Do you want an easy, user-friendly way to sock money away in an RRSP or TFSA without having to learn “a bunch of investing stuff”? Perhaps you’re looking for a financial service that matches your lifestyle and allows you to get advice online without having to wait at a bank or sit on a phone for hours? Maybe you’re familiar with low-fee DIY index investing (aka couch potato investing) and are just looking for the quickest, simplest way to put this into practice? The bottom line is that if you have any interest in investing for the future, you should take a serious look at what Canada’s robo advisors (aka “robos”) have to offer. This is especially true if you are comfortable with technology and want a financial solution that is easy to access and will take less than ten minutes a month to implement. Before I get to the ins and outs of just what a robo advisor is and compare some of the available options to find the top Canadian robo advisor, I should point out that the incredible growth that these new companies have seen over the past few years hasn’t happened by accident. I think that robo advisors are an excellent alternative to traditional ways of managing money and that they specifically represent a superb value for the vast majority of Canadian millennials (and are better regulated than traditional financial advisors!).
If you stay tuned until the end of the article, we have some juicy offers that are ONLY for Young and Thrifty readers – who want to simplify their investing life by using robo advisors!
*Use our Table of Contents below to jump to a specific section, simply scroll down to read the article in its entirety.*
Intro and Guide
- What the Heck is a Robo Advisor?
- Online Financial Advice and Automatic Investment Strategies – A Rose by Any Other Name?
- What Can They Do for You?
- But Just How Safe Are We Talking Here?
- What Is This Robot Investing My Money In?
- Why Are Robo Advisors Such a Good Deal?
- If Robo Advisors Are Such a Great Deal, Why Do You Still DIY?
- Is DIY or a Robo a Better Fit for You?
- American Robo Advisors: Wealthfront and Betterment
Finding the Best Robo Advisor Company
Intro: What the Heck is a Robo Advisor?
I feel for the folks that have started up these low-fee online financial management businesses. In case you haven’t got the picture yet, I love what they’re doing and what they’re offering. Unfortunately, in an investing world full of BS lingo, harmful myths, and ridiculous marketing efforts, my real fear is that people will recoil at this misleading name that has been slapped on them before understanding what a great deal they can be.
“Robo Advisor” sounds like an ATM that robotically rasps some generic finance-related stuff in a Siri-esque way before taking a bunch of your money.
Or maybe it evokes images of R2D2 spitting out a bunch of numbers – numbers that won’t mean anything to you and that will likely give you a headache.
Plus, I guarantee your full-service financial advisor (or “friend with your best interests at heart” as they likely refer to themselves) will tell anyone who will listen that robo advisors are nothing but heartless automatons that won’t give you any personalized help such as the wonderful advice that they provide. (They’re full of it, but more on that later.)
Money is an inherently emotional topic, and consequently no one wants to think of their hard earned savings being managed by a robot! I get it. I really do.
Online Financial Advice and Automatic Investment Strategies – A Rose by Any Other Name?
Here’s the thing – robo advisors AREN’T ROBOTS. In fact, they’re not even close. Here’s where the name comes from and what the reality is:
- The “robo” in robo advisor refers to the fact that there is no human being that will be stock picking your investment portfolio. I cannot emphasize enough that this is a very good thing. Human beings are terrible at picking stocks and other investable assets. Professional money managers are almost as bad as everyone else is at choosing when to invest money and what to invest it in. I know this sounds insane, but there are dozens of academic studies that prove this fact conclusively. Please do your own research if you don’t believe me – or for now, accept that not having a human being pick stocks on your behalf will be a great advantage to you.
- Robo advisors are operated by humans. You will communicate with humans. You will email with humans. You will talk on the phone or via Skype with real live humans if you so choose. You probably won’t meet with people face-to-face very often – but who has time for that these days anyway?
- No one would choose to work with robo advisors if they were impersonal and/or robotic in any way. People simply care about their money too much. Robo advisors are managing hundreds of millions of dollars in Canada alone, and billions worldwide. People trust these guys.
- Canada’s robo advisors are subject to some pretty serious regulations. From all the research I’ve done, all of the major players are just as safe to use as any of Canada’s other financial institutions.
I think it’s worth repeating at this point that robo advisors are NOT ROBOTS and that if you have any problems or want to talk to a person, every major player gives you multiple ways to do that. The Canadian Government is well aware of the online investment/advice model and it is well regulated. So, while the name might sound a bit scary, please do your best not to let that dissuade you.
What Can They Do for You?
In short, Robo Advisors can give you a basic plan, help answer many – if not all – of your questions when it comes to investing your money, and then provide you with a super easy way to turn part of your paycheque into a pretty good investing portfolio.
That sounds simple – but it’s a pretty big deal.
