complete guide to robo-advisors in canada

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Robo-advisors! With all the talk of robo-advisors going on in the investment world, you’d think we were being invaded by aliens from outer space. Although, that is not the case, there are many good reasons for all the buzz behind robo-advisors like Wealthsimple, WealthBar, and Questwealth in Canada today.

The average “Joe” Investor can now access “customized” investment portfolios that are designed to cater to their own specific investment objectives, risk tolerance, and return expectations without having to pay “an arm and a leg” to do so.

At the end of the day, people are concerned about the fees they pay and their investment returns, and this is why robo-advisors are here to stay!

Who Are Robo-Advisors?

Robo-advisors are online wealth management firms that take your money and help you invest it using low-cost Exchange-Traded Funds (ETFs). They are the new trend for novice and experienced investors looking to cut their investment fees while maximizing their long-term returns.

When you first sign-up with them, you are generally required to answer a series of questions that are designed to generate your financial profile and categorize you based on your risk tolerance. A portfolio that matches your needs is then created and your funds are invested.

Over time, automatic re-balancing i.e. investment asset re-weighting occurs in your account as assets gain or lose value and fall outside their target allocations. As an investor, you do not need to do anything other than putting money in your account and it is invested on your behalf.

“So, how is this any different from when I buy mutual funds through my bank?” Hmmm…very different!

First of all, robo-advisors give you access to wealth management services and financial planning at much lower fees. Traditional wealth management is expensive, and the majority of independent financial advisors have clients whose assets exceed $1 million dollars. If you are not affluent, you are out of luck.

The mutual fund you buy through your bank easily charges a management fee of 2.23% or more per year. Compare this with the annual fees ranging from 0.35% to 0.70% that are levied by robo-advisors, and you start to see a huge difference. You could potentially save as much as 1.50% annually in fees by choosing a robo-advisor over your bank.

Secondly, due to the lower fees incurred and passive investing strategies utilized by robo-advisors, there is a chance for you to earn more in returns over time and build your wealth faster.

Does this mean that returns generated by robo-advisors will always beat your bank’s mutual funds? No. I do not think robo-advisors have been around long enough to make that assertion.

What I do know, however, is that “high investment fees” eat into an investor’s returns, and combined with “active” strategies (more frequent buying and selling – higher transaction costs), the data shows that more than 80% active fund managers underperform their benchmark index (market).

On the other hand, with the passive investing strategy used by robo-advisors, you can look forward to getting market returns less the minimal fees, and tracking error.

Best Robo-Advisors in Canada

Below, I provide a summary of my top robo-advisor choices (i.e. those which I have personally reviewed) and the others.

#1 Wealthsimple

Wealthsimple is Canada’s most popular robo-advisor. They also operate in the U.S. and the U.K., servicing over 175,000 clients with more than $5 billion in assets under management.

Wealthsimple is our top choice for robo-advisors in Canada.

Accounts you can open with them in Canada include TFSA, RRSP, RESP, RRIF, LIRA, and other non-registered investment accounts. Recently, they also introduced a Cash Account.

Benefits: When you invest with Wealthsimple, you stand to benefit from the following:

  • customized portfolio that suits your specific financial needs and comfort level.
  • Automated rebalancing whenever your portfolio drifts away from its intended asset allocation.
  • Dividend re-investing to maximize your long term returns.
  • Financial planning advice from a human.
  • Tax-loss harvesting to minimize your tax liability when applicable.
  • Safety: through the use of bank-level security and your funds are protected by the Canadian Investor Protection Fund up to $1 million.
  • Wealthsimple Roundup: a feature that helps you automatically invest your spare change in a low-cost ETF portfolio. They have also recently introduced, Overflow, a feature that tracks your account balance and helps you save/invest the extra money you are not using.
  • Wealthsimple Trade: Want to try your hand at self-directed investing? Wealthsimple Trade is a $0 commission online stock trading service.

For more information on their portfolio offerings, account features, and benefits, read our detailed Wealthsimple Review.

Promo OfferOpen a new account and get a $50 cash bonus.

Fees: They offer two main types of investment accounts: Wealthsimple Basic and Wealthsimple Black. In general, you pay:

  • Accounts between $0 – $100K: 0.50% fee per year
  • Accounts over $100K: 0.40% fee per year

Join Wealthsimple and get a $50 Cash Bonus!

#2 WealthBar

WealthBar was Canada’s first robo-advisor. Founded in 2013, their assets under management had grown to over $225 million by early 2018.

Accounts you can open include RRSP (individual, spousal, and group), RESP, TFSA, RRIF, LIRA, LIF, non-registered accounts (both individual and joint), and corporate investment accounts.

