Best Robo-Advisors in Canada: Investment Management For Cheap

It’s no secret that robo-advisors are on the rise in Canada. Like a few other financial innovations or resources (think free credit scores), Canada trails a bit behind her Southern neighbour when it comes to making it cheaper and easier for the average Joe to manage their finances.

However, with respect to robo-advisors in Canada, the days of “robo-scarcity” are now behind us and robo-advisors are here to stay!

Robo-advisors are online portfolio managers who provide you with low-cost professional wealth management services right from the comfort of your home.

Unlike traditional wealth management services, robo-advisors are much cheaper and have a low or no barrier to entry, making them an excellent option for the average “Joe” investor.

Below, I cover some of the best robo-advisors in Canada and their pros and cons.

Who are Robo Advisors?

Before the emergence of robo-advisors, we basically had two main approaches to investing:

  • Traditional Mutual Fund Advisors or Wealth Managers, and
  • Do-It-Yourself Investing

Mutual Fund Advisors and Wealth Managers

This is the most common approach where you approach your bank or investment firm and talk to an advisor.

Based on their assessment of your risk tolerance and investing goals, they offer you some of their products (usually prepackaged mutual funds) that come with fees, including the management expense ratio (MER).

Sophisticated investors or those with high net worth can also choose to work with wealth managers who provided them with customized or individualized portfolio solutions for a fee. This service may also come with tax and estate planning etc.

The traditional model of investment management often involves fees in the range of 2% or more per year. Learn more about investment fees in Canada.

The DIY Investor

The other option for investing was through a do-it-yourself approach.

DIY investors can buy mutual funds or ETFs using a self-directed account they open on a discount brokerage. They are responsible for asset allocation, occasional portfolio re-balancing, and also ensuring that their portfolio is adequately diversified.

Not everyone has the financial knowledge, time, and confidence to manage their investment portfolio on their own. And, that is where robo-advisors come into play. They are the middle point between full-fledged wealth management services and the DIY folks.

Signing up is usually a breeze. In general, you are required to complete a questionnaire that they use to understand your risk tolerance, investment goals, time horizon, and so on.

Following this, you are provided with a personalized portfolio that is based on the Modern Portfolio Theory and is designed to meet your investing needs.

The make-up of the portfolio is usually based on low-cost Exchange Traded Funds (ETFs) and it is re-balanced automatically as needed.

Most robo-advisor portfolios are passively managed using indexing strategies, however, a few add on some level of active money management as well.

Best Robo-Advisors in Canada

Below is a list of the top robo-advisors in Canada:

  1. Wealthsimple – Get a cash bonus when you open an account and fund it – #1 Choice!
  2. Questwealth – Get up to $10,000 managed for free for 1 year 
  3. CI Direct Investing Formerly WealthBar
  4. Justwealth
  5. RBC InvestEase
  6. BMO Smartfolio
  7. Nest Wealth
  8. Invisor
  9. Modern Advisor
  10. Virtual Wealth

Related: A Complete Guide To Retirement Income in Canada

Benefits of a Robo-Advisor

1. Low Cost

Fees charged by robo-advisors are much lower than the average you will pay for the traditional mutual fund sold via the big banks.

For example, compare 0.5% in fees per annum at Wealthsimple for a portfolio with $0-$100,000 in investable assets and 0.4% in fees for a portfolio with over $100K in assets.

This is definitely low-cost compared to the average of 1.98% or more in fees you would expect when you go with actively managed equity mutual funds. Wealthsimple also offers to manage your funds for free during the first year.

In addition, the fees are quite transparent and they do not muddle the pond with obscure and additional charges like trailer fees, sales loads, etc. Some robo-advisors take low-fees further by offering free management of your money up to a certain amount.

Lower-cost portfolios provided by robo-advisors are possible due to a mix of passive management, the use of low-cost ETFs, technology, and less overhead.

2. Personalized – Rebalanced – Diversified Portfolio

When average investors choose to not manage their own portfolios, it’s often because they feel they don’t have the requisite knowledge to do so, or do not have the time.

Robo-advisors provide solutions to these problems – they set up a personalized portfolio with assets allocated to cater to your risk tolerance, time horizon, and investing goals.

And you don’t have to worry about rebalancing the portfolio regularly and ensuring it’s well-diversified. The “robos” do all that on your behalf.

