Battle of the best robo advisors in Canada
We’re living in a digital era, a world where we can order food, a couch, or an international vacation from our phones. We want convenience, and we want it now, in all areas of our life. Why should investing be any different?
It’s not, which is why robo-advisors have made considerable gains in popularity in Canada over the last five years. Initially considered a millennial fad, Canadians of all ages are using robo-advisors. In fact, the average age of the Canadian robo-advisor investor is 44.
But what is robo-investing, anyway? Is it risky? Which one is best? Today I’m going to answer all of those questions, review the top six Canadian robo-advisors, and make my pick for the best robo-advisor in Canada.
What is a robo-advisor?
First, let’s go over a few basic definitions, starting with what is a robo-advisor, anyway?
A robo-advisor is a company that takes your money and invests it automatically in a portfolio that reflects your risk tolerances. Your portfolio is created using exchange-traded funds (ETFs), which are similar to mutual funds, except you can trade them like stocks on the exchange. They are neither safer nor riskier than traditional mutual funds because they are subject to market fluctuations just like mutual funds.
Robo-advisors are not actually robots. The robo part of the robo-advisor is the automatic nature of the investment. Robo-advisors make automatic investments for you using time-tested investment theories. They focus on maintaining your ideal asset allocation instead of trading stocks over the short term and trying to time the market.
Robo-advisors use real humans with portfolio management experience to manage your investments, and the path they chart for your investments depends on your unique risk profile, how soon you’ll need the funds and your overall goals for your money. The portfolio managers will double check your portfolio to ensure you have set the correct risk tolerances and chosen the right strategy, but they refrain from actively managing your fund and trying to pick winning stocks.
Common elements of all Canadian robo-advisors
We’re going to compare the top Canadian robo-advisors today: Wealthsimple, Justwealth, WealthBar, Modern Advisor, and Nest Wealth. These robo-advisors all have several features in common that we are going to cover right now so that I can leave them out of the individual reviews.
First, all robo-advisors require you to fill out a risk tolerance questionnaire when you open an account. These questionnaires will help you determine your goals for your money, which in turn helps your robo-advisor determine how aggressive your investments should be. It’s crucial that you are honest when you complete your questionnaire because over-estimating your risk tolerance will lead to discomfort if the market plunges.
Second, all robo-advisors have an intuitive, easy to use website and app that is both beautiful and informative. We aren’t going to comment on the quality of the various user interfaces in this review because they are similar from service to service.
Third, all robo-advisors will offer some advice from a real person if you have any questions about your investments. A few robo-advisors, on the other hand, may provide more in-depth information and financial planning which I will make a note of in the individual reviews below.
Fourth, all of the robo-advisors on this list offer a full suite of registered and non-registered accounts for your investing needs. That means you can invest in RRSPs, RESPs, TFSAs, RRIFs, LIRAs, etc., as your needs may be.
Finally, all of the robo-advisors on this list are safe. You don’t have to worry about them running off with your money. In most cases, the robo-advisors we’re reviewing don’t hold your money themselves. Instead, they appoint a third-party custodian of the money, and that company holds the funds. The robo-advisor simply tells that company how to invest your money.
Now, on to the reviews. We’re going to start with my personal favourite: Wealthsimple.
Wealthsimple – All around winner
Wealthsimple is the most well-known robo-advisor in Canada, and it’s not just due to their splashy Super Bowl commercials. Wealthsimple is the largest robo-advisor in Canada, holding about $2 billion in assets. Wealthsimple has their own broker called ShareOwner and has secured $165 million in funding from Power Financial Group, which is a leading financial holding company.
Signing up for Wealthsimple is easy, and can be done either on your computer or through your smart-phone. Once you complete your questionnaire and choose between their three primary portfolio options (conservative, balanced, and growth), you can get started with as little as $100, because there are no account minimums.
Regarding fees, Wealthsimple offers a competitive fee structure. Your first $10,000 is managed for free for one year with our link below, and after that, the annual fee structure is as follows:
- For $5,001 to $100,000 you pay 0.50%
- For portfolios larger than $100,000, you pay 0.40%
On top of these fees, you’ll also pay the ETF Management Expense Ratio, which is 0.20% on average.
If you prefer to talk to a human about your asset allocation, Wealthsimple offers meetings with their money experts via phone, email, text or Skype. If your portfolio is larger than $100,000, you also have access to their free financial planning services. Finally, for the socially conscious investor, Wealthsimple offers a socially responsible portfolio that focuses on low carbon emissions and cleantech innovation.
Justwealth – For parents
Justwealth is a robo-advisor that specializes in target-date portfolios, which essentially means the portfolio rebalances to become more conservative as you approach the target date. Target-date funds can be ideal for anyone approaching retirement or for new parents who want to save for their children’s education in an RESP.