It’s a big deal because most Canadians understand that they should be saving and investing for the future, but they are intimidated by all of the confusing language, the time & energy involved in setting up accounts, and managing the logistics of actually handling their own investment portfolio. As a consequence of this intimidation, the answer provided by the money managers and investment companies since time immemorial was to hand over your investment dollars to someone in a suit. They would hold your hand, tell you it would all be ok, and that only they could help you navigate the choppy waters full of financial acronyms and graphs that only a physics Ph.D could appreciate. In return for this combination of advice and “expertise” you would be charged nothing. That’s right – it was free – at the point of delivery anyway. All you would eventually pay is a measly 2-3% of your investments, but that was all numbers stuff – and you got it right? It was basically pretty easy to understand right? If you didn’t get it and asked questions about it you were kind of weird and maybe not very smart right?
I wish I were exaggerating with my dripping sarcasm, but unfortunately this was the option that the majority of Canadians chose for a long time – and still continue to choose actually. However, help is on the way. Robo advisors won’t do absolutely everything for you that a full service financial planner will – but they will do most of it – and do it for much cheaper.
Here’s the real takeaway for the majority of our young (ish?) readers: Robo advisors will provide 98% of the information you need to get started with investing and building a nest egg. If you need more advice than they are able to provide you can read this website, read a book, or hire a professional such as a fee-only planner or a lawyer to help you fill in the specialized blanks on stuff like wills, insurance, leaving children an inheritance, or some of the other niche financial needs.
We’ll talk more about the actual investment portfolios offered in just a second, but here’s a quick rundown of what all of the major robo advisors offer:
- Much better investing options than mutual funds!
- “Light advice” that can vary from company to company. In my opinion, if you care enough to be reading a financial blog, then “light advice” will work just fine for you.
- The most easy-to-use way to invest your money that I’ve seen.
- Very straightforward methods to get your money from your paycheque, and into investments that are right for you. Less time & less stress = easier to stick with.
- Visually appealing websites that make life simple on a computer, tablet, or smartphone.
- A safe and secure way to invest and grow your money for the long term.
But Just How Safe Are We Talking Here?
Are robo advisors safe in the same way your Uncle Don had a “super safe” investment in an Alpaca farm a few years ago? (You’re still getting your shareholder payments in sheared wool each year right?)
No – they are as safe as pretty much any other bank or investment firm out there.
Here’s why I feel comfortable saying that:
- All robo advisors are a bit like storefronts. The “warehouse” or “back office” is a third party that is a member of the Canadian Investor Protection Fund (CIPF). If you’re not sure what the CIPF is, here is what their website has to say: “Investment dealer insolvency doesn’t happen very often. In fact, since CPIF’s inception in 1969 there have been only 20 Member insolvencies. CIPF has paid claims and/or related expenses of $43 million, net of recoveries, and no eligible customers have suffered a loss of property.
- Even if the worst case scenario were to occur and bankruptcy ensued, robos’ clients’ money is kept separately from the companies’ own balance sheet. Even before it got to that point however, it is likely another of Canada’s robo advisors or major financial entities would buy a distressed robo company just to get their client accounts – thus moving your money to a new company or “storefront” but ultimately not losing a penny.
- All the robos that I looked into are very transparent and specific on their websites when it comes to addressing precisely where your money is held and why you are protected as a Canadian consumer. They are also very transparent about ownership and management (for example view this Wealthsimple review we created).
- The robo advisor model has been used around the world for several years now. For example, the American robo Betterment has been around since 2008, and now has over $3 billion in assets under management. These guys are going to be around for the long haul, and they are NOT “still working the kinks out”. These models are tested and refined – and will continue to get better.
- If a robo advisor were to be bought out or go bankrupt your assets would be just fine from everything I’ve read.
- Robo investing platforms have a fiduciary duty, more than their traditional counterparts.
What Is This Robot Investing My Money In?
#1 There is no robot investing your money.
#2 There is a pre-agreed upon way to invest your money that you will choose and then a person, in tandem with a computer will carry out on your behalf.
Basically, all robo advisors have done is take the couch potato investing theories that geeky personal finance bloggers like yours truly have been raving about for years – and make them much easier to invest in. Naturally, they won’t offer this service for free, so there is a relatively small fee attached.
Each robo advisor will offer this service a bit differently and charge a slightly different price in order to do it (more on that in a second), but at their root, each robo seeks to take your investment dollars, learn about your goals, and then recommend a basic index-ETF portfolio that each of your investment dollars will be split into going forward. If you’re thinking to yourself that this sounds a lot like our Free eBook on ETF Investing, or Dan Bortolotti’s (aka the Canadian Couch Potato) model portfolios, then you would be correct. Neither Dan nor myself invented this stuff – we (along with many other financial bloggers) just sought to simplify theories put forward by super smart people like Eugene Fama, Harry Markowitz, and John Bogle. All those three did was win Nobel Prizes and create one of the world’s largest financial management empires respectively. Robo advisors will put your money in a portfolio that is very similar to (if not exactly) what I would recommend. This approach will help you outperform at least 90% of Canadian investors that seek to invest through mutual funds and/or picking their own stocks. Depending on what study you read, you might even outperform up to 98% of these investors over the long haul (read the free eBook for more on this).
