Robo advisors have been one of the big stories in investment over the past decade. But even as companies like Betterment have been scoring big gains for their clients' capital, Canadians have been excluded by some of the biggest names in the automated investing game. In this robo advisors Canada comparison, we'll look at a few of the best set-it-and-forget-it investment options available to Canadian citizens. But first, what is a robo advisor anyway?
What is a Canadian Robo Advisor?
Robo advisors are digital companies that invest your money in various ETFs and mutual funds. Each fund is already quite diverse, and in the end your money will be spread out across thousands of companies around the world.
Robo advisors take into account your unique risk tolerance when choosing how to allocate your funds between risky assets (stocks) and more benign ones (bonds). Robo advisors may offer personalized assistance, as well as automated tax-reduction tools like tax-loss harvesting.
There are differences between robo advisors, but most of them simply try to create "set it and forget it" style investment for the everyday person. Many people who have used robo advisors have not invested previously. What's more, robo advisors charge much less than human investment managers, often with better results.
Canadian-focused robo advisors are some of the best in the market. We'll take a look at who these companies are and what distinguishes their services from the competition.
Wealthsimple is a well known robo advisor based in Canada. Their 0.5% fees (0.4% for accounts with more than $100k) are more expensive than a service like Betterment (0.25% fees), but their services are otherwise very similar.
Wealthsimple has no minimum balance and your first $5,000 are managed for free. They work to be as accessible as possible, winning the business of investors with and without experience. They perform actions like tax loss harvesting, rebalancing, and and dividend reinvesting automatically.
Users can choose from three portfolios with Wealthsimple: Balanced, Growth, and Socially Responsible. Balanced portfolios have a little bit of everything, Growth portfolios take on more risk for more potential reward, and Socially Responsible portfolios aim to invest user money only in businesses that are green and humane.
Nest Wealth and Wealthsimple often find themselves adjacent in lists like these, and this is not without reason: they are both leading robo advisors in Canada. There are slight differences in the way they work, however.
Nest Wealth doesn't charge an annual fee that takes a specific chunk out of your portfolio balance. This would make the service more expensive for you each year, even though they're not doing any more work.
Instead, Nest Wealth charges fixed monthly fees ($20-$80, set in stone based on beginning portfolio value) which will not grow no matter how long you use the service. Nest Wealth has no minimum deposit, and manages counts with less than $10,000 at no charge.
One key point against Nest Wealth is that they charge $9.99 for certain trades, no more than $100 per year. This is somewhat unusual among robo advisors in Canada and should be considered as an additional expense.
Another strong robo advisor Canada has to offer, Justwealth aims to give its users a great deal of choice in what they wish to invest in, without overwhelming them with options. As such they have 60 different portfolios to choose from, for people with different political preferences, risk tolerances, and time till retirement.
Justwealth charges a standard 0.50% annual balance fee, which can go up to 0.65% or 0.75% effective when you account for ETF and mutual fund fees. The cost goes down to 0.40% annually when (and if) your account reaches $500,000.
Like all the other companies in our robo advisor Canada comparison, Justwealth's business premise is based on Modern Portfolio Theory, and its emphasis on index funds and low fees.
ModernAdvisor has similar offerings to the services so far named. They charge 0.50% for accounts valued between $10,000 and $100,000. The service is free before that. The fees reduce to 0.40% when your account crosses $100,000 in value, and again to 0.35% at $500,000.
ModernAdvisor's portfolios are based on user social beliefs, risk tolerance, and investment goals. ETFs and mutual funds are assembled accordingly, each with their associated costs. These extra fees bring the effective cost of ModernAdvisor to ±0.77% each year.
Where ModernAdvisor stands apart from other robo advisors in Canada is their interactive demo account. New users can use the service with $1,000 play money to see how they like it and how a real portfolio might grow. Users can also create funded accounts with no fees for the first 30 days. If you decide to leave ModernAdvisor, you can keep the gains you made in that time!
Wealthbar distinguishes itself among the robo advisor Canada crowd by offering not just automated services, but management advice from real human beings. Many robo advisors brag that they don't use human managers because of their associated costs, but some people still clearly want this service. Wealthbar is the best of both worlds in this way.
Wealthbar has 5 different basic portfolios, with additional choices for socially-minded investing. They range from "Safety" to "Long Term Growth", with additional risk and potential reward with each step up the ladder.
Wealthbar is backed by Nikola Wealth Management - a strong firm with more than 40 years experience. Their foray into digital investment management is bringing numerous new customers into the fold.
Wealthbar's personalized human management aspect is its main selling point, but it brings with it slightly higher costs than are typical in this list. Any account with less than $5,000 is free; $5,000-$150,000 costs 0.60%; accounts with $150,000 to $500,000 cost 0.40%; $500,000 and above are charged 0.40%. Additional fees from funds increase each base price by about 0.25%.
You can see from this list that you've got a lot to choose from among robo advisors in Canada. Will you choose a fully automated service like Wealthsimple, or will you opt for a more personal option like Wealthbar.
Whatever you choose, you'll save lots of money compared to traditional human advisor services, which often charge more than 2% of your account balance each year. We're entering a golden era of Canadian robo advisors, and we at Roboadvisors.com think that the golden age is just beginning.