In the past, most Canadians wanting their portfolios managed professionally thought they only had a limited number of options. When Young and Thrifty produced its Complete Guide to Canada’s Robo Advisors, readers learned that traditional money management was not the only way to invest. Even Canada's major banks – those stalwarts of traditional banking mindsets – are looking towards robo advisors to appeal to fee-conscious investors. Check out our BMO Smartfolio Review and RBC InvestEase Review for more on the steps being taken to provide robo-esque services from Canada's heavy finacial hitters.
One of the biggest advantages that many traditional Canadian money-managers, like big bank-owned financial advisors and Mutual Fund companies, enjoyed thus far was a shroud of secrecy around the cost of their service. With the implementation of Customer Relationship Model – Phase 2 (CRM2) by the Ontario Securities Commission in July 2013, and with CRM3 potentially on the way, that mystery has started to unravel.
If you are looking for an alternate to conventional wealth advisory services that most Canadians have their TFSA and RRSP with, then Vancouver-based Responsive robo advisor might have just what you need.
What Is Responsive?
Responsive is an independent, fee-only, discretionary investment management firm that provides a range of portfolio management services to its clients. In the words of the company, they are a “digital relationship firm”, which means your interactions with the firm are largely online.
Upon opening an account with the company, you effectively agree to let the firm buy and sell investment products for you, and make other investment decisions on your behalf. Your portfolio is then managed by a team of active portfolio managers with the help of Artificial Intelligence (AI) enabled tools and technologies.
The vision behind Responsive is to take the same technology which institutions and high net-worth individuals have access to, infuse active management and additional automation into the process to strip out excess costs, and offer it all to you – the average investor.
The Responsive Difference
So what makes your relationship with Responsive different than the one you currently have with – say, Royal, TD, Scotiabank or BMO?
Well, for one, unlike many of those other firms, Responsive doesn’t receive any commission on transactions executed for and on your behalf. That means the products held in your portfolio are chosen not because they offer Responsive any monetary benefit, but because they are good for you.
The most significant difference however is cost. Responsive uses Artificial Intelligence (AI) technologies to reduce the cost of managing your portfolio. That means more of your returns go back into your portfolio, instead of in paying management fees. The Responsive difference, which combines active asset management with AI driven macroeconomic research, helps to better grow and protect your portfolio.
But Responsive also differentiates itself from many of its peer Robo advisors. Unlike simple “automation”, the Responsive processes leverage decades of worldwide macro economic data, the power of machine learning, and the hands-on experiences of its portfolio managers to help better manage your portfolio. Most other robo advisors just use apps or bots to provide their services.
The Talent Behind Responsive
The Responsive team brings together a broad array of talented professionals to help them personalize client experiences. Company CEO Davyde Wachell studied machine learning at Stanford University, and has over a decade of experience in investment research. It is his vision that has made the fusion of machine and human intelligence a reality.
Kim Kaplan, the company’s Product and Revenue Advisor previously worked at Plenty of Fish, where she helped increase revenues 10-fold. CTO Chris Sanford brings over 10 years of related FinTech experience to the firm, during which time he built and managed financial infrastructure and tools for banks and investment firms managing over a billion dollars of client wealth.
CFA Charter holder and member of the Faculty of Finance at Haskayne School of Business (University of Calgary), Thomas Holloway has managed over $4 billion in client assets for more than 7 years. As the company’s Portfolio Manager, your money will be in good hands.
The company has a deep bench of other talent too, from neuroscientists and software engineers, to strategists and user experience designers. It is this wealth of expertise that comes together to ensure your portfolios are well managed under their care.
How It Works: Responsive To Global Events
Responsive portfolios are constructed to respond to your individual needs. The firm first gets to understand your investment goals and objectives using a series of questions that helps them “know the client”. Depending on what your goals are – maximizing growth, minimizing losses, or a compromise of both, Responsive’s AI tools will produce model portfolios that are ideally suited for you.
Your portfolios are built using a large array of low-cost, globally diversified ETF’s, and rebalanced monthly or quarterly based on inputs from the firm’s machine learning tools. Depending on your investment objectives, time horizon and risk tolerance, a typical Responsive portfolio may include ETF’s focused on:
- US Stocks
- International Stocks
- Emerging Market Stocks
- US High-yield Bonds
- …and a host of other ETF-based opportunities
Active managers, guided by constantly updated machine learning tools, then respond to global events when making decisions about how your portfolios are managed. To learn how Responsive would have managed a portfolio built from a diversified basket of ETFs through various global financial events, head on to their website and check out the informative info-graphic there.
You’ll get a sense of what your portfolio would have looked like through any one of these major occurrences:
- August 2006 US Housing Boom
- May 2008 Great Recession
- July 2009 Great Recovery
- April 2013 – US Taper Tantrum
- August 2015 China Crash
What you’ll find striking is how responsive your portfolios would have been during each of these events, enabling you to capture the upside, while offering significant downside protection. While most other passively-managed robo advisors held their portfolios static, Responsive’s AI-driven strategy dynamically adjusted its portfolios, based on over 100+ global market signals such as volatility, interest rates, inflationary trends etc., to respond to each event.
The Cost of Being Responsive
You’ll need to have a minimum of $10,000 in TFSA and other taxable assets, or $15,000 in RRSP investments to use Responsive. The company has a tiered-pricing structure, with portfolio balances ranging:
- From $10,000 to $200,000 paying 0.8%
- And $200,000+ paying 0.5%
The average robo advisory fee ranges from 0.3% to 0.6%, which puts Responsive at a price point above its industry peers. However, for that additional fee, according to CEO Davyde Wachell, the company’s active managers offer you comparatively (to other Robo advisors) more downside protection – especially in bear markets.
Because Responsive’s wrapped fee is based on the total amount of assets you have under their management, the fee is pro-rated across all your accounts. If you have multiple accounts with the firm, you could therefore potentially benefit from a lower-tiered price point once the holdings in all your accounts are aggregated.
There are no transaction fees either. The cost of buying and selling individual ETFs within your portfolio are included in the wrapped fee you pay monthly. Additionally, Responsive does not charge you a fee if you decide to transfer your account to another institution. However, it’s broker/custodian – Interactive Brokers Canada Inc., will charge you a fee for such transfers.
The Good and Not So Good
CEO Wachell and other proponents of active management say that their style of being heavily involved in client investments is good for portfolios, because it helps them respond quickly to changing investment climates. However, there are others that believe active management is not so good for you!