Each of the major robo advisors will make sure that some of your money is put into Canadian stock market ETFs, International stock market ETFs, and more conservative investments such as bonds and GICs. Each will do this in a slightly unique way, but without getting too nerdy on the details, what you really need to know is that there is a ton of proof, science, and simplicity behind the financial management strategies that will be applied to your money. For what it’s worth, I endorse this approach wholeheartedly, and I have yet to find a Canadian financial blogger who doesn’t.
We wrote a few article comparing Canadian robo advisors to leading funds:
- Steadyhand and Mawer Mutual Funds vs Robo Advisors
- TD eSeries Funds vs Robo Advisors
- Tangerine Investment Funds vs Robo Advisors
Why Are Robo Advisors Such a Good Deal?
When compared to the way most Canadians still choose to manage their money, robo advisors are a fantastic deal. What it really comes down to is how much of your investments are you willing to sacrifice each year in return for financial advice and help getting money from your paycheque and into an investing portfolio? Each robo advisor has their own way of charging for their services. Some charge a flat rate, while others charge a certain percentage, and a couple charge a combination of the two. What all of the robos have in common is that they are simply a much cheaper way to invest than the traditional bank mutual funds. The larger your nest egg grows the more true this is.
If only someone had a super handy calculator that would not only allow you to compare the cost of investing with each different robo advisor, but also compared the fees involved to that of traditional bank mutual funds – oh wait there is! Thanks to Sandi Martin from Spring Personal Finance and John Robertson from The Value of Simple, we have a brilliant tool that should allow you to easily see which companies offer you the lowest prices for your specific circumstance (which is not the same as the best company for you, but might go a long way to helping you decide). It is available here.
Also, while the differences on this calculator are substantial, keep in mind that those differences will be compounding over time. The calculator shows after 10 years, but plug those numbers into any basic compound interest calculator for 25-30 years, and the difference between the robos and major banks become absolutely massive (six figures for most long-term retirement investors).
Screen Shots from AutoInvest.ca Calculator:
Obviously the best robo advisors are able to save significant costs relative to their traditional bank counterparts because they don’t have the brick and mortar overhead, number of employees, or the dividend-hungry shareholders that the big banks do. They can then pass these savings onto consumers. One variable that our calculator/tool does not take into account is that these passively-managed robo advisor portfolios are quite likely to have higher overall returns relative to bank mutual funds due to their couch potato/index fund algorithm – and that’s in addition to the lower fees.
I personally believe that both younger and older Canadians who are comfortable in an online-only environment will find the robo advisor platforms much easier to interact with than those of the big banks and investment companies. That is their sole purpose after all. I cannot emphasize enough how intuitive and aesthetically pleasing the leading top robo advisors are. This being said, I think it’s likely that big banks will soon follow BMO’s lead and put forward their own robo advising options that copy the best parts of what’s out there (or buy out some of the current leaders).
Overall, because I actually prefer the flexibility of working with an online platform as opposed to face-to-face talks, I would actually pay more for an online-only model. The fact that my money is invested much more effectively than using big-bank mutual fund fees, and I see a major cut on fees, means that this isn’t even a close comparison for me.
If Robo Advisors Are Such a Great Deal, Why Do You Still DIY?
After raving about what a good deal robo advisors are, you might do a double take when I say that I don’t plan on using them. I will still continue to invest using the Do It Yourself couch potato method that we explain in our free eBook.
That being said, I have now started recommending the robo advisor route for 80% or so of my friends.
Why is it good enough for my friends but not for me? It’s all a matter of value and eliminating obstacles that get in the way of consistently turning part of your bi-weekly or monthly cheque into an investment portfolio.
Anyone can build the exact same investing portfolio for themselves that they can get through a robo advisor – most of the robos even go so far as to show you the exact portfolio options available on their website or during the first consultation you have with them! There is very little that is new or original when it comes to the investing side of the robo advisor operation. One thing that I really admire about all of the major robo advisors in Canada is that they have been entirely up front with me in admitting that you can implement a DIY index ETF portfolio for significantly cheaper than what it will cost you through them. Personally, I feel very comfortable setting up my own online discount brokerage account and managing my portfolio (and it looks pretty much identical to the ones that would be recommended to me through the robo advising services). That being said, I’m kind of a nerd and not exactly the target audience for these companies.
So, to recap so far, DIY index investing is definitely cheaper than using a robo advisor. I still maintain that I don’t think it is overly difficult to DIY using a basic portfolio of index ETFs. I would compare the overall difficulty level to grade 9/10 math.
Is DIY or a Robo a Better Fit for You?
Ultimately, how I choose to manage my investments probably doesn’t matter much to you – what should matter is which options will get you the best results going forward. Here’s a few quick questions to help you decide how to invest your money (assuming you have come to the same conclusions that I have and determined stock picking is probably a terrible idea, and mutual funds are close behind).
