Picking the Right Robo Advisor for You

For too many years Canadians had to look southward and enviously gaze at the bevy of hands-off investing options that our American counterparts had to choose from.  Thankfully, this lack of choice in The Great White North has changed in a big way over the past couple of years.

While you might be tempted to assume that the term “robo advisor” refers to some newfangled way of impersonally separating you from your money via a vaguely robotic medium, your future self will thank you for giving robo advisors a much closer look.  These fintech (Financial Technology) start-ups are really just taking the principles of DIY index investing, automating the stuff that can be automated through technology, and then replacing in-person meetings with your traditional financial advisor with online or phone conversations with a financial professional.

Essentially, what robo advisors are offering is an attractive middle-ground option that exists between the traditional high-cost mutual fund model of investing, and the sometimes intimidating DIY route of opening a discount brokerage account and purchasing your own stocks, bonds, and ETFs without any personalized help.  If you are looking for a “set and forget” way to invest your hard-earned dollars that are easy to implement, and won’t siphon away all of your returns with high fees, then you may have found your ideal option.  The only question left is which of these new players on the fintech block should you trust with your investment portfolio?

Cost Comparison

While all robo advisors seek to cut costs to the bone and then pass those savings on to their customers, it’s very difficult to compare “apples to apples” when it comes to robo pricing models. The reason for this difficulty is that there are almost as many pricing models out there as there are individual robo advisors. Some companies such as Wealthsimple charge a .4%-.5% management fee, on top of the MERs of the ETFs that they will use to build your portfolio (adding an estimated .2% to the overall cost). While other companies such as Nest Wealth charge a subscription fee based on asset tiers, and then a fee for each trade that is carried out within your account.

The good news is that you don’t have to try to cross compare these different pricing models yourself – the Canadian Robo Advisor Calculator is a new tool that does everything for you. Granted, it is borderline impossible to incorporate certain perks, and they have to assume an identical rate of return for each type of portfolio that they compare (which appears to slightly favour some options at the expense of others), but overall it is a great place to start in your quest to find the perfect robo advisor option for you. There is no other place where you can independently compare the wide range of Canada’s robo advisors’ fees, commissions, and charges in such an efficient manner.

What Fits You Best

If after using the calculator you find that there are a few options that are relatively similar in terms of total cost, it is certainly worth your time to do a little more digging before making your final choice. After answering emails and comments pertaining to Canada’s robo options over the past couple years, I cannot say conclusively that there is a single company that is head and shoulders above the rest. The overall satisfaction rate with the robo advisor model and the value-for-cost has been excellent, but people who have tried each of the main robo advisors have found unique highlights, as well as areas they’d recommend improvement on.

Here are a few comparison points you might want to think about as you make your own personal priority list:

• Online usability and overall user experience
• Method of preferred communication (email, text, phone call, Skype?)
• Perks over and above investment returns
• Compatibility with tax-advantaged accounts such as RESPs and RDSPs
• Portfolio construction models
• Active vs passive management strategies
• Tax loss harvesting and re-balancing options
• Convenience of use with budgeting apps like Mint

Personal Feel and the Advice Component

Perhaps the most important factor when it comes to ultimately choosing the best robo advisor for you isn’t price, or even what cool perks are offered – but instead boils down to something that is hard to quantify or articulate: personal touch. Once again, I have received comments and review emails from several dozen people who have tried at least two of the robo advisor options, and there is no consensus on which companies separate themselves when it comes to communication, customer service, and response times. From what I have been able to piece together, Canada’s leading robo advisors are evolving very quickly, and fixing any imperfections as they go. In saying that, depending on your personal comfort level with investing terminology, technology, and overall personal finance knowledge, you’re going to value specific features and advice components differently.

Because it’s so hard to make broad generalizations when it comes to these financial disruptors, I hesitate to try to give specific advice beyond: Why not take a look at the top three leaders on your list and just get a personal sense of which way you personally lean? Sure, it’s a little extra paperwork, but once you settle on one of these service providers you’re making a pretty big decision as far as your future financial plans go.

One interesting development that has surprised me over the last 12 months is that I am getting more and more emails from Gen Xers and Baby Boomers who are describing how impressed they are with the relatively new investment option. While robo advisors are obviously appealing to Millennials who are quite comfortable with primarily communicating online and navigating software platforms, I would say they are an excellent option for anyone who has money to invest and values simplicity in their financial dealings.