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.
Sign up for Wealthsimple here to get $10,000 managed for free for one year.
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.
Sign up for Justwealth here to receive a $50 bonus.
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.
Sign up for WealthBar here to get $15,000 managed for free for one year.
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.
Sign up for Modern Advisor here to get $50,000 managed for free for one year.
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.
Sign up for Nest Wealth here to get 3 months managed for free.
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.
Sign up for BMO SmartFolio here to get $15,000 managed for free for one year.
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.
Comments
It would have been most helpful if you could have commented on the portfolio results of each advisor – that is ultimately what it’s all about. Surely each would have a representative annual portfolio for the 3 risk levels that would give us an idea of how each did relative to the respective benchmarks.
Hi Jordann,
Great article.
Any thoughts of putting some numbers together re: historic returns of the various funds these companies offer.
Thanks,
Victor
so you say the average age is 44. is there benefits to one over another for age? I am 60 soon. need to find a good fit that is tax efficient when the time comes to draw cash monthly?yearly for supplementing government pensions.
This article appears to focus primarily on fees. Although that is important, I am far more interested in returns. Do they offer asset allocations. What are the historical returns on a sample portfolio? Are any of them set up to support decumulation? Thanks.
18-05-24
Mary,
You’re absolutely right.
The focus must be on returns and the type of returns – capital appreciation of monthly cash.
If the fees are higher for a higher cash return, then fantastic.
I’m also a big fan of learning how to manage your money and retirement fund, and I think spending time with these products teaches you very little. Like taking transit prepares you for driving.
There are some good points made however some glaring omissions such as performance data.
How can you compare the robo advisor options if you don’t actually use the product?
Some misleading info as well, such as fiduciary responsibility which all of them have as a result of using portfolio managers.
I’m using both Wealthbar and Wealthsimple and WB outperforms WS consistently by 4% over an 8 month period for the same risk threshold portfolio. Does anyone feel that’s important?
While I’d much rather have the extra 4%, ultimately that doesn’t guarantee future returns. Robo-advisors track the market through a bundle of ETFs, so the biggest thing you can control is your fees.
Great read which answered a lot of my questions on the same.
The questions I would ask about Robo-Advisors:
Who is the parent company?
Is their fee structure guaranteed year by year …. or does the small print read – “Fees subject to change without notice.”
Is WealthSimple protected with offshore tax haven accounting?
Is it easy to stop your investment payments and quit without penalty?
Is the investor only responsible for taxation on their personal investments … or if Wealthsimple dumps a large holding due to poor performance or possible lawsuits against the company? In other words, is the investor on the hook for a large tax bill?
Can Wealthsimple be held I thin your taxfree savings account?
Will the investor receive tele-marketing phonecalls/emails pressuring the investor to invest more?
The was very helpful and it did clarify the nature of the Robo Advisors
Great Article! I found my most of the answers. Thanks for sharing it.
Thanks for this informative article.
I have a question that goes to the heart of choosing a specific robo-advisor vs a specific all-in-one ETF recently introduced by BMO, iShares & Vanguard – How often is your portfolio rebalanced?
I have tried to find the answer but find only vague generalities – ” at the discretion of the subadvisor” ; “when your portfolio strays from the agreed asset mix” ; ” when necessary”…
Does anyone know exactly how often per year each of these portfolios / all-in-one ETFS have been rebalanced in the last year?
I am really sick and tired of the lies and conmen in the financial sector. If these companies are allowed to advertise to entice customers the very 1st thing they should be telling us is how much they are going to make us. Where are the annualized returns for each company – once they show us what they can do, then talk about fees.
Enough is enough seriously.
Can Defined Contribution Pension Plans use Robo advisors yet?
What are the returns?
That is what is important
Alex. BC
There are a lot of questions above… but where are the answers? Do questions posted to this site ever get answered? By whom? and Where can we find the answers?
Yet another “review“ of robo advisors. Awesome! Accompanied with links to join, so the writer can get their commission. No mention of performance. So many articles saying Wealthsimple is they “best”, but nothing mentioned about the performance to back that up. No wonder there is so much mistrust in the financial services sector.