1) Do you want to do your own Gr.9/10 math? Please don’t answer this question based on pride. Seriously ask yourself if you want to make this commitment 4-12 times a year when you rebalance your investing portfolio. If you don’t, then go with a robo. (I’m fine with Gr. 9/10 math, but don’t ask me to do elementary-level lessons in learning any foreign language.)
2) Do you want to do a few hours of reading and paperwork in order to fully understand index investing and how to implement it? If you don’t, then go with a robo.
3) If a strategy is easier for you, will it make a large difference in how successfully you implement and stick with it? Think about going to the gym. If your gym was 15 minutes closer to your house, would you be slightly more likely or much more likely to use it? If convenience and ease of use are major factors for you, then go with a robo.
4) If you’re just not super confident when it comes to investing terms such as ETF, RRSP, TFSA, etc., and think it would be really nice to have someone to email or chat online with from time to time, then go with a robo.
Each of these four questions might seem sort of “small potatoes” to you, but truthfully, they’re not. Making investing easier is worth A LOT of value to the majority of Canadians. Sure, it will probably cost you somewhere around .5%-.7% of your portfolio annually, but if it makes the difference between you investing $5,000, and not getting started at all, that is a very minor concern. Plus, don’t forget that you’re still way ahead of traditional financial advice/investing models.
If there’s one thing I’ve found out since I started writing a personal finance blog it’s that people can be really mean in internet comment sections. Our goals it to give the best advice on this matter and showcase and compare the best robo advisors, nothing more, nothing less.
If there’s a second reality I’ve learned, it’s that most young Canadians I interact with don’t really want to manage their own investments. They want to “set it and forget it” and then re-visit the idea again a few years before they retire. This is why workplace pensions are so sought after. I’ve also noticed that many Canadians get a burst of energy, read a bunch of stuff, and then fail to follow through and execute the investing strategy they’ve read so much about. Or they get bogged down in stuff like specific ETF choices and then they start thinking that maybe picking a few a stocks isn’t such a bad idea, etc. For this majority of Canadians, the robo advisor model is a godsend and will probably make a really significant difference in people’s lives (like retiring or reaching financial independence years sooner-type-of difference).
Comparing Canada’s Best Robo Advisors
- Wealthsimple Review – Most Recommended, Best Canada Robo Advisor 2018
- BMO SmartFolio Review – 1st Major Canadian Bank Robo Advisor
- RBC InvestEase Review
- Nest Wealth Review
- Questrade IQ Trade Review
- Justwealth Review
- ModernAdvisor Review – Lowest Fee Robo Advisor 2018
- WealthBar Review
- Invisor Review
- Responsive Review
- Smart Money Capital Management Review
Robo Investing Comparison:
Also, please consider the automated calculator that enables you to view a detailed prediction of fees and expected value based on your individual details, and suggest which is the best Robo for your needs:
Mini Robo Reviews
Asking Robo Investing Companies to Highlight Advantages
Here’s how our major contenders stacked up on our search for the best robo advisor when I asked them what made their respective offering different from their competitors’:
WealthSimple’s Mallory Greene:
- Over 10,000 clients & $2B assets under management = largest in Canada.
- $32 million in funding (including a massive investment from mega financial titan Power Financial) allow consumers to confidently trust WealthSimple.
- See our Wealthsimple Black Review for details on the perks and rewards you can get with Wealthsimple's premium program.
- Only mobile app in Canada that allows you to sign up for an investment account.
- Fractional Shares: Allows us to invest smaller account balances. We have no account minimum.
- Acquired our own broker: ShareOwner – Only automated investing service that controls the end to end investment experience for clients, from trade execution and custody to portfolio construction and advice, enabling future innovation across every element of investing.
- Advice: Human assisted. Advisors come from full service broker world managing high net worth clients. No commissions.
- 35 employees, 15 are full-time developers building technology.
- Everything is automated – from rebalancing to dividend reinvestment, even tax efficiency.
- We offer advice – our clients can reach out to their dedicated Wealth Concierge team at any time to discuss their financial goals and objectives. We’re happy to speak to them over the phone, text, email or Skype – whatever is most convenient for them.
- Socially Responsible Investment (SRI) portfolios invest in companies that do business in a way that meets a certain threshold of social responsibility. We designed an SRI portfolio using ETFs that prioritize low carbon emissions, advance clean-tech innovation, and promote sustainable growth in emerging markets.
Nest Wealth’s Randy Cass:
- [We are the] only platform to charge a flat subscription price regardless of assets invested. We believe that it no longer makes sense to charge a cut to do the same job at $1,000,000 that we were doing at $150,000.
- Our CEO has been managing portfolios for 15 years. Almost everybody in our company has been involved in this industry before. At our core, we are a financial services company using technology to provide a better product and experience to our clients. Others tend to look at themselves as technology companies that happen to be in financial services.