Benefits: When you open an account with WealthBar, you can expect the following:

  • Customized Financial Advice from a dedicated financial advisor.
  • Diversified Portfolio that is customized to lower your investment risk and maximize returns.
  • Financial Planning Tools for creating as many financial plans as you want. A financial planner is available to advise you as well.
  • Automated Re-balancing that takes the chore out of investing.
  • Estate PlanningTax Optimization, and Insurance Needs Analysis.
  • Access to private investment pools through their partnership with Nicola Wealth management.

For more information on what WealthBar can offer you, read our complete WealthBar Review.

Special Promo: Readers of Savvy New Canadians can invest up to $15,000 FREE for 1 year – that means you pay $0 in fees!

Fees: WealthBar uses a tiered fee schedule that runs from 0.35% to 0.60% per annum.

Join WealthBar and Get up to $15,000 Managed For FREE!

#3 Questwealth

Questwealth, previously known as Portfolio IQ, is the robo-advisor arm of Questrade. Launched in 2018, Questwealth has one of the lowest management fees in Canada among robo-advisors.

Accounts they offer include RRSP, TFSA, LIRA, LIF, RRIF, RESP, and non-registered investment accounts.

Benefits: One of the lowest fees in the industry and:

  • Credibility: Questrade has been around for over 20 years and is a well-known player in Canada’s investment space. They are regulated by IIROC and CIPF and your funds are protected up to $11 million.
  • Automated Portfolio Re-balancing: Your portfolio is hands-free as they rebalance it automatically when required to ensure your assets maintain their desired allocations.
  • Active Wealth Management: Unlike many of the other robo-advisors on this list, Questwealth utilizes an active portfolio management style.
  • Proven Portfolios: Questwealth has portfolios that have have a track record of 10 years or more, so you can easily see how they have performed over the years.

For an in-depth look at their offerings, read our complete Questwealth review.

Fees: Questwealth charges 0.25% per year on accounts below $100,000 and 0.20% per year when your account exceeds $100,000. There’s also a 100 basis points (1%) fee for ETFs traded in USD in your account.

The minimum required to invest with Questwealth is $1,000.

Sign up for Questwealth and invest up to $10,000 free for 1 year.

#4 Justwealth

Justwealth was co-founded by Andrew Kirkland and James Gauthier in 2016. Justwealth considers itself as “Canada’s most comprehensive online portfolio management platform…”

Unlike the average robo-advisor, Justwealth boasts an array of portfolio options (over 60 different types). It is from these they choose one that fits your specific investment objectives. Their account offerings include RRSP, TFSA, LIF, LIRA, RRIF, and non-registered investment accounts.

Benefits: In addition to automatic portfolio re-balancing, diversification, lower fees, tax efficiency, and account security, you can also expect:

  • Free Financial Planning: Your account gives you access to experienced Certified Financial Planners.
  • Free Portfolio Review: Want a professional take on your current investment portfolio? Justwealth will give you a FREE detailed review showing where performance and savings can be improved.
  • U.S. Dollar Investing: If you prefer, they also provide investment accounts that are denominated in U.S. dollars.
  • One-Stop RESP Solutions: Their Education Target Date RESP portfolios make saving for your kid’s education as easy as 1, 2, 3…

For more details on their account offerings and how to open an account, read our complete Justwealth Review.

Fees: Justwealth’s fees are as follows:

  • $5,000 to $500,000: 0.5% fee
  • Over $500K: 0.4%

Justwealth is great for large portfolios and RESP accounts. Unlike their other accounts, RESPs are not subject to a minimum balance.

Special Promo: Readers of Savvy New Canadians get a $50 cash bonus when they open a new account using this promo link and deposit at least $5,000.

#5 Nest Wealth

Nest Wealth was one of the first robo-advisors to be launched in Canada. Founded in 2014, they had a very different approach to fees, and introduced the first subscription-based pricing model.

Accounts they offer include RRSP, TFSA, LIRA, RRIF, RESP, and non-registered investment accounts. More recently, they also launched “Nest Wealth at Work” which is a group RRSP plan for small businesses.

Benefits: In addition to lower investment fees, diversified and tax-efficient portfolios, you will also get:

  • Professional Financial Advice: you get a dedicated portfolio manager who is able to offer you customized advice that meets your needs.
  • Automatic Re-balancing: No need to get your hands dirty punching the calculator to find out how far your asset allocation has strayed. They have got you covered!
  • Award-Winning Strategies: Nest Wealth, like many other robo-advisors, utilizes time-tested Nobel Prize-winning strategies in managing your portfolio.

For an in-depth look at their offerings, read our Nest Wealth Review.

Fees: Nest Wealth charges a flat monthly fee based on your account size, starting at $20/month to a maximum of $80/month. 

#6 ModernAdvisor

Modern Advisor is one of Canada’s most competitive robo-advisors when it comes to fees. They offer RRSP, TFSA, RESP, RRIF and non-registered (personal & joint) investment accounts.

