Robo-advisors vs. Couch Potato investing

If you don’t have a big enough portfolio to justify going to an advisor, but you still don’t want to go it alone there are alternatives—as long as you’re ok with talking to a machine



From the January 2017 issue of the magazine.


In the last three years, a new model has appeared in Canada that has attracted a lot of attention from investors interested in ETFs. Dubbed “robo-advisors,” these firms design, build and maintain ETF portfolios online, charging a modest fee that often includes trading commissions. That allows you to avoid many of the challenges that come with managing your own ETF portfolio, including investing small amounts, choosing appropriate funds and paying commissions every time you buy or sell.

There are now about a dozen robo-advisors in Canada, including Wealthsimple, Nest Wealth, Wealth Bar, Smart Money and ModernAdvisor. They have a lot to offer investors who are looking to farm out the job of building and maintaining an ETF portfolio. And if you plan to access your accounts on your smartphone and tablet, they’re great for that, too. Certainly these services are much less expensive than traditional financial advisors, though they typically offer little or nothing in the
way of financial planning.

In terms of cost, most robo-advisors fall somewhere between the Tangerine and TD e-Series options. For portfolios under $100,000 most charge 0.50% to 0.60% on top of the ETF management fees, so the all-in cost is usually in the ballpark of 0.75%.

Robo-advisors vs. the Couch Potato portfolio

We haven’t included robo-advisors in our comparison because they are significantly different from the DIY options you’d find in the traditional Couch Potato portfolio. The portfolios created by individual firms differ, but they are all more complex than the traditional Couch Potato, usually containing six to 10 ETFs. Moreover, some robo-advisors make no pretense of following a traditional indexing approach: They may include actively managed ETFs or funds that use unconventional strategies such as covered call writing. Investors have little or no ability to customize their portfolio, so if you’re uncomfortable with these strategies, you’re out of luck.

couch potato investing

Photo by Nikki Ormerod

5 comments on “Robo-advisors vs. Couch Potato investing

  1. Thanks for your coverage of the space, Dan. I just wanted to clarify a point you made in the article about the lack of customization options. We actually announced Custom Portfolios last week and now offer the option to our clients to work with an advisor to build a custom ETF portfolio for the same low fee. This option is available to clients who invest $150,000 or more with the firm now. I am hoping to reduce this threshold in the future.


  2. Really appreciate your coverage of the space Dan. At Nest Wealth – we use technology to drive down costs and enhance the customer experience, but we have a team of real live people ready to support our clients. All of our clients have access to our customer experience team and their own personal portfolio manager. Every client has an entirely personalized portfolio built around their financial goals and priorities and has the opportunity to work with their portfolio manager to tweak and adjust their portfolio as needed.


  3. As a happy long time (2 years) customer with WealthSimple, there was one aspect you missed with robos and that is referrals. Through WealthSimple if you refer one of your contacts you and your referral will receive an extra $5,000 managed for free. With four friends and family signing up plus my initial $5,000 fees waived, this has allowed me to receive $25,000 managed with zero fees which reduces overall costs even further.


  4. I’d still argue that, for smaller retail investors looking for an automated “couch potato” portfolio with regular rebalancing, dividend reinvestment and tax loss harvesting, as well as access to a portfolio manager and/or their associates either by phone or Skype video chat, the advice you would be getting is far superior to that of a mutual funds sales representative from Tangerine’s or TD’s mutual fund dealer subsidiaries. Plus, because the accounts are managed on a fully-discretionary basis in that the portfolio managers place the trades and rebalance according to your Investment Policy Statement and strategic asset allocation, they are held to a higher, “best interest” (or a fiduciary) standard meaning that all trades have to not only be “suitable” to your risk tolerance and personal/financial circumstances, they have to be in your “best interest” (i.e., two passive ETFs or index funds tracking the same benchmark index and using the same methodology being capped or equal weighted, they have a fiduciary duty to choose the lowest cost one). That’s something previously only afforded to the high net worth investors and that’s fantastic. All of this at a lower cost than, at least, Tangerine’s index funds (though Tangerine index funds are a decent option for those just starting out). :)

    In my mind, to that end, if you’re comfortable doing the rebalancing and initial fund selection yourself, ETFs through a discount brokerage is probably the best approach for most people, as long as you have at least $25,000 or, ideally, $50,000 or more to invest (due to the trading costs and/or account fees that might otherwise be applicable). Though, even there, if you’re a DIY investor who’d prefer to contribute monthly or biweekly or semi-monthly even, a robo-advisor (more on that below) may even be superior given the trading costs involved. (I looked very seriously at it myself, though, ultimately, decided on remaining as a DIY investor given the additional options for initial portfolio construction.)

    However, for anyone with $2,500 to $25,000 to invest and looking for a bit of advice and/or for it just to be automated, I really think a robo-advisor is best as you’re looking at least a 30 bps lower difference in cost than with Tangerine but with a higher standard of care and access to quality advice and financial planning (if you need it). I’d also add that Justwealth Financial ( would be my “top pick” for robo-advisors – it’s a bit smaller, more of a “boutique,” but growing firm with top notch portfolio managers who are also the co-founders, both of whom I’ve spoken to and seem very down to Earth. Their portfolio management fee is, I think, the second lowest among the robo-advisors.

    In terms of index mutual funds, curious why PC Financial’s index mutual funds, distributed through CIBC’s mutual fund dealer subsidiary and under the CIBC family of index funds, weren’t mentioned? I don’t deal with them but their average MER is comparable to Tangerine within about 5 bps, when you factor in the PC Financial “fee rebate” that is refunded annually. :)



    • The previous comment is more informative than the article.


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