- We are the only robo-advisor that has made the deliberate choice to keep all our clients’ money under the umbrella of a large Canadian Bank… this gives them peace of mind when they fall asleep at night.
- We are the only robo-advisor that creates a customized portfolio for each client. No pre-packaged portfolios or placing people in buckets that are the ‘closest’ match. Every individual should have a portfolio that reflects their risk, goals and financial situation.
- We only use the best blue chip ETFs with the lowest fees. We are the purest play on the Efficient Market Theory. We have no affiliation with big fund companies and don’t use ETF products of those that have direct or indirect equity ownership in our company. We are Canada’s largest independent digital wealth management solution. Low fees are only part of the best solution. The other part is making sure the portfolio is constructed using the best ETFs in the best combination. We have complete independence, pick our ETFs and build our portfolios using only objective data.
WealthBar’s Tea Nicola
- Believe that we are the most focused on financial planning as opposed to investing only. The issue that we’re trying to address is that investing and building a diversified portfolio is only 1/2 of the battle of good money management. The other half of the battle is a very human element of coaching, planning, and advice.
- WealthBar is working hard to address the other half of the equation by offering that dedicated financial advisor to work with each client. This is what differentiates WealthBar from the other robo-advisors: We’re one of the only robo-advisors in North America that puts a financial advisor at the center of our relationship with our clients – and it’s at no additional cost.
- Our financial advisors are there to help clients create a financial plan, help them choose the right accounts, investments, deal with major life situations, tax optimizations, or even just chat about how horrible the Canucks are doing in the playoffs. Each client gets a dedicated advisor that’s there to help you make the right financial decisions and ensure you have a plan that actually leads to your goals. The value that advisor provides can help our clients save thousands in taxes…
- There’s another key differentiator, which is access to our private investment pools. If I can say so myself, I love them. Before the days of WealthBar, these were only reserved for high net worth investors with greater than $1M – we offer these to anyone with more than $10,000. They contain asset classes you can’t get publically such as private equity and hard asset real estate. The result is that it’s significantly less volatile, without sacrificing too much in growth. They grew nearly 8% last year, and even in January, one of the worst months since 2008/2009, it was only down -1.4% while market was down significantly more. The expense ratio on this is a bit higher, but well worth it for anyone who wants extra protection from volatility – I’m personally 100% in on the NWM core portfolio.
ModernAdvisor’s Navid Boostani
- Their Springboard program allows users to demo online investing and learn how it works, using ModernAdvisor’s own funds first. Each Springboard account starts off with $1,000 and over three months, you experience in real-time how the funds would perform if invested at your risk preferences and investment goals.
- ModernAdvisor is the newest entrant to the robo advisor industry. They offer the most competitive fees for portfolios sizes of at least $100,000 at 0.4%.
- ModernAdvisor offers socially responsible investing to users at the same low fee as conventional investing. About 75 to 95% percent of your portfolio can be eligible for responsible investing.
- ModernAdvisor will tell you what hidden fees you be paying on your current mutual funds investments, using their Fee Analyzer tool.
- Based on your risk appetite and initial investment amount, ModernAdvisor generates a graph showing a projection of how much you would save by investing with them instead of with mutual funds.
By combining the familiarity of a major Canadian bank with the cost-conscious nature typical of robo advisor options, BMO Nesbitt Burns has produced a very competitive final product. While not the cheapest of the online investing options that have recently entered the Canadian marketplace, the folks behind SmartFolio believe that their slightly higher fees are justified by the value provided by their active management strategies and elite customer service. See our full BMO SmartFolio Review.
SmartFolio is an excellent alternative to relatively expensive mutual fund-based options, and the sometimes intimidating DIY discount brokerage route. It is a great offering to compare against Canada’s robo advisor platforms and offers the ultra-safe brand of banking that only 200+ years in the Canadian market can provide.
Click here and use promo code YTSF to get your first $15,000 managed with BMO for free for one year when and open a SmartFolio account today. Before investing any of your money BMO will ask you a few questions to identify your risk tolerance and investment objectives.
Nest Wealth, WealthSimple, and WealthBar aren’t the only robo advisors out there, but from what I can tell, they control the vast majority of the robo market in Canada. This isn’t to say that the others aren’t worth a look. The other robos in Canada include:
- Questrade’s Portfolio IQ
Then there are some “almost robos” that offer certain products and services in common with robo advisors, but are substantially different in one way or another. For example, Tangerine offers “turn-key portfolios” that are another relatively simple way to put your money in a diversified portfolio – but I just personally don’t find them competitive with what the leading robo advisors are now putting out there.
Shareowner is another place that specializes in low-cost investing (*note: ShareOwner is owned by WealthSimple) but doesn’t offer the same advising services as the three market leaders that we focused on.
