) because they’re naturally risk-averse due to diversification, and they’re also associated with fewer fees than mutual funds. ETFs are great tools for robo advisors because they can encapsulate a variety of different investment categories. Basically, an ETF trades like a stock but acts like an index fund. ETFs can be found in virtually any financial sector, ranging anywhere from small cap technology companies to commodity indices. As time goes by, the software will automatically adjust the funds within your total investment in case parameters shift, also known as portfolio rebalancing. In other words, you do not need to actively involve yourself, unless you’re planning to withdraw or deposit additional funds.
Human Financial Advisor vs. Robot Financial Advisor
In order to compare the two very similar services, we have to consider a few differentiating factors, specifically: how many dollars you can spare to invest, the size of your management budget to pay for the investment service, whether you like being hands-on or hands-off with your money, and of course your personal comfort levels with technology/humans.
As a general statement, the minimum dollar amount required to register for advisory services is traditionally much higher with a human advisor. Reputable asset management firms, who leverage human employees for investment purposes, will usually only accept clients with a high net worth. To be frank, it’s not worth their time to manage individual small sized funds (ranging from zero to a few thousand dollars). Robo-advisory services are much more lenient in this regard; some companies are even offering no minimum account balances on robo-portfolios.
In terms of how investment companies get paid, the universal charge you can expect to see from either advisory option is an account management fee. The account management fee is usually a fixed percentage of your account balance, and is paid periodically. Comparatively, this fee is substantially lower for robo-advisors. However, robo-advisors have an additional required fee called the Management Expense Ratio, or MER, which the robot pays to the market. This cost is variable, as it depends on multiple factors related to how you choose to construct your portfolio. All things considered, the account management fee plus the MER is still usually a smaller charge for robo-advisors compared to what human financial advisors require. Not to mention that some financial advisors even charge commission fees on top of account management fees, so robo-advisors easily win this category.
As of today, human financial advisors have one guaranteed edge on robo-advisory portfolio management, and that is flexibility. When you meet with a personal human financial advisor, you can engage in conversation and dive deep into your financial goals and requirements. In other words, a human advisor has the ability build you a fully customized and personally tailored financial plan, while a robo-advisor works off of a few basic inputs. On the other hand, being able to set up a robo-portfolio through a digital portal (such as an app or web interface) is seen as a great convenience to many, since you don’t have to be “present” to provide updates, whether it’s on a phone call with your advisor or being in their office.
Last but definitely not least, you have to consider the return on investment from both options. If you’re a risk tolerant individual who only cares about high returns, passive robo-portfolios are not going to net anything crazy. Since robot algorithm trading strategies rely heavily on ETFs, which are greatly diversified to the point of low risk-low return, you will most likely experience modest returns – regardless of how you instruct the software. A human advisor will help you develop a more customizable portfolio, thereby allowing you to incorporate more risk if you seek more return. While the returns on robo-advisors today are historically lower, the returns coming from low-risk operations are not completely negligible, and they appeal to the more general investor.
When you should go with a robo-advisor? In our opinion, robo-advisors are most advantageous if your portfolio is relatively small (less than $200,000) and you don’t find it worth it to pay human advisory management fees. You should also consider robo-advisory investing if you’re more comfortable with a digital interface, and you favour passive investing over constant market monitoring.
Choosing the Right Robo Advisor for Your Needs:
Minimum account balances and service charges. On average, robo-advisors will be the cheaper alternative to human financial advisory. Although if the payment cost is a primary concern for you, understand that different robo-advisors have differing pay structures – not all of them have the same rates or fees. If you can find a robo-advisor offer that is entirely software-managed (no human intervention whatsoever) you’re more likely to pay smaller charges.
Registered account support. In Canada, you can set up your robo-advisor portfolio to invest on your registered tax-sheltered accounts if you typically use those to save. These can include RRSP, TFSA, RESP, Joint accounts, etc. Make sure you do research on your robo-advisory company beforehand to see which accounts are compatible with their software.
Asset allocation. Depending on your preference, you may want to choose a robo-advisor that branches out from the traditional ETF-only trading strategy. A handful of robo-advisor companies will offer more diverse investment vehicles for large account balances.
