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.