Overall Thoughts and Recommendation
Robo Advisors are really the perfect value proposition for people that don’t want to pay ridiculous fees and percentages for basic financial advice (*cough big banks and large investing companies in Canada *cough) but are intimidated by venturing out completely on their own to build a DIY couch potato portfolio. With new investment regulations such as Canada’s “CRM2” coming into play, and the idea of investor fees getting more and more air time, I think the leading robos are in a great position to benefit as investors (especially young investors who prefer to interact online) become educated on just how much they can save by going with this “light advice” route.
I know that this is a complete fence-sitting cop out, but rather than recommend any single one of these robo advisors to ALL Canadian investors, I’d rather focus on the fact that all of them are a great deal relative to the traditional options out there. If you’re still confused as to what a “traditional option” is, think of pretty much any financial institution that spends gazillions of dollars on buying naming rights to stadiums and arenas, or has multiple strip mall locations.
Truthfully, I don’t think you can really go wrong with any of the best, market-leading, Canadian Robos. In order to make a final selection, I’d look at their websites and platforms, and after narrowing down the list, talk to several of them and get a feel for which one will work best for you. Ultimately what it REALLY boils down to is which of these services will make you the most likely to save and invest more of your paycheque? Which one of the robos really inspires you to go to their website or app and use it because it just makes sense to you? Whichever robo grabs you in this way is probably the one that will give you the best results when you come to retirement in 20-40 years. They each offer unique bells and whistles, but at the end of the day it’s all about knowing yourself and making it as easy as possible for you to meet your specific goals.
I still prefer DIY index investing in a vacuum – but it’s vitally important to remember that you aren’t in a vacuum. You are you, and chances are that if you’re an “average middle-class Canadian” you have a lot on your mind, and aren’t really sure you want to jump into the DIY stream. That’s perfectly fine – Canada’s robo advisors are your next best bet.
FREE Offers Exclusive to Young and Thrifty Readers!
We’re kind of a big deal – or at least that’s what we told those robo advisor guys. So if you want to see what Canada’s robo advisors have to offer – For FREE – then check out these great deals:
1) WealthSimple will let you manage $10,000 for free if you simply click here and decide to open an account with them.
2) Nest Wealth is offering to let you try their service for free for three months. Simply click here to see what Canada’s 2nd biggest robo advisor has to offer – for $0!
3) WealthBar will happily allow Young and Thrifty readers to manage $20K for free for a full year, to anyone who mentions to their advisor that they signed up after reading this article and uses this link.
4) Finally, click here to open an account at ModernAdvisor and instantly get $50,000 managed for free – for a full year – simply because you’re a loyal Young and Thrifty reader.
5) JustWealth has also recently signed up to give Young and Thrifty readers a juicy bonus. When you click here and give them a try they’ll toss in up to $500 in cold hard cash directly into your account!
6) BMO SmartFolio is offering Young and Thrifty readers $15,000 managed for free – just click here to take advantage.
With these guys willing to allow you to try their services for free, what do you have to lose?
American Robo Advisors: Wealthfront and Betterment
If you arrived here looking to see if you could invest in Betterment or Wealthfront as a Canadian citizen or resident, the answer is: probably not.
Unfortunately, these two pioneering robo advisors are only available to USA residents at this time. This means that Wealthfront and Betterment cannot be used to open an TFSA, RRSP, or RESP.
If you’re like me and first heard about robo advisors through US media (I remember Betterment ads from years ago on podcasts like Freakonomics and Planet Money) then you will also be disappointed. I’ve met with Betterment representative a couple times over the years to gauge their interest in coming to Canada, and while they seemed quite interested a few years ago, the emergence of Wealthsimple (now expanding to the USA and UK) and several other worthy competitors that we’ve mentioned in this article makes it unlikely they’d be willing to go through all of the regulatory burdens only to face several regional companies with shops already set up.
It’s too bad from a consumer’s point of view because these robo advisor giants would no doubt raise the competition bar throughout the industry and work to keep costs as low as possible. On the other hand, perhaps there is something to be said for “Made in Canada” solutions.
If you have any questions about Canada’s robo advisors, toss them in a comment below, or email them to us, and we’ll answer them right here. If any new robo-advisor shakes up the Canadian market, or there is a major shift in the robo scene, we’ll let you know about it.
August 2016 Update
Robos have continued to gain steam with both investors and the media with the aforementioned CRM2 beginning to kick in. I have yet to read an article that argues that Canada’s Robo Advisors have any real issue with safety or concerns about anyone losing money.
As far as I know, all of the Robo Advisors we list in our article continue to honour Young and Thrifty-specific bonuses for our readers. There is still time to try these services for free if you simply mention that Young and Thrifty sent you. In addition to those freebies, read on below for a great offer on behalf of new Canadian Robo Justwealth. Finally Questrade wanted to get in on the action with their Portfolio IQ product and if you open an account by clicking here, Questrade will offer you your first month managed for FREE.
One cool new trend that I heard about on Preet Banerjee’s Mostly Money, Mostly Canadian podcast (check it out if you haven’t already) is that many fee-only advisors are using the robos’ service as the investment management aspect of their value proposition to clients. Basically what this means is that people are finally starting to realize that all of this ridiculous propaganda that mutual fund pushers have been throwing out there for decades is ridiculous, and that ethical advisors are now trying to make a much better argument.
