Robo Advisors In Canada: How To Choose The Best One For You!

December 11, 2019
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Robo Advisors are AI operated software programs that invest money for you. They usually invest in Exchange Traded Funds, or ETFs, which offer less risk and a more predictable return on your investment. There are numerous robo advisors in Canada that include Wealthsimple, Nest Wealth, Wealthbar, Modern Advisor, RBC InvestEase, and more. Each of these computer aided investors comes with its own set of fees and investment portfolios, and in this post you’ll learn to make sense of it all and choose the perfect one for your future.

Whether you’re into the low-cost investing and the do-it-yourself wave or if you’re into automating as much of any task as you can, like getting a a Roomba robot to clean your house, then chances are you’ve heard about Robo advisors. But, what are they exactly? And how do you choose the right one? Keep reading to find out.

What Are Robo Advisors?

Robo-advisors (also known as Robo Advisors) are digital platforms that provide you with automated, algorithm-driven financial planning services with minimum human supervision. Their services go from automatic rebalancing to tax optimization, and although you can do this without needing human intervention, many providers also offer to have human advisors available to answer your questions.

How Do Robo Advisors Work?

What robo-advisors do is to automatically select investments and build a diversified portfolio tailored to you and your financial needs and preferences. Once your funds are invested, on an ongoing basis, this software will automatically make changes to the investments to align your portfolio to a target allocation. Some Robo-advisors are known for even making tax-loss harvesting, which is the process of making trades automatically to help you reduce your tax bill.

Something important to mention is that most robo-advisors will divide their investment portfolios by risk. Therefore, you can choose anything from a conservative portfolio to an aggressive one, and then you’re provided with a collection of investments, in specific proportions, that are tailored to meet your requirements.

How Much Do Robo Advisors cost?

As you may have already guessed, each robo-advisor has a reasonable service fee that can be either a fixed monthly fee or a percentage of assets. Keep in mind that with a robo-advisor, you are paying a service fee and you’re also paying the expenses of the investments used.

For robo-advisors that charge a fixed monthly fee, that fee can typically range from about $15 per month to $200 per month depending on your portfolio size.

On the other hand, with a percentage of assets structure, fees will range for about 0.15% to 0.50% of your account size per year. If you had a $100,000 investment account, a 0.50% fee would equate to $500 a year.

Benefits Of Robo-Investing In Canada

Here are some of the main benefits of using a robo-advisor:

  • Robo-advisors take out all the research, vigilance and stress that comes with picking stocks and maintaining an investment portfolio by yourself.
  • Robo-advisors often use algorithms to rebalance, so your portfolio it’s always on track.
  • Generally, robo-advisors charge a fraction of what a traditional mutual fund investor charges in fees. This is beneficial for both novice and experienced investors.
  • Robo-advisors tend to use exchange-traded funds (ETFs) and those carry lower fees compared to mutual funds. ETFs are cheaper because few to no humans are required to manage those investments.
  • You can expect to pay between 0.40-1% in fees for a robo-advisor in Canada. That’s a lot less than the 2.09% fees that traditional mutual fund investors pay.
  • Normally, most robo-advisors don’t charge a commission on trades — another fee you’re saving money from.
  • Robo-advisors are known for having low account minimums, compared to actively managed portfolios that generally require a higher amount of money to get started.
  • Some robo-advisors have no account minimum at all! This means you can get started with as little as $1.
  • Due to the robo-advisor’s inherent algorithm mechanism, you don’t have to pick out stocks yourself or bother learning how to best diversify your portfolio. The platform will create a personalized portfolio for you.
  • You have no need to monitor the market and figure out where to best invest your money.
  • All robo-advisors have 24/7 accessibility, some even provide access to a live financial advisor.

Robo Advisors Vs. Human Advisors Vs. Self-Directed Investing In Canada

The choice between a human advisor and a robo-advisor depends on your needs and wants. Say you have a complicated tax situation or a high net worth; in that case, it might be worth getting a human financial advisor.

Sure, their fees are higher, but they will create you a full financial plan that will be valuable despite the fees. For example, they will offer you human, empathetic guidance through a divorce or your plans of home ownership, going from “yes, you should buy that boat this summer” to “no, you shouldn’t sell your vinyl collection!”.

Now, if what you’re looking is a way of investing while paying lower fees without having to do tons of research and portfolio maintenance, then a robo-advisor is the better choice for you. Some robo-advisors will offer you a hybrid approach by giving you access to a financial advisor as well as a personalized investment portfolio.

This works especially well if you want to save money on fees but still need the support from an advisor.

Finally, if what you crave is to be very involved in the process of investing, then a self-directed approach (known as stock picking) could be your best choice. Though you should know that stock picking is very risky and studies have shown that many people who pick individual stocks fail to outperform the market.