3. Digital and Environment-Friendly

This is one reason why technology-loving millennials love robo-advisors. There’s no need to walk into a brick-and-mortar building, no need to talk to an advisor, no closing hours… you can set up your account from the comfort of your home using your smartphone, tablet, or laptop. It’s that simple!

This is not to say that robo-advisors are only meant for Gen Yers. Anyone can easily use their services, and if you want to speak to someone, there’s usually someone available to talk or chat with you.

Having little to no paperwork is also a vote for the environment and trees!

4. Low Minimum Investment

Many robo-advisors don’t have a minimum investment requirement. As such, they offer a low-barrier entry to obtaining professional and individualized wealth management service that you may not be able to access otherwise.

5. Tax Efficiency

Many robo-advisors incorporate or offer tax-loss harvesting strategies that involve selling assets that have lost value and using the capital loss to lower or wipe out other capital gains realized on the rest of your portfolio. They then proceed to buy another asset in place of the one that was sold.

The outcome of tax loss harvesting is that you save on taxes in the short term while growing your investment.

6. Safe and Insured

Robo-advisors hold your money at a bank that is a member of the Canadian Investor Protection Fund (CIPF). Therefore your funds are protected from insolvency just like the other monies you have in your bank – up to $1 million per account.

They are also regulated entities within Canada and are subject to federal and provincial securities regulations.

7. Versatile

You can open many types of accounts to meet your different investing needs. For example, you can open a TFSA, RRSP, RESP, RRIF, non-registered accounts, and more.

Related: Index Investing Explained for Newbies

Downsides of a Robo-Advisor

1. No Brick-And-Mortar

If you are the type of person who shuns digital banks because you would rather walk into a brick-and-mortar bank for all your banking transactions, the idea of robo-advisors will likely put you off.

Unlike the name suggests, “robo” advisors are not all about robots and algorithms. You can talk to someone if you want to. However, most activities related to your account will be conducted via an online platform.

2. Technology

Robo-advisors use technology (algorithms and models) to manage your portfolio. As we all know, technology is a beautiful thing until it isn’t. If there are glitches or hacks and something goes wrong, there could be problems.

However, the possibility of this occurring is pretty slim and robo-advisors use security similar to what your bank is using. 😉

Closing Thoughts

The investing landscape in Canada is changing – for the better. Robo-advisors are just one of the recent additions and are another option to consider when making a decision on how you want to manage your money. As per usual, always do your research and go with what works for you.

For a complete list of Robo-Advisors in Canada and comparisons between them, check out this guide.

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. He has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

10 thoughts on “Best Robo-Advisors in Canada: Investment Management For Cheap”

  1. I find it very interesting that robo-advisors are recently proliferating (exponentially) and with the combination of the tech sector and the financial sector. I personally like the DIY approach but for those that do not want to be bothered to rebalance, robo-advisors are a great option.

    • @GYM: Yes, robo-advisors are a great option for the average investor who wants to make money in the market, save on fees, and not have to worry about rebalancing their portfolio.

  2. Very interesting post! I didn’t realize it was so common in Canada.
    Just like GYM, I like the DIY approach but I have to admit I am not always good at re-balancing when I should…maybe I should look into Robo-advisors after all.

    • @Caroline: I think the market/demand for robo-advisors is only going to continue to increase over time. Not many people have the time to devote to efficiently monitor their portfolio and/or have the confidence to do so.

      Since mutual funds fees here in Canada are unlike in the U.S. (much lower fee options), the alternative when you really want to lower your investing fees (without getting your hands dirty), is to use robo-advisors.

  3. WOW! This is a handful of information. Glad to open this blog, Thanks.

  4. @Steve: Yes, and mind you, not many people are ready to get their hands dirty with portfolio rebalancing (once or twice per year). With management fees of 0.5% or less, its a much better deal than what you pay for the average mutual fund.

  5. Hey Enoch,

    I’m a big fan of robo-advisors, and have several accounts with them. I especially like M1, which is not that well-known but which lets you choose your own investments. The simplicity and ease of just depositing money and having it be invested for you is hard to beat.

    Cheers,
    Miguel

    • @Miguel: I have never heard of M1 but like the services robo-advisors provide in general. They are a good middle point between expensive active managers and DIY investing.

  6. Great overview Enoch! I had no idea we had so many robo-advisors in Canada.

    • @Curious Frugal: I didn’t myself until when I was doing some research for this article. Thanks for stopping by.

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