With so many “robo-advisors” popping up across Canada over the last several years, it seems like the hot phrase on everyone’s lips is:

What fees are you paying?

If your answer is that you’re still invested in mutual funds, you need to keep reading.

The fact is there are more robo-advisors available in Canada than ever, and they’re reaching a broader age group than anticipated (the average age among customers in Canada is 44). In fact, everyone from millennials to baby boomers are ditching their expensive mutual funds in favour of the low-fee approach.

Now one thing to point out is that these Canadian robo-advisors are actually different than the true robo-advisors in the US and UK. In Canada, this is a blanket term and covers a wide range of options, the one consistent between them though is that all Canadian offerings are managed by a portfolio management team, not a computer algorithm.

But what if you aren’t ready to move your entire nest egg to a company that was only established a few years ago? In Canada, where most banks count their age in decades or centuries, not years, switching to a relatively unknown company may not be appealing – especially when your retirement savings are at stake.

Fortunately, you can still take advantage of the low fee robo-advisor model while sticking with a financial institution that is as well known in Canada as the Blue Jays. In this BMO SmartFolio review, we’ll introduce you to a hybrid robo-advisor that pairs human advisors with low fee exchanged traded funds (ETFs) for the perfect combination of affordable and expert advice.

Why robo advisors?

In the past, we’ve traditionally had two options when it comes to investing for retirement. The first option was to go to your local bank branch and put your money in mutual funds. With this option comes high fees (some of the highest in the world, in fact), and a promise from your financial advisor that they will beat the market (they usually don’t).

While mutual funds were (and still are) an expensive option, the alternatives generally weren’t appealing to the average investor. If you chose not to go the mutual fund route, your next option was the do it yourself approach, where you made your own investment decisions with no guidance and executed all trades yourself through a discount brokerage account. A cheaper solution, but one that took much more time, effort, and expertise.

Since very few Canadians will ever be comfortable manually investing their own money, it’s understandable that we collectively have $1.3 trillion invested in mutual funds. It wasn’t a perfect system, but it was far more accessible than the straight DIY approach.

Fortunately, we now have a third option in robo-advisors. Instead of the all-or-nothing approach, robo-advisors offer investors the opportunity to have professionals manage their investments while lowering annual fees and thus improving their bottom line. This is what BMO SmartFolio offers and we’re going to review the specifics of this product below. But first, let’s learn a little about the company itself, BMO & BMO Nesbitt Burns.

About BMO

If you are looking for a financial institution with a long track record of success, you can’t do much better than BMO. Established in 1817, BMO serves more than 12 million personal, commercial, institutional and corporate customers. BMO offers a wide range of personal banking services from mortgages, credit cards, loans, insurance, and investment products. Mutual funds have been part of the BMO product list for decades and they were an early mover in the ETF space, but their newest product, the BMO SmartFolio shows their willingness to innovate and offer customers exactly what they’ve been looking for: An ETF-based investment option, managed by a portfolio management team of one of the big banks.

BMO SmartFolio overview

BMO SmartFolio is an online portfolio management service that is perfect for clients looking for a low-fee investment solution, but who aren’t ready to do it themselves or entrust their life savings to one of the upstart robo-advisors. BMO SmartFolio has a team of 17 professionals who have a combined experienced in the financial industry of over 300 years. On the team are five accredited Portfolio Managers and eight Chartered Professional Analysts.

When you invest your money in BMO SmartFolio, your money is covered by the Canada Investor Protection Fund (CIPF) which insures clients up to $1,000,000 if the investment arm of BMO, BMO Nesbitt Burns, becomes insolvent. BMO Nesbitt Burns is also a member of the Investment Regulatory Organization of Canada (IIROC).

Why ETF portfolios?

Like most robo-advisors in Canada, BMO SmartFolio uses ETFs to build your portfolio. ETFs are investment funds that represent a basket of stocks, bonds, or other investments. Unlike conventional mutual funds, ETFs are traded on a stock exchange and usually track a market index.

ETFs are popular because they allow you to diversify your investments while simultaneously reducing your trading costs. With ETFs, you can purchase an entire index of stocks or bonds with a single click, resulting in lower fees. ETFs are highly liquid, meaning they are easy to buy and sell, and they are extremely transparent. Unlike mutual funds which must update their holdings each quarter, ETFs must update their holdings daily, so you always know what you are invested in at any given moment.

You can purchase ETFs yourself through a discount brokerage like BMO InvestorLine, or BMO SmartFolio can do it for you. The portfolio managers behind BMO SmartFolio use ETFs to offer you diversified investments with comparatively low fees.