Essentially, they’re saying, “Look, our value isn’t in picking a hot stock or fund – we know that this passive investing strategy (aka couch potato investing) is scientifically proven to be the best long-term strategy for a relatively small-scale investor like yourself. Instead of talking about that, we’re going to set up a really simple contribution system for you and leave it alone. Then we’re going to put all our energy into other good stuff like tax management, insurance coverage, wills, and other financial matters that have often been ignored because people were so focused on investments.”
I hope this trend continues, as it would really diversify current financial advice offerings, and allow people to really choose the model that best fits their needs.
One new market entrant took the time to chat with us with is named Justwealth. (As far as I know, you don’t actually have to have “wealth” in your name to join the robo advisor club, but then again I don’t know the secret handshake either so…)
Click Here in order to snag Justwealth’s exclusive offer to Young and Thrifty readers of a $50 deposit straight into their account!
Here’s what Chief Investment Officer James Gauthier had to say about his company’s offerings:
- Justwealth has vast experience in the area of personal wealth management. Our investment professionals have previously managed tens of billions of dollars for large financial institutions on behalf of Canadian retail and high net worth investors.
- Justwealth offers more portfolios (61) than any other online Portfolio Manager by a wide margin. This ensures that we have a portfolio that is perfectly aligned with an investor’s investment objective – we don’t try to put square pegs in round holes! We also use more ETFs (29) and ETF providers (7) than any other online Portfolio Manager.
- We are able to manage all account types and have portfolios and investment strategies designed specifically for investors with non-registered (taxable) accounts.
- We offer our innovative Education Target Date Portfolios for RESP accounts, and are the only Portfolio Manager in Canada (online or traditional) with an investment solution that “matures” in the exact year that a child begins post-secondary education.
- Every client of Justwealth receives their own Personal Portfolio Manager who takes the time to fully understand the investment needs of their clients and services them on an ongoing basis. We make financial planning and investment counselling available to every client.
- We treat clients the same way that we would wish to be treated ourselves: Justly! We do not receive any forms of commissions, kickbacks or trailer fees. We do not have any arrangements or give preferential treatment to any ETF providers. We will not attempt to sell our clients insurance or accept any referral fees for other financial services. All investment decisions are made in the best interest of the client.
- Justwealth is a proud member of the Portfolio Manager Alliance of Canada (PMAC).
After reaching out to the folks we had previously contacted about any new offerings, Wealthsimple responded by telling us that they:
- Now have 15,000+ clients & $500M+ in Assets under Management.
- Won the Webby Award for Top Financial Services Website in the world.
- Launched a Portfolio Review Service that allows users to submit their investment portfolio to be reviewed by Wealthsimple’s team of registered Portfolio Managers.
- Launched Wealthsimple for Advisors: An automated platform for financial advisors to manage their clients’ investment portfolios.
- Integration with Mint Platform: First financial institution to offer secure, read-only Mint access to their clients.
January 2018 Update
Robo advisors continue to pick up traction in the general Canadian public. The amount of questions and feedback that we receive on this one article comes close to that of the rest of the site put together!
Against many analysts’ expectations, the number of robo advisors in Canada has also continued to grow. RBC recently announced that they will be launching their newest robo advisor RBC InvestEase in the near future and smaller, more niche shops have been opening up coast-to-coast. I’m not sure if we’ll see a round of mergers and buyouts as these companies grow and get the feel of the industry over the next couple of years, but it should be interesting to watch develop. Also, more robo advisors are boosting the types of accounts that they are offering without any upward trends in fees – which is obviously great to see!
With Wealthsimple launching a competitive high interest savings account (HISA) option to their offerings, as well as RBC and BMO pushing their robo advisor-esque options, the line between online bank and robo advisor is quickly blurring. As Canadians look to handle more of their business in an online world, robo advisors are likely to keep getting more and more attention. Business Insider recently projected that robo advisors will handle 10% of all global assets under management by 2020 (quite a high figure when you consider they control less than 1% right now). S&P Global Market Intelligence predicts that the amount of assets managed by robo advisors in the USA will quadruple in the USA.
When LendEDU (a US-based platform that specializes in student loan refinancing) recently released a survey that polled over 500 Millennials, they reported that 53.6% of respondents stated that they were not using a traditional financial advisor. The report went on to state that out of that pool of respondents, 24.3% were currently using a robo advisor, but possibly more tellingly, 61.2% had never heard of a robo advisor before. There are a lot of ways to interpret that information, but I think the trend of moving towards cheaper, more index-friendly automated investing services is here to stay – and that there is substantial room for growth.