Get To Know The Most Popular Robo Advisors In Canada

Wealthsimple

Best Canadian Robo Advisors: Wealthsimple

You can guess by its name that Wealthsimple has a straightforward approach to investing.  With no minimum investment amount, this robo-advisor is accessible to all and generates returns passively from broad-based ETFs with a low average Management Expense Ratio (MER) of around 0.20%.

Its pricing has only two levels: Wealthsimple Basic at 0.50% (on your first $99,999) and Wealthsimple Black at 0.40% (above $100,000).

Users of Wealthsimple will receive tax-loss harvesting, VIP airline lounge access, as well as special goal-based planning capabilities that focus closely on personal preferences. Users also get an automated Smart Savings account that charges just 0.25%, and over 10 other portfolio options.

The accounts offered by Wealthsimple are:

  • Traditional IRA (individual retirement account)
  • Roth IRA
  • SEP IRA
  • Personal account
  • Joint account
  • Trust

You can read our full review on Wealthsimple here.

Best Canadian Robo Advisors: Nest Wealth

Nest Wealth

This robo-advisor is known for its popularity amongst the retirement age crowd since it is more beneficial for those who prefer investing relatively higher sums of money with their robo-advisor even though its model doesn’t impose any minimum investment limit. That said, you should avoid keeping a low-investment account because in that case, fees will be disproportionately larger.

Nest Wealth users can choose from an array of customized portfolios, generally investing in broad-based ETFs with a low average Management Expense Ratio (MER) of around 0.15%.

All trades are made automatically, and the algorithm won’t vary your portfolio’s asset allocation to time with the market. Prices for the service depend on the level of investment, starting at $20 per month for $0-75,000, $40 per month for a portfolio of $75,000-150,000, and $80 per month for $150,000-500,000. Furthermore, each rebalancing can cost $9.99 up to a maximum of $100 yearly.

Types of Accounts:

  • RRSP (Registered Retirement Savings Plan)
  • Spousal RRSP
  • RESP (Registered Education Savings Plan)
  • TSFA (Tax-Free Savings Account)
  • LIRA (Locked-in retirement account)
  • RIF (Retirement Income Fund)
Best Canadian Robo Advisors: Wealthbar

Wealthbar

This robo-advisors’s methodology for investment emphasizes managing volatility and cash flow while remaining largely passive. Like other advisors, the minimum investment is $1,000. Anything less than $5,000 has no management fee and amounts less than $1,000 are held in cash. Regarding Management fees, this robo-advisor trades ETFs with an average MER of between 0.26% and 0.32%, while private investment portfolios managed by WealthBar have MERs between 0.83% and 1.22%.

Types of accounts

  • RRSP (including spousal RRSP)
  • RESP
  • TFSA
  • LIRA
  • RRIF (and spousal RRIF)
  • LIF (life income fund)
  • Non-registered accounts
  • Joint non-registered savings account
  • Corporate non-registered account
Best Canadian Robo Advisors: ModernAdvisor

ModernAdvisor

Much like other robo-advisors, ModernAdvisor uses low-cost ETFs to design customized portfolios and categorize them based on risk to suit the investors with different investment goals. Its portfolios are diversified and hold assets that are optimally allocated using a Nobel Prize-winning strategy known as the Modern Portfolio Theory.

However, ModernAdvisor follows a hybrid strategy that mixes both ‘passive’ and ‘active’ investing. So, a passive investing strategy buys the market and aims to generate market returns, while an active investing aims to beat the market and continuously looks for opportunities to do so.

Best Canadian Robo Advisors: RBC InvestEase

RBC InvestEase

RBC InvestEase is an online investment management service whose goal is to simplify your investing with the added expertise of real advisors while leaving all the investing work to them. They also provide you with investment plans based on your needs and answers to their simple questionnaire.

Once you’re done with that questionnaire, they’ll invest your money in a portfolio of carefully selected ETFs on your behalf and then, accredited advisors will keep an eye on them to help you stay on track.

We actually have a whole post dedicated to InvestEase! Check it out.

RBC InvestEase offers you full transparency without any surprises. The annual management fee after the promotional period is only 0.5% per year on your investment balance, plus MERs charged by the ETF manager. Best of all, there’s only a minimum account requirement of $100 for you to get started.

Best Canadian Robo Advisors: BMO Smartfolio

BMO Smartfolio

The BMO Smartfolio was one the first robo-advisors to be made by a bank, which is something that seems to be slowly becoming a trend. With the BMO Smartfolio you need $1,000 of minimum investment amount and fees range from 0.4% to 0.7%.

This robo-advisor offers a team of dedicated advisors that will help you select from award-winning ETFs to build a portfolio tailored to your preferences and risk tolerance. The MER of the ETFs held within your portfolio is most likely to be weighted at an average of 0.20% to 0.35% of the value of your SmartFolio account.

