Robo-advisors are the current darlings of the fintech (financial technology) world — and for good reason. These terribly-named, but brilliantly-executed Canadian newcomers give consumers an excellent middle ground choice between the traditional world of high-fee mutual funds and DIY investing through a discount brokerage account. There appears to be a large segment of the Canadian market that is sick of paying incredibly high fees for poor investment selection, yet aren’t quite confident enough to leap over the barrier to entry when it comes to picking their own stocks, bonds, and ETFs.
Enter the robo-advisor.
It’s important to understand that they only thing vaguely robotic about a robo-advisor is the fact that your money will be automatically invested based on an algorithm that you will decide on when you first sign up to use the robo-advisor service. When you put money into your TFSA or RRSP (or another account) at the robo-advisor, it will automatically get divided up to into the pie chart that you previously stated that you wanted when you initially talked to your (fully human) advisor. Investing your money through a robo also means that your investment plan will be carried out automatically — no more manual rebalancing index ETFs for you couch potato portfolio acolytes.
That’s it. You will still talk/text/write to a real-life, fully-qualified adult whenever you want (although likely not in person as robo-advisors prefer to operate exclusively online). This adult will have a fiduciary duty to you as all of the major robo-advisor companies are certified portfolio managers. This means that unlike a lot of people who call themselves “financial advisors” anyone you talk to at a major robo-advisor has a legal obligation to make recommendations based on your best interests. You might have thought that standard was a given in Canada — but it’s not.
If you’re concerned whether your money is safe, as long as your robo-advisor partners with an investment dealer that is a member of the Investment Industry Regulatory Organization of Canada (IIROC), and your account is held in your name at this firm, you can be eligible for coverage by the Canadian Investor Protection Fund (CPIF).
All of the robo-advisors invest primarily use large index ETFs and adhere to basic index investing principles to varying degrees. All of our recommendations have excellent transparency on what your portfolio will look like if you check out their websites, but the basic idea of easily getting very broad exposure for each of your investment dollars doesn’t really change from robo to robo.
Finding the Best Robo-Advisor for You
Like many other products in the financial industry, finding the right fit for you means taking a few variables into consideration. That being said, the foremost consideration for most folks is price. After all, you want to keep as much of your hard-earned money working for you (and not disappearing into a black hole of fees and commissions) as possible right? The potential problem here is that robo-advisors don’t all charge you in the same way. This means that comparing robo-advisor prices isn’t as easy as comparing your options on major appliances or cell phones. You could try and build yourself a comparison tool that looks at percentage-based commissions charged at different asset tiers, monthly account charges, various ETF basis points, and then all of the non-price considerations. Or you could just check out our AutoInvest Robo-advisor Calculator.
Of course, price is not everything — in fact, I’d argue it shouldn’t be the main thing.
When you’re looking for the robo-advisor that best fits your unique needs, I’d use the advanced version of our calculator to see which robos have all of the accounts that you want. For example, maybe you want to use an RESP to save for your child’s education? Perhaps having a corporate account or a spousal RRSP will make a big difference in your personal finances? We can help narrow down the list for you based on the specifications you provide.
If you want to really do your homework before choosing your “set it and forget it” investment solution, I recommend looking into some of the other perks that some robo options offer, while others don’t. Features such as tax loss harvesting, socially responsible investing options, and accounts denominated in USD might be the deciding factor in where you take your business.
Accounting for What Can’t be Counted
Once you narrow down your choice based on our pricing and selection criteria, don’t be afraid to take a serious look at two or three companies. There is simply no way to quantify which company you’ll feel most comfortable with. For some people, specific user interfaces can tip the scales, while for others it’s the initial customer service response that is the most meaningful. Ultimately there is only so far our comparison of Canada’s robo-advisors can take you — the rest is up to your intuition and instincts.