In addition to automatic rebalancing and diversified low-cost ETF portfolios, Modern Advisor also lets you invest in a socially responsible way, if that’s your preference.

The minimum investment with ModernAdvisor is $1,000.

Fees:

  • $0 – $10K: Free
  • $10K – $100K: 0.5%
  • $100K – $500K: 0.4%
  • $500K and over: 0.35%

Read our complete ModernAdvisor review here.

#7 BMO Smartfolio

BMO SmartFolio was the first robo-advisor to be launched by one of Canada’s largest banks – BMO, which has been around for over 200 years.

You can open an account with them with as little as $1,000 and they offer the general accounts types including TFSA, RRSP, RESP, RRIF, joint accounts, and non-registered investment accounts.

Fees: Their fees are a bit higher for small accounts compared to my top choices. However, they are still very competitive compared to even their own mutual fund offerings.

  • First $100,000: 0.7% fee/year
  • Next $150,000: 0.6%/year
  • Next $250,000: 0.5%/year
  • Above $500K: 0.4%/year

ReadBMO SmartFolio Review

Best Robo-Advisor Comparison – Top 3

Robo-Advisors in Canada. What Else?

Robo-advisors are not the only way to save on investment fees. If you are comfortable buying your ETFs via a self-directed discount brokerage account, you can save even more on fees.

However, not many people are confident enough to go all-in and solely manage their investment portfolio. For one, you need to be super-disciplined and keep your behavioural biases at bay.

Secondly, you should be prepared to re-balance your portfolio as often as is necessary and at least once every year.

Not everyone requires premium wealth advisory services. Robo-advisors bridge the gap between full professional wealth management services and Do-It-Yourself (DIY).

They offer just enough customizations to get average investors setup with portfolios that better meets their needs, frees up their time, and that are not super expensive.

If you are up for the DIY approach and want to build your own portfolio, check out this Wealthsimple vs Questrade review for options.

Robo-Advisors vs. Mutual Funds

While the term ‘robo-advisor’ may inadvertently bring the picture of ‘mindless’ robots moving around to your mind, this is not the case here.

‘Robo-advisor’ is the techie name for online wealth management firms that use sophisticated algorithms that are programmed to invest your money automatically based on Nobel Prize-worthy models. Behind the scenes, you have humans who make sure the computer programs are running fine and everything is hunky-dory.

To understand the role robo-advisors play, think about ‘active’ vs. ‘passive’ investing. Active investing involves trying to continuously buy and sell stocks (financial assets) or put together a portfolio of assets that perform better than a similar portfolio that is ‘buy’ and ‘hold’ – aka passive investing. As an active investor, you are essentially trying to beat the market.

Because active fund managers are busy and need to continuously monitor your portfolio, hire analysts to do research, etc., they charge more in fees… popularly referred to as the Management Expense Ratio (MER).

Outperforming the market is great if you can do it consistently after deducting fees. However, the reality is that because fund managers often underperform and rarely earn enough in additional gains to justify their fees, investors are left holding the short end of the stick.

When you use a robo-advisor, what you get is passive investing and lower fees.

How Do Robo-Advisors Invest Your Money?

Passive investing strategies aim to generate market returns. Using low-cost ETFs, a robo-advisor takes an investor’s risk tolerance, investing time horizon, and investment objectives into consideration to design a portfolio that suits their needs. This portfolio is adequately diversified (lowering risk) and is rebalanced automatically (saving you time and stress).

By using low-cost ETFs as cheap as 0.03%, and by charging very low management fees (average of 0.50% compared to 2% for mutual funds), robo-advisors save you a lot of money in fees.

Add in market returns (minus fees and tracking error) with lower management fees, and you see why the average investor may be better served using a robo-advisor.

When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.

– Warren Buffett

Lower costs are the handmaiden of higher returns.

– John Bogle

The two greatest enemies of the equity fund investor are expenses and emotions.

– John Bogle

How To Choose a Robo-Advisor in Canada

The robo-advisors in Canada generally operate around the same basic concepts. However, there are still some distinct differences between them that may make one robo-advisor preferable to you (or not). You should look at all the pros and cons of individual robo-advisors before making your choice.

The main parameters to compare include:

1. Investment Fees

The fees you pay when you invest with a robo-advisor can be divided into two main categories: 1) A Management Fee which is what they charge you for managing your money, and 2) The ETF MER which is built-in into the ETFs that make up your portfolio and goes directly to the fund companies.

Let’s focus on the fees robo-advisors charge:

  • Wealthsimple0.5% per year ($0 to $100,000) or 0.4% ($100,000+)
  • Wealth Bar0.35% to 0.6%
  • Justwealth: 0.5% ($5k to $500k) or 0.4% ($500k+)
  • Nest Wealth: $20/month ($0 to $75,000), $40/month ($75,000 to $150,000), and $80/month ($150,000+)

Scenario 1: What do you pay on a $75,000 portfolio on an annual basis?