Degree of machine operations. In today’s rapidly evolving world of investment services, many robo-advisory companies are implementing hybridized financial advisory packages. If you’re willing to pay slightly higher fees, you can tag on traditional human financial advice to your machine-guided investments. This way you can benefit from the advantages of both advisory methods.
OUR THOUGHTS ON ROBO-ADVISORY COMPANIES IN CANADA
After gathering up all the facts, we’ve come to realize that the value of a robo-advisory platform isn’t in its returns; but in the fact that it can save you so much time. Nowadays, time is a precious commodity and people are more incentivized to invest passively. Every individual with a healthy amount of savings should be given the opportunity to invest wisely, and robo-advisories do exactly that. If you’re too swamped with work to do your due diligence researching a specific stock, algorithm-based trading is the perfect solution. Not to mention how easy it is to register an account with reputable online financial institutions. All things considered, robo-advisors are not for every individual. Historical returns can appear very modest, and the more hands-on DIY investor may prefer to stay away from this financial service.
If you want a more stable return at an even lower risk level, check out our guide to the best GIC rates in Canada
Robo Advisors Frequently Asked Questions (FAQ)
Are online robo-advisors safe?
In terms of the overall security of your deposit within a robo-advisor, you’d need to check to see if your robo-advisory firm is insured by the CIPF. If it is, your funds are guaranteed up to $1 million even if the company you are signed with goes bankrupt. In regards to investments however, remember that a 100% risk free investment with a guaranteed return does not naturally exist (except maybe in the case of a GIC). An online robot portfolio works the same way as a standard portfolio. Any expected returns are subject to your individual level of risk tolerance, but even then are not guaranteed. Of course, the low risk method should theoretically achieve modest portfolio gains over a larger time period. In other words, robo-advisors are as safe as you want them to be – it all depends on the inputs you feed the system.
How will robo-advisors perform in a bad economy?
While it’s true that this groundbreaking technology has only been around for a short period of time, the overarching belief is that machine-operated portfolios will get hit about as hard as a properly diversified traditional portfolio. This theory is based on how most mainstream robo-advising algorithms work: the software does not perform unnecessary speculation on green or red stocks. Your funds are diversified across broad indexes that historically recover once a recession has been settled – so while the technology is new, the concept has already been tried.
Do robo-advisors beat the market?
With such a low amount of risk and modest returns, the answer is typically no. When you factor in a robo-advisor’s management fees and MER, you may not perfectly match the market’s overall growth. However, it should be worth noting that the vast majority of robo-advisors do not claim to “outperform” alternative investing strategies, their competitive advantage is convenience and ease of use. The idea behind machine-operated investing, at its core, is just to meet your general financial needs based on a few simple inputs. Depending on your degree of portfolio diversification, your returns may or may not match a market index like the S&P 500.
How risky are Exchange Traded Funds ETF?
Generally viewed as an intelligent investment choice, ETFs do harbour a couple criticisms. The main argument against ETFs is that it is essentially one value that’s connected to a basket of securities. Put simply, if everybody decided to invest in ETFs as opposed to individual stock tickers, it would be incredibly difficult to pinpoint the real value of a single company – since ETF funds are dispersed to so many different businesses. Another problem with ETFs is that they are incredibly reliant on the skills of a reputable manager to perform optimally. If the market is volatile, an ETF manager needs to act timely and accordingly to ensure that the fund’s underlying securities have proper weightings.
What is robo advisor tax loss harvesting?
Another advantage to choosing robo-advisors is their capability to automatically support your portfolio with tax loss harvesting. This concept is simply the sale of ETFs/other securities within your investment portfolio that have lost their value over time. By choosing to realize losses on these securities, you can leverage the amount lost against any taxable capital gains resulting from the rest of your portfolio. Thankfully, robo-advisors can efficiently execute this process in a calculated manner so you can pay the lowest tax rates possible within non-registered accounts. The algorithm can swiftly calculate your ideal amount of realized losses for tax break purposes, whereas a human financial advisor is either more subject to errors, or simply cannot identify as many tax harvesting opportunities.