Generally, robo clients don’t have to worry about trading fees—any rebalancing or changes in the portfolio are covered by the portfolio management fee. This fee is in addition to the management expense ratio (MER) charged by the ETFs themselves. Between the robo’s fee and the ETFs’ fees, you shouldn’t end up paying more than 1% a year for the management of your investments—which compares favourably to the average 2% for mutual funds—unless you opt for a robo and account offering investments other than ETFs, which typically come with higher fees.
Now that all the nationwide robo-advisors have a five-year track record, we’ve added back-dated performance data in the table above, for comparison. As robos are meant to match the portfolio to the investor, it should be understood the comparisons do not reflect how all their customers’ investments performed, and as such, this is only a starting point in any discussion around relative performance.
If you’re considering setting up an account with a robo-advisor, look on its website for performance data for the kind of portfolio you expect to set up. If it’s not posted, you can request it. You want to feel comfortable knowing that the robo has a history of capturing the kinds of returns it promises and the kinds of returns you need to achieve your goals.
Should you use a robo-advisor?
It depends on how much you’re looking to invest, suggest some experts. Dale Roberts, a MoneySense contributor and the investing blogger behind cutthecrapinvesting.com, believes robo-advisors still provide some of the best investing solutions for a vast swath of Canadians who lack both the investment knowledge to manage their own portfolio and a nest egg large enough to make a fee-based advisor worthwhile. “You need real money (minimum of $500,000) to get real advice, and most Canadians don’t have real money,” he says flatly.
Asset-allocation ETFs, which offer a diversified portfolio in a single security, aren’t really competition, in his mind. Choosing which fund to buy amounts to self-directed investing, something few investors are in a position to do. Roberts says that most “need someone to hold their hand,” by choosing the asset mix and answering questions. Robos do that cost-effectively.
If you’re thinking about shifting your assets to a robo-advisor, note that doing so may trigger taxes or incur fees for divesting from your mutual funds and/or other assets.
If all you have are registered accounts, like an RRSP and a TFSA, go for the robo-advisor with the lowest fees for your account size, suggests Roberts. But if your situation is more complicated, and you have taxable non-registered investments, choose a provider that will handle the transfer in the most tax-efficient way possible. Justwealth, Wealthsimple and CI Direct Investing all offer financial planning services, he notes.
What is a robo-advisor?
When the word robo-advisor first entered the investing lexicon, it referred to a company that offered a robo-advisor tool and the platform itself. With many traditional financial institutions providing robo options today, the term refers to the technology involved. Now, essentially, a robo-advisor is a cloud-based technology platform that, in many cases, invests on behalf of a user.