For years, most investors had to choose between two polar opposites on the investment spectrum: DIY investing and high-cost mutual funds. There was no middle ground. This left many investors frustrated. There had to be a better way and thankfully now there is.
Robo-advisors offer the best of both worlds: investment advice at a low-cost with a human touch. Robo-advisors have been a hit in the U.S. for years and are beginning to catch-on in Canada. Unlike their US and UK peers though, in Canada this term encompasses many different services but all must be monitored and managed by a portfolio management group not a computer algorithm.
Up until 2016 the robo-advising space was just fintech startups like Wealthsimple and Justwealth. Although these are great firms, without the name recognition of the big banks that Canadians trust and love so much, some people hesitated to invest with robo-advisors. Thankfully, a big Canadian bank, BMO stepped up to the plate, with its excellent SmartFolio investing service offered by BMO Nesbitt Burns.
What is BMO SmartFolio?
BMO SmartFolio bills itself as “an easy and affordable, ‘hands-free’, professionally managed, online portfolio service.” And it’s off to a good start. For Canadians who pay among the highest investment fees in the world, fees matter. A lot. The compounding of investment fees can work against you in the long-run and eat up a big portion of your investment returns.
We now know what BMO SmartFolio is on the surface, but what it isn’t is a pure robo-advisor. BMO makes this crystal clear on its website. While BMO SmartFolio may be an online service like a robo-advisor, there are a team of investing experts behind the scenes making each investment decision for you. Officially known as the “SmartFolio management team”, it’s made up of 17 professionals with over 300 years of combined experience in the financial industry.
The big Canadians banks aren’t known for being on the cutting edge when it comes to new technology, but BMO may be the exception to the rule. Although it’s Canada’s oldest bank, BMO has been innovating in the banking space for years. BMO was the first big bank to create their own ETFs with BMO Global Asset Management. It has also launched various low-cost investing options through BMO InvestorLine. More recently it’s the first Canadian Bank to launch its own online ETF portfolio management service in BMO SmartFolio.
Is BMO SmartFolio Safe?
Thankfully you’re in good hands with Canada’s oldest bank, BMO.
Although BMO SmartFolio and robo-advisors, in general, may be relatively new in the Canadian investment landscape, robo-advisors are a proven investment model that our American neighbours have been taking advantage of for more than a decade. You can take comfort in knowing that BMO SmartFolio is backed by a well-known Canadian big bank. If that doesn’t put your mind at ease, the fact that it’s a member of the Canada Investor Protection Fund (CIPF) is likely to. That means your money’s protected (up to certain limits) in the very unlikely event something were to happen to BMO Nesbitt Burns.
Just like any other investment, there’s no guarantee that you’ll come out ahead (if you want that kind of guarantee, you’ll need to invest in something safe like GICs or a high-interest savings account), but by using BMO SmartFolio to develop a disciplined investment approach, there’s a decent chance your investments will grow over time.
How to Get Started with BMO SmartFolio
If you’re looking for a simple way to invest in a well-diversified investment portfolio, then you’ll be hard-pressed to find a better option from a big bank than BMO SmartFolio.
There are a few basic steps needed to open a BMO SmartFolio account.
When you go to SmartFolio’s website (using our custom link to take advantage of a special promo just for our readers), click on “open an account”.
You’ll be asked for some basic information, including your name and you’ll need to answer some simple questions about your financial goals, when you’re hoping to achieve them and your risk tolerance. Similar to completing the “Know Your Client” form with an advisor, this is to help determine the best fit in terms of an investment portfolio. For example, someone that’s closer to retirement will likely want more fixed income than if you’re a millennial just starting out your first job.
Next, you’ll want to decide whether you want to contribute by way of lump sums or you’d like to set up regular contributions. By setting up regular contributions, you can get the full benefit of dollar cost averaging. You’ll want to keep saving and investing over the long-run as you don’t have to concern yourself doing stock research to try and beat the smartest investment minds. All of that is taken care of for you.