Smartfolio uses a unique investment approach that combines “smart beta” ETFs and a team of advisors making adjustments where needed. This works much like a robo-advisor but with real human advisors rebalancing your portfolio roughly four times per year, to assure you stay on top of your asset allocation.

Best Canadian Robo Advisors: Justwealth

Justwealth

When you sign up for Justwealth, you get a manager who oversees managing your investments along with additional services such as financial planning and portfolio reviews for an added cost. This robo advisor offers a massive selection of about 70 different portfolios derived from more than 40 ETFs.  They even claim that they have the biggest collection of portfolios out of any robo advisor in Canada! Investors can open a variety of account types, and the fee structure is straightforward:

  • 0.5% for balances under $500,000
  • 0.4% for balances over $500,000
  • $4.99/month fee for accounts under $12,000
  • There’s an additional average MER of 0.25%. Investors are also protected for up to $1 million through BBS Securities, Inc.
Best Canadian Robo Advisors: Questrade Portfolio IQ

Questrade Portfolio IQ

Questrade is offering the revamped version of their former Portfolio IQ.  Questrade Portfolios brings an active hybrid management approach combining technology with human financial experts to create five different types of ETF portfolios—Aggressive, Growth, Balanced, Income and Conservative—for investors that seek a more automated approach to investing. Each of these portfolios can be put into different types of accounts, including TFSAs, RRSPs, cash and more.

This roboadvisor has two main structures and its management fee is 0.25% on accounts with $0-$100K and 0.20% on accounts of more than $100K. The MERs for the ETFs go from 0.17%-0.22%. Its socially responsible investing portfolio’s MERs range from 0.21%-0.35% putting them among the lowest fees available for robo-investing in Canada.

They don’t charge any transfer fees or charges to open or close an account. However, you do need a minimum balance of $1,000 to be able to open an investing account with QuestradePortfolios.

If you wish then to move an outside account to Questrade Portfolios, they will reimburse up to $150 of the transfer out fee if your transfer is $25,000 or more. Your account is protected for up to $1,000,000 if an investment firm becomes insolvent given that this company is a member of the Canadian Investor Protection Fund.

How To Choose A Robo-Advisor

Keep the following criteria in mind when picking robo-advisors:

  • Fees and Minimum Investments: Robo-advisors are cheaper and require a lower minimum portfolio value than human advisors. Keep in mind that fees and minimum investments will vary within the strata of robo-advisors. Variations will depend on how much you invest and whether you look for a hybrid or algorithm-only service.
  • Supported Account Types: Canadians can invest their TFSAs, RRSPs, RESPs, Corporate/Personal/Joint savings accounts and more. Check what the robo-advisors offer and if it’s compatible with what you have to invest.
  • Investment Destinations: Some robo-advisors offer socially responsible investment options or F-class funds, catered to those with more than $100,000 in investment assets. This depends on your preferences and whether you want your money to go into the industry standard ETFs or into in-house funds.
  • Hybrid or Automated Only: Choose if you want some human guidance with your automated portfolio in which case, a hybrid option could be the best choice, or you may prefer to go fully automated with minimal human guidance.

How To Get Started With Robo Advisors

Signing up for a robo-advisor is super easy. It can be done from the comfort of your home and requires little more than an internet connection and an idea of what kind of services you want.

Step 1: Sign up

Once you choose your robo-advisor, start by signing up for the service by entering your email and choosing a password that you’ll use to access your account.

Step 2: Fill out a risk survey

The robo-advisor will ask you to answer a series of questions that will help the algorithm create a personalized portfolio and investment strategy for you. The questions will usually be about your age, your average salary, how soon you wish to access your money, and your risk tolerance.

Step 3: Make a transfer

When the survey is completed, the robo-advisor will create a portfolio for you. After that, it’s time to link your existing bank account to your new robo-advisor account and make a transfer to fund your investment.

Some robo-advisors will ask for a minimum deposit, others will let you deposit as little as $1 to start. When the money is transferred, the robo-advisor can start investing and managing your money.

Step 4: Set up regular deposits

 For your portfolio to work effectively, it is better if you invest on a regular basis. The most efficient way to do this is to set up automatic recurring deposits. If you feel like it’s too much of a commitment, you can always go into your account to adjust the deposit as much as needed.