It’s tough to say what these worldwide trends will mean for us in Canada however. As investors that pay the highest mutual fund fees in the world, it could easily be argued that Canadians have the most to gain from robo advisors out of everyone on the planet! A major white paper done by Accenture Consulting recently reported that 40% of Canadian investors believe they “did not get what they paid for” when it came to the mainstream mutual fund + advice way of handling their savings. On the other hand, Canadians have long been classified as some of the most financially cautious people on the planet. Perhaps it’s something about planning to get through long winters, but we as a group can be resistant to change when it comes to money trends (which is why our major banks have been such good long-term investments).
In terms of overall feedback within the industry, we can definitely say that positive responses outnumber negative responses for us by a ratio of 7-1 or so. When you consider that the vast majority of people that are enjoying robo advisors probably don’t bother to respond to us at all, that feedback leads us to believe that while the overall industry is experiencing some growing pains (especially when it comes to initially transferring money in and out of accounts) Canadians are happy with their first steps into the world of fintech investing.
If any other robo advisors wish to have us update their offerings, please let us know and we’ll get them up there.
Also, I’m always interested in hearing about Canada’s robo advisors from the consumer side of things. If you’ve compared robo advisors and come to certain conclusions, or if you just want to say great things about the folks that you’re sticking with, please don’t be shy about leaving an update in the comment section or emailing us directly through our Contact Us page. Stay tuned as always for periodic updates on Canada’s robo advising industry going forward.
June 2018 Update
It what has become a firmly established trend in Canada, we see that as more and more investors become aware of the fees that they are paying in order to invest their money, two things are becoming undeniably true:
1) Robo advisors continue to collectively gobble up marketshare at a prodigious growth rate.
2) There is a market for several spots on the continuum of advice + investment offerings —-> barebones DIY investing with a discount brokerage account.
Now that robo advisors are here to stay, the rest of the financial world is beginning to adjust to this new wave. For example, I wrote a few months ago about Canada's new Vanguard ETFs vs robo advisors. Long story short, Vanguard isn't ready to give up its place atop of Canada's “one-stop frugal solution” investing pyramid. By bundling their extremely low-cost ETFs into one easy-to-purchase ETF product, Vanguard has essentially put all the investment parts of a robo advisor into a neat compact ETF. If you're willing to put in a little time to open an discount broker account, then you could conceivably just purchase one ETF for the first 20-25 years of your investment life, have it automatically rebalance for you, and then switch to a more balanced option as you edge close to retirement.
Now, of course robo advisors are quick to point out that a lot of the value of their service lies in the “set it and forget” nature of what they offer, as well as the advice segment of what they bring to the table. In other words, if it's valuable to you to simply set up a pre-paid contribution from your chequing account to your investment solution, and have that money be automatically invested, (as opposed to going into your Questrade account and taking five minutes to purchase an ETF each month) or to be able to ask for help on your TFSA vs RRSP questions, then the robo advisor is still probably the spot for you. But if you want to shave another .3-.4 off of your investing fees while getting the same automated rebalancing features, then these new offerings from Vanguard offer another spot on the aforementioned continuum. There is no right or wrong answer here, it's simply a matter of what fits you best.
Then, on the other side of that same continuum we have the robo advisor + human advisor combination that we're seeing become more and more prominent. The basic idea is that Canadians can keep investing by going to a trusted financial professional; however, now, instead of putting your investment money into a high-fee mutual fund that they get a commission kickback on, those professionals will use an index-investing approach through a robo advisor. Overall, I think this is a good trend and I'm happy to see more people benefiting from index investing vs lining the pockets of a seriously-flawed money management industry (and getting garbage overall returns on average). What I hope happens, is that the widespread use of this robo advisor + personal advisor model leads to Canadians understanding that their investment choices should be decoupled from the expertise of an advisor that they are paying for. In other words, it is probably worth a substantial amount of money for many Canadians to hire professional money management help from time to time, BUT let's just price that time and expertise out in a transparent market instead of buying it in weird investment commissions. Of course, I'd still encourage Young and Thrifty readers to do their homework and save themselves hundreds of thousands of dollars (potentially) in the long run – but I've been writing in this space long enough at this point to understand that managing their own money isn't every Canadians thing.
Finally, we've seen an interesting new entrant into the robo advisor space that you can read more about over at our Planswell Review article. The new robo on the block offers a unique value proposition because in addition to being a robo advisor, they'll also help you get the best rates on your mortgage and your insurance. Basically, they're the logical extension of the rate comparison and online brokerage movements that we've seen pop over the last few years. I personally think that you'll be seeing a lot more of this company in the years to come!
As always, let us know if you have any questions or insights into the world of robo advisors in Canada!
1) Do any of Canada’s robo advisors offer Registered Disability Savings Plans (RDSPs)?
At this time, only WealthBar offers RDSPs – and they’re only available if you open another account such as a TFSA, RRSP, or unregistered account with them first.
2) Which of Canada’s robo advisors offer Registered Education Savings Plans (RESPs)?
At this time WealthBar, JustWealth, WealthSimple, ModernAdvisor, and Nest Wealth all offer RESP options.