  • Wealthsimple: $375
  • WealthBar: $420
  • Nest Wealth: $480

Mind you, a typical equity mutual fund could cost you about $1,763 per year for the same portfolio size. This is using the average MER of 2.35% charged by equity mutual funds.

Scenario 2: What can you expect to pay on a $500,001 portfolio?

  • Wealthsimple: $2,000
  • Justwealth: $2,000
  • WealthBar: $2,270
  • Nest Wealth: $1,060 (including $100 maximum trading fees)

What is the verdict?

For moderate accounts ($100k and lower), Wealthsimple generally offers the most competitive fees, even after factoring in other costs, including trading and ETF fees. For larger portfolios (greater than $500k), Nest Wealth beats the competition on fees.

2. Minimum Investments and Promo Offers

Some robo-advisors require a minimum investment, while others allow you to open an account with $0. They may also offer promotions that allow you to invest up to a certain amount FREE of charge.

  1. Wealthsimple: No minimum account balance. Get a $50 cash bonus when you fund your account with $500 or more (promo link here)
  2. WealthBar: $1,000 minimum investment. You invest up to $15,000 free of charge for 1 year (promo link here)
  3. Justwealth: $5,000 minimum investment. Get $50 in cash bonus when you open an account.
How To Choose a Robo-Advisor

3. Average MER

In addition to the annual management fee charged by robo-advisors, your portfolio will pay some direct fees to the ETF companies. All robo-advisors pay these fees and while you should not get hung up on them, they are worth noting and will fluctuate from time to time.

Average ETF costs I could find online include:

  • Wealthsimple: 0.20%
  • WealthBar: 0.26 – 0.32%
  • Justwealth: 0.25%

Note that even if you have a self-directed account with a discount brokerage, ETF MER fees still apply. However, since fees are FEES, they are worth noting because they impact your overall returns.

RelatedRegistered vs. Non-Registered Investment Accounts

4. Accounts Available and Investment Choice

Many of the featured robo-advisors offer registered accounts including the usual suspects, such as TFSA, RRSP, RESP, RRIF, LIRA, and non-registered accounts (joint and individual). Of note,

  1. Wealthsimple also offers a Cash Account (high-interest savings), Roundup (a feature that allows you to save and invest your loose change), and Wealthsimple Trade (a $0 commission stock trading app). They also offer Halal Investing.
  2. WealthBar can help you with estate planning, insurance needs analysis, and tax optimization.
  3. Justwealth offers an Education Target Date RESP portfolio for your kids.

On the investment choice front, robo-advisors offer an array of low-cost ETFs to build your portfolio. In general, portfolio types will vary from Conservative (safety) to Balanced and to Growth (assertive).

Personally, I think focusing on the number of ETFs a robo-advisor has in their stable is somewhat contrary to the main idea of passive investing which is about keeping things simple while getting adequate diversification.

Wide diversification is only required when investors do not understand what they are doing.

– Warren Buffett

To earn the highest of returns that are realistically possible, you should invest with simplicity.

– John Bogle

5. Other Robo-Advisor Features

Other important features that will be attractive to some investors include:

1. Ethical Investing: Wealthsimple and WealthBar offer opportunities to invest in social and environmental-friendly portfolios. Mind you, you will pay a bit more in fees for this service.

2. Financial Planning: Most robo-advisors offer some level of FREE financial advice. If you want more than the basics, additional fees will apply.

3. Hybrid Investing: Some investors want a mix of automation and customization. WealthBar and ModernAdvisor offer a hybrid option that is a mix of active and passive investing strategies. As expected, you pay a bit more in fees for this service.

4. Apps: Millennials and Gen Z’ers love technology and prefer to do everything on a smartphone or tablet. Wealthsimple’s mobile app is considered the best of them all and is highly rated on the Apple app store.

5. Referral Program: Available referral programs may be worth looking into as well. Some of them are mouth-watering. Wealthsimple lets you invest $10,000 free for each friend you refer to Wealthsimple.

6. Savings Interest Rate: A Wealthsimple Cash account offers a high savings rate which means your cash earns money when you are not invested in the financial markets.

Which Robo-Advisor is Right For You?

If you feel confused already, I don’t blame you.

There is no one single answer and since this is your money we are talking about, you will need to carefully look at all the available options/features before making your choice.

Personally, I find that Wealthsimple hits all the high notes for my investing needs.

One conclusion we can all easily agree on is that you will likely save tens of thousands of dollars (maybe more) over your lifetime if you simplify your investing and pay less in fees. The right robo-advisor will save you fees and lots of stress. So, choose wisely!

Related:

The Best Robo Advisors in Canada - 2020 Comparison Guide