Comparing All Robo Advisors

Before you go, here is a compilation of all the robo-advisors presented in this post, with all their features to make them easier to compare:

Roboadvisor Minimum investment Service cost Management Expense Ratio (MER) Accounts offered
Wealthsimple No minimum deposit A fee of 0.5% that goes down to 0.4% for Wealthsimple Black clients who have invested at least $100,000. Around 0.20%. Traditional IRA, Roth IRA, SEP IRA, Personal account, Joint account and Trust.
Nest Wealth No minimum deposit Under $75,000: $20 fee per month ($240 per annum)   $75,000 to under $150,000: $40 fee per month (or $480 per annum)   $150,000 and Above: $80 fee per month ($960 per annum)   Around 0.15% It offers trust, corporate, joint, and LIRA along with RRSP, TFSA, RESP, and RIF accounts.
Wealthbar Requires a minimum deposit of $1,000 If you have an investment of $25,000 with WealthBar’s 0.60% rate you’d pay $150 yearly. According to each portfolio: Aggressive‎: ‎0.25% Balanced‎: ‎0.25% Growth‎: ‎0.26% RRSP (including spousal RRSP) RESP TFSA LIRA RRIF (and spousal RRIF) LIF Non-registered accounts Joint non-registered savings account Corporate non-registered account
ModernAdvisor No minimum deposit but you need to reach $1000 to start investing  $75 a month to use the service, and an annual investment fee that decreases depending on the investment amount.  Fees start at 0.89% and decrease to 0.49%. Around 2.35% Individual and Spousal RRSP TFSA Individual and Family RESP Individual and Spousal RRIF LIRA Joint-Right of Survivorship Non-registered accounts Corporate accounts ITF accounts
RBC InvestEase $1,000 Flat fee of 0.5% per year Ranges from 0.11%-0.30% which means that you can expect your total annual portfolio fee to be around 0.61%-0.80% Tax-Free Savings Account (TFSA) Registered Retirement Savings Plan (RRSP) Non-Registered Investment Account.
BMO Smartfolio $1,000 First $100,000, annual fee of 0.70% Next $150,000, annual fee of 0.60% An average of 0.20% to 0.35% of the value of your SmartFolio account. Investment Accounts Joint Investment Accounts Registered Retirement Income Fund (RRIF) Registered Retirement Savings Plans (RRSP) Registered Education Savings Plans (RESP) Spousal Registered Retirement Income Fund (RRIF) Spousal Registered Retirement Savings Plans (RRSP) Tax Free Savings Account (TFSA)
Justwealth 5,000 except for RESP accounts where no minimum is required. The minimum Justwealth management fee is $4.99/month for all account types (excluding RESPs). An average of 0.25% Non-Registered taxable account. RRSP. Spousal RRSP. TFSA. RESP. RRIF. Locked-In Retirement Account. Life Income Fund.
Questrade Portfolio IQ $1,000 $1,000 – $99,999: 0.25% per year. $100,000: 0.20% per year ETFs: 0.17%-0.22%. Socially responsible investing portfolios: 0.21%-0.35% Cash Account- Personal or Joint. RRSP. TFSA. RESP. LIRA- Locked In Retirement Accounts. RIF- Registered Retirement Income Fund. Corporate Accounts. LIF- Life Income Fund.

If you’re a mature investor, your best choice is: Nest Wealth

As mentioned before, with an unique pricing model that is beneficial for those who invest large sums of money, Nest Wealth allows you to pay a monthly fee instead of an annual percentage of your portfolio value like most others. Its pricing tiers are:

  • Under $75,000: $20/month
  • $75,000 and Under $150,000: $40/month
  • $150,000 & Above: $80/month

With an average MER of 0.13%  of the ETFs for a balanced and the monthly fees mentioned above, this pricing system makes Nest Wealth a cost-effective option for investors with large portfolios.

This robo-advisor isn’t solely for retirees, even if it does appeal to that demographic. With this robo-advisor trades will occur automatically and follow an algorithm. It does charge some extra fees that others don’t (such as rebalancing fees), so keep that in mind as you consider them.

If you need more of a human touch for your investment, your best choice is: BMO Smartfolio

BMO Smartfolio uses an unique investment approach. With a hybrid approach, they use smart beta ETFs and also have a team of advisors watching the portfolios and actively making the adjustments needed.

So it works like a robo-advisors, but with a very hands-on approach behind the scenes. The portfolios are rebalanced around four times a year, to keep investors on top of their asset allocation. Other details about Smartfolio:

  • $1,000 is the minimum investment amount
  • Their fees range from 0.4% to 0.7%.
  • The MER of the ETFs held within the portfolios will be a weighted at an average of 0.20% to 0.35% of the value of your SmartFolio account.

If you would like to have investment variety, your best choice: Justwealth

With a massive selection of 70 different portfolios derived from more than 40 ETFs,  according to Justwealth itself, they have the biggest collection of portfolios out of any robo-advisor in Canada. This is their fee structure:

  • 0.5% for balances under $500,000
  • 0.4% for balances over $500,000
  • $4.99/month fee for accounts under $12,000
  • There’s an additional average MER of 0.25%.
  • Investors are also protected up to $1 million through BBS Securities, Inc.

So, there you have them, all robo-advisors and their features. As you can see, all of them offer different options depending on your investment and your risk preference. Think about what exactly are your needs and the amount you’re willing to start investing and then you’re ready to go over this list and choose one!