In addition to others, BMO SmartFolio uses the following ETFs in various weightings to build your portfolio:

• ZAG BMO Aggregate Bond Index ETF
• ZCM BMO Mid Corporate Bond Index ETF
• ZCN BMO S&P/TSX Capped Composite Index ETF
• ZCS BMO Short Corporate Bond Index ETF
• ZEA BMO MSCI EAFE Index ETF
• ZEM BMO MSCI Emerging Markets Equity Index ETF
• ZFL BMO Long Federal Bond Index ETF
• ZGI BMO Global Infrastructure Index ETF
• ZHY BMO High Yield US Corporate Bond Hedged to CAD Index ETF
• ZLB BMO Low Volatility Canadian Equity ETF
• ZLU BMO Low Volatility US Equity ETF
• ZMP BMO Mid Provincial Bond Index ETF
• ZMU BMO Mid-Term US IG Corporate Bond Hedged to CAD Index ETF
• ZSP BMO S&P 500 INDEX ETF
• ZUE BMO S&P 500 Hedged to CAD Index ETF
• ZUQ BMO MSCI USA High Quality Index ETF HIGH QUALITY INDEX CAD UNITS ETF

Matching you with a SmartFolio portfolio

Not every investor has the same goals or timeline, and your unique financial situation largely determines the weightings of the ETFs mentioned above. To determine how to invest your money, BMO SmartFolio requires you to complete an online questionnaire that asks you about your current assets, what you plan to use your investments for, when you need the money, and your risk tolerance.

After you complete the questionnaire, BMO SmartFolio matches you with one of five model ETF portfolios below:

• Capital Preservation: Equities 10%, Fixed Income: 90%
• Income: Equities 30%, Fixed Income: 70%
• Balanced: Equities 50%, Fixed Income: 50%
• Long Term Growth: Equities 70%, Fixed Income: 30%
• Equity Growth: Equities 90%, Fixed Income: 10%

While the questionnaire automatically matches you with one of these five options, a registered representative from BMO SmartFolio reviews every single application to make sure you are matched with the right portfolio for your needs. If you have any questions, you can talk to a real person either over the phone, via email, or online via instant chat. You can find more detail and historical data for the model portfolios on the ETF Portfolios Page.

Opening a BMO SmartFolio account

Opening a BMO SmartFolio account is simple to do online. You’ll need to provide basic information and answer a few questions about your assets and risk tolerance. You must be a Canadian resident and the age of majority in Canada. The minimum account size is $1,000, which may deter new investors but is manageable for most investors. Click here to use my custom promo link and get your first $15,000 managed for free for one year with promo code RHSF!

Once your account is open, you can transfer cash into your account via cheque, direct deposit as a BMO account older, or as a bill-pay from any financial institution in Canada. These transfers take between 3-5 business days before you’ll see your money in your account. If at any time you’d rather speak to a human during this process, BMO SmartFolio’s dedicated advisors are available by phone or live chat

BMO SmartFolio fees

No BMO SmartFolio review would be complete without discussing fees.

Like most investment products, BMO SmartFolio fees are charged as a percentage of your account balance. I’ll be upfront here – BMO SmartFolio does not charge the lowest fees of all the robo-advisors. That said, if you are coming from a mutual fund where the average annual fees are in the range of 2.35%, you’ll be pleasantly surprised. Here is the fee structure for the BMO SmartFolio:

• First $100,000, annual fee of 0.70%
• Next $150,000, annual fee of 0.60%
• Next $250,000, annual fee of 0.50%
• Above $500,000, annual fee of 0.40%

Lowering your annual fees is no doubt why you are considering switching to BMO SmartFolio in the first place, but let me reiterate that lower account fees mean bigger net balances when it’s time to use your money. In fact, the difference of a few percentage points can cost you thousands of dollars over your investing lifetime. So, if you’re considering BMO SmartFolio as an alternative to your mutual fund (and its higher fees), it’s not a question of if you should switch – it’s when.

To help you further reduce your fees, SmartFolio allows you to group household accounts. It’s also important to note that these fees do not include the management expense ratios (MERs) of the ETFs themselves, which can range between 0.20% and 0.35% on top of the fees listed above.

Finally, there are no extra fees to rebalance your portfolio, which is done by portfolio managers that are continuously reviewing and rebalancing on your behalf.

Types of BMO SmartFolio accounts

Like other investment options with BMO, you can invest your money in a wide variety of both registered and non-registered accounts:

• Investment Accounts
• Joint investment accounts
• Registered Retirement Income Funds (RRIFs)
• Registered Retirement Savings Plans (RRSP)
• Registered Education Savings Plans (RESP)
• Spousal Registered Retirement Income Fund (RRIF)
• Spousal Registered Retirement Savings Plans (RRSP)
• Tax-Free Savings Accounts (TFSA)

BMO SmartFolio user experience

Like most online user experiences, the BMO SmartFolio website is optimized for transparency online. As a client, you’re assigned a user ID which will allow you to log into your account and track the performance of your investments. There are a variety of graphs and displays that show you whether your account is increasing or decreasing both in dollars and as a percentage of the dollars invested. You can also track the growth of your portfolio over time, and your statements and tax documents are delivered electronically.

BMO SmartFolio review: The final word

While BMO SmartFolio does not offer the lowest fees of the available robo-advisors, it has something that its competitors do not – a strong name and hundreds of years of experience in the banking industry. This long track record makes BMO SmartFolio a great option for investors looking to lower their fees while still having expert investment management. That’s why this BMO SmartFolio review is a positive one because it makes robo-advisors accessible to even the most conservative investor.