Types of BMO SmartFolio Accounts
Whether you’re saving towards the down payment on your first home or retirement, you can meet almost any personal investment goal using BMO SmartFolio.
Here are the types of account you have access to with this company:
- Non-Registered taxable account
- RRSP and Spousal RRSP
- RESP and Family RESPs
- RRIF and Spousal RRIF
You can also open a joint account. This is a non-registered account that you can use to help you meet your investment and wealth goals.
BMO SmartFolio Fees
Similar to other online portfolio management options, you’re charged an advisory fee on a quarterly basis on your BMO SmartFolio account. The fees are billed in arrears and based on an average of your three month-end balances of the quarter. The fees are tiered, so the more that you invest with BMO SmartFolio, the lower your average advisory fees are. (Note: The minimum you’re required to invest is $1,000. This is pretty low to begin with and has been lowered once already in recent memory.)
Here are the fees you’ll incur depending on the total asset value of your portfolio:
|Asset Value||Your Rate|
|Beyond $100,000 to $250,000||0.60%|
BMO SmartFolio may not offer the lowest investment fees on the market, but as mentioned, BMO SmartFolio is more than just a robo-advisor. With a mix of active management going on behind the scenes by a top 40 Global Asset Manager, you get good value for the fees that you’re paying. SmartFolio will even cover your fees if you’re transferring your portfolio from another bank.
It’s important to note that the advisory fees don’t include the management expense ratios (MERs) of the ETFs you’d be investing in. You can expect to pay between 0.20% and 0.35% depending on the ETFs in your portfolio.
BMO SmartFolio Returns
It’s next to impossible to predict your investment returns with any precision. There are so many factors that can affect how your investments perform – market conditions, economic events, and the underlying assets you’re invested in. Since you’re investing in ETFs, you’re not going to beat the market by leaps and bounds. But you’re not likely to underperform the markets either as you would with the typical Canadian mutual fund once fees are taken into account. You can see SmartFolio’s historic performance here.
By investing in ETFs, you can better diversify your money by investing in thousands of companies in the world, similar to a mutual fund, but at a substantially lower cost. When you invest with BMO SmartFolio, you’re able to take advantage of the award-winning BMO Global Asset Management ETFs. You can get a portfolio of ETFs with the asset allocation that you desire. And you don’t have to worry about rebalancing your own portfolio and incurring costly trading fees. They take care of that for you. You can expect your portfolio to be rebalanced about two to six times a year.
Other Perks of BMO SmartFolio
Are you a fan of paying for investment fees? Me neither. I have yet to meet someone who is.
If you’re looking to reduce fees further, why not encourage the rest of your family to invest with BMO SmartFolio? When your family invests with BMO SmartFolio, you’re able to group your family together as a household account. By doing this, you’re able to combine your household assets and take advantage of the lowered tiered fee thresholds.
If you’re already a BMO client, you can sync your BMO SmartFolio investments with your BMO Online Banking Summary. By doing this, you can see all your account and balances from your chequing account to your mortgage on one screen at the same time. Talk about convenience!
BMO SmartFolio further simplifies goal setting. Using the goal-tracking feature, you can track the progress of your financial goals and change variables like rate of return and contribution amounts to see how much sooner you can achieve your goals.
Is BMO SmartFolio a Good Place to Invest Your Money?
BMO SmartFolio may not be the cheapest robo-advisor out there, but that’s because it’s not a pure robo-advisor. It’s so much more. If you’re toying with the idea about handling your own investments, but you’re not yet at that comfort level to go pure DIY, then BMO SmartFolio offers some nice middle ground. It’s best if you still want to stick with the big banks and their professional money managers, but not incur the high fees that come with traditional mutual funds.
BMO is a brand name that Canadians know and trust in the banking space. It’s set the bar high by being the first Canadian big bank with a robo-advisor service. It will be interesting to see when the other big banks decide to follow suit. For now BMO SmartFolio is a service worth checking out. With its superb platform, excellent customer service and great goal-tracking tool, you’ll be hard-pressed to find a robo-advisor that offers so much for so little in terms of fees.