Justwealth has a fiduciary requirement, which means the company must act in your best interest over their own. Justwealth has appointed a custodian for their assets, holding their money with BBS Securities. They are also insured with the Canadian Investors Protection Fund (CIPF) which protects your account assets up to $1 million.
The minimum account balance with Justwealth is $5,000, which may put off some new investors or new parents looking to save for their children. For account balances up to $25,000, you’ll pay a monthly $10 fee. Here are the fees for larger balances:
- For $25,001 to $500,000 you pay 0.50%
- For $500,001 and over you pay 0.40%
You’ll also have to pay the fees associated with the ETFs used to create your portfolio. Those fees average out to 0.25%, so your total fees will range from 0.65% to 0.75%. Justwealth also offers US dollar accounts, and every client has access to a personal portfolio manager if they have questions about their portfolio.
WealthBar – For complete financial planning
WealthBar is an excellent option for Canadians who want financial planning beyond the “light” option offered by most robo-advisors because WealthBar combines financial planning and money management by assigning a dedicated financial advisor to each client. These advisors do not earn commission, so you can be sure you’re getting unbiased advice. This company is protected by the CIPF and holds their assets with BBS Securities Inc., Credential Securities Inc., Interactive Brokers Canada Inc., and National Bank Correspondent Network.
When you invest your money with WealthBar, you need to have at least $1,000 to start. Your first $5,000 is managed for free, for amounts above that you’ll pay the following tiered fees:
- For $5,001 to $145,000 you’ll pay 0.60%
- For the next $350,000 you’ll pay 0.40%
- For amounts above $500,000, you’ll pay 0.35%
The fees above do not include the fees associated with the ETF’s used to build your portfolio, so you can expect to pay an additional 0.29% to 0.35%.
When you make the switch you WealthBar, they will pay your transfer fees up to $150, and WealthBar offers corporate accounts if you need to manage your business’s money.
ModernAdvisor – For frugal new investors
Modern Advisor is the most economical option if you are a new investor because they allow you to invest up to $10,000 before incurring any fees – this is the largest amount you can invest for free with the robo-advisors we are reviewing today. After that, you’ll pay the following fees:
- For $10,001 to $100,000 you pay 0.50%
- For $100,001 to $500,000 you pay 0.40%
- Over $500,000 you pay 0.35%
The only other fees you’ll pay at the ETF fees, which average 0.25% per year.
Modern Advisor automatically rebalances your asset allocation when it is off by 5% or more, and they are regulated as a fiduciary which means they are required to act in your best interest. They hold their assets with Credential Securities Inc., and they are a member of CIPF.
Nest Wealth – For larger portfolios
If you have a more substantial portfolio that is losing money to mutual fund fees, Nest Wealth is the robo-advisor for you. This company holds their funds with National Bank Correspondent Network and claims to use the most efficient combination of blue-chip ETFs.
The feature that sets Nest Wealth apart from their competitors is their fee structure. Instead of charging a percentage of your portfolio, Nest Wealth uses a flat fee structure that is dependent on your portfolio size. Here’s how it would work for your portfolio:
- Less than $75,000 you pay $20 per month ($240 per year)
- $75,001 to $150,000 you pay $40 per month ($480 per year)
- For amounts over $150,000, you pay $80 per month ($960 per year)
They also charge $9.99 per trade on top of that subscription cost, but these extra fees are capped at $100 per year, per account.
The subscription-based model that Nest Wealth uses means that for smaller portfolios (like mine) the fees are too high to compete with other robo-advisors. But if your portfolio is substantial, you won’t find a better deal.
BMO SmartFolio – For skeptics
If you’ve been a life-long debit card carrying member of a brick and mortar bank, switching to a robo-advisor can seem scary. I understand – when it comes to your financial future, you don’t want to gamble. While all of the robo-advisors mentioned today are fully regulated and insured, if you are still skeptical, consider trying out the BMO SmartFolio. Offered by one of the big banks – the Bank of Montreal – BMO SmartFolio is a product of BMO Nesbitt Burns, making it a robo-advisor with a trusted name
BMO SmartFolio allows you to manage up to $15,000 for free for one year – perfect for skeptics who want to try before they buy. They will pay your transfer fees, so the process is painless. The account minimum is $1,000, and the fees after that are tiered as follows:
- Up to $100,000 you pay 0.70%
- For the next $150,000 you pay 0.60%
- For the next $250,000 you pay 0.50%
- For amounts above $500,000, you pay 0.40%
On top of these fees, you’ll also pay the expense ratios of the ETFs averaging between 0.20% and 0.35%. These fees make the BMO SmartFolio one of the more expensive robo-advisors on this list, but you can group multiple household accounts to help lower your fees.
My pick for best robo-advisor in Canada
These are the best robo-advisors in Canada, and they are all strong competitors offering good options to Canadians. My pick, however, for the best robo-advisor in Canada is Wealthsimple. While the other robo-advisors have good product offerings and are particularly suitable for specific situations, Wealthsimple is the best all-around option for the average Canadian investor.