We have also created a series of follow-up articles in which we are taking a closer look at some of the leading Canadian Robo advisors. In this review, we feature an in-depth look at Smart Money Capital Management.
What is Smart Money Capital Management All About?
Smart Money Capital Management (Smart Money) is the brainchild of CEO Nauvzer Babul, and was launched in July 2015 as a way for Canadians to have access to a lower-cost portfolio management options. A veteran of global and Canadian investment banking industry, Babul had been at a crossroads of his career, deciding what to do after leaving his Director position at BMO Capital Markets.
After giving it considerable thought, he decided to create an asset allocation model that was good enough so he could invest his own family’s money safely and cost-effectively. And that was an epiphany moment for the veteran money manager: If this was something that Babul could entrust his own fortune to, then why couldn’t it be good for everyone else? And that was the beginning of Smart Money.
By using financial models to manage client money, Smart Money believes it has found a sweet spot in emotionless investing. In the words of Babul: “Because a lot of what we do is models-based, we try to be impartial,”
The Smart Money philosophy is to build portfolios using low-cost Exchange Traded Funds (ETFs), and then to charge a relatively lower (compared to Mutual Fund companies or Big-5 Banks) management fee from its clients. According to Babul, the overall cost to clients comes in under 1%.
While DIY investors may think paying 1% is unthinkable (sacrilegious almost!), most Canadians pay an average fee of around 2.5% on their actively-managed investments. The low Smart Money fee is therefore a refreshing challenge to the entrenched incumbents.
Who is Behind Smart Money
In addition to Founder and CEO Babul, who brings 16+ years of experience from his previous global money-management positions, Smart Money has other equally talented and experienced individuals focused on growing the firm and offering new products and services to clients.
Washington D.C-based Randy Tupaz heads the company’s technology wing, and brings with him a wealth of fintech experience, including in digital marketing, Energy services, Telco and Consumer retail industries.
The firm’s management team also includes Anatol von Hahn, ex-Scotiabank executive, and Salim Manji, president and CEO of Toronto-based Barney River Investments Ltd., who is also a minority shareholder of the company.
What Smart Money Offers
As a computer-assisted financial services provider, Smart Money uses fintech (financial technology) to help create, monitor and manage optimal investment portfolios for its clients. However, the management team also brings decades of human expertise into the equation, including getting to know their client in-person, and meticulous risk management.
Clients may open multiple accounts, and there is a broad selection of the type of accounts, including:
- Non – Registered Accounts
- Tax-Free Saving Accounts (TFSA)
- Registered Retirement Savings Plans (RRSP)
- Registered Education Savings Plans (RESP)
- Registered Retirement Income Funds (RRIF or RIF)
- Locked-in RRSPs (LIRA)
Smart Money follows a well diversified approach to investing by using technology and portfolio management experience to create well optimized portfolios of bond and equity ETFs. As a Smart Money client, you’ll also receive the benefit of automatic rebalancing of your portfolio.
The portfolios are balanced quarterly, or on an “as needed” basis if portfolios drift out of sync from client investment objectives. They call this “Smart Rebalancing”. According to Babul, this smart approach forces “…clients to take profits more than clients are willing to do on their own”, and is a way of locking-in gains before changing market conditions erode them.
Smart Money portfolios also offer clients a great way to spread out their risk. Client money is invested across an array of 10 globally-positioned asset classes, offering maximum diversification to the portfolios.
As well, the company offers stringent risk management and diligence in choosing where to invest client funds. The company uses a rigorous process to select ETFs that meet the firm’s asset allocation model, including a review of multiple ETF characteristics such as Assets Under Management (AUM), Expense Ratio, Exchange rate hedging considerations, the impact of capital gains, and bid-ask spreads.
What Will It Cost You To Invest With Smart Money?
Unlike many of its peers, management at Smart Money believes in a “flat rate” approach to investment fees. The company charges an annual rate of 0.45% of your account balance to manage your money.
Be mindful however, that this flat rate is exclusive of other fees, such as ETF management fees and trading commissions, which you have to pay in addition. The good news is that Smart Money has negotiated favourable ETF trading commissions for its clients, and the company also does not charge you any custodial fees.
To put your Smart Money fees into context, the company offers a handy fee estimation tool that lets you compare the firm’s fees versus what the industry average is for similar services. According to the company, a $50,000 investment could easily cost you $1,250 annually if managed by traditional active money managers. By comparison, Smart Money would charge you just $225 each year.
How Smart Money Stacks Up
When it comes to offering Canadians choices, with respect to money managers, Smart Money certainly provides yet another option for investors to turn to. 100% owned by CEO Babul and a few other individuals, the company however is no match when it comes to the vast financial resources that current industry leader Wealthsimple brings to the table. Wealthsimple clients will likely have more piece of mind knowing a strong financial partner, like Power Financial Corporation, is backing their robo advisor.
Another crucial area where Smart Money falls short, is that it is currently Ontario-focused, while rival Wealthsimple is licensed across all Canadian provinces and territories. And while both companies have a minimum $5,000 account requirement, Wealthsimple offers to waive the minimum for clients with pre-authorized contributions – something that many small retail investors might find attractive.
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