You may have seen Wealthsimple’s slick ads featuring frank talk about finances from Hollywood actors such as Mark Duplass and Aubrey Plaza, or its highly relatable celebrity social media posts, like Queer Eye‘s Jonathan Van Ness declaring his First Financial Principle: “I’m a girl who has to stop herself from shopping.”
But, smart marketing aside, what exactly can you do with your money at Wealthsimple—and is this robo-advisor right for you? Here’s what you need to know if you’re thinking about joining the swelling ranks of Wealthsimple clients.
Who’s behind Wealthsimple?
Millennial entrepreneur and self-described “boring investor” Michael Katchen launched Wealthsimple* in September 2014 as a low-cost, low-effort approach to investing. Now age 31, CEO Katchen has seen his company transform from a humble Toronto startup to the largest online-only financial services company in Canada, with more than 150,000 clients, in excess of $4 billion in assets under management and international offices in New York and London.
Who uses it?
Wealthsimple caters to the uninitiated millennial investor, with a reported 80% of its clients under the age of 45, and 40% of them being first-time investors. About a quarter of its clients are socially responsible investors, meaning they have money invested in Wealthsimple’s SRI portfolios, which support companies that prioritize environmental and social concerns and have a positive record on human rights and corruption.
How it works
Wealthsimple’s core product is a “set-it-and-forget-it” portfolio of low-fee exchange-traded funds (ETFs). In a nutshell, ETFs allow you to invest your money across an entire market—such as Canadian stocks, high yield bonds, real estate, etc.—instead of trying to pick and choose the winning companies in each market. In this way, Wealthsimple provides an easy solution for clients to diversify their portfolios and earn decent returns on their investments over the long term, with minimal risk.
Clients spend a few minutes answering questions online about their comfort level with risk, age and investment goals. Your answers determine what type of portfolio is recommended: conservative, balanced or growth. As mentioned above, there are also socially responsible investing (SRI) options, as well as Halal portfolios for those who adhere to Islamic law.
Accounts and fees
In terms of cost, Wealthsimple has two types of fees:
- An overall management fee, which is a percentage of the total amount of money you have invested. For Wealthsimple clients with balances less than $100,000, that fee is 0.5%; balances of $100,000 or more are charged 0.4%.
- Each individual ETF has its own fee, which you’ll see referred to as the “MER,” or management expense ratio. The MERs on Wealthsimple’s ETFs average about 0.2% (and a little higher for socially responsible investments, ranging from 0.25% to 0.4%).
So, depending on the size of your portfolio and the types of ETFs you have, the total fees could be around 0.6% to 0.7% (or 0.625% to 0.9% for SRIs). What does that look like in real terms? You’d pay about $350 in annual fees for a $50,000 portfolio (or $375 to $450 for a similar-sized SRI portfolio).
So, what’s not to like?
Wealthsimple clearly makes it easy to invest, with no required minimum amounts, no transaction fees, a user-friendly website and human experts available to help at any time.
There are, however, a couple of limitations to Wealthsimple’s approach:
- Investment options: Clients are limited to the boilerplate investment portfolios that Wealthsimple chooses for them. If you want access to other ETFs, you’re out of luck.
- Fees: While the $350 annual fee from our example above might not sound too bad, consider what happens once your portfolio is in six-figure territory. Even with the management fee drop to 0.4% for accounts over $100K, once you add in the ETF fees you’re looking at total fees of about 0.6% (or up to 0.8% for SRIs). That’s $600 to $800 in fees per $100,000 in investments per year. Lower fees are available through discount brokerages and even some other robo-advisors*.
Bottom line: should you use Wealthsimple*?
There’s no question that would-be investors who might otherwise endlessly procrastinate on setting up a portfolio will benefit big-time from Wealthsimple’s services. Investing in a broadly diversified portfolio of low-fee ETFs will always earn more than bank interest over the long term, and is a sure way to keep the purchasing power of your savings from being eroded by inflation.
Anyone who has a hard time finding money to invest would also be well-served by the following recent additions to Wealthsimple’s service offerings:
- Roundup, which lets you round up debit or credit card purchases to the nearest dollar, with the difference going into your investment account;
- Overflow, which automatically transfers any surplus money (over a certain threshold that you specify) in your bank account to your investments.
On the other hand, investors with larger portfolios and those who want more control over the type of investments they purchase may want to consider other robo-advisors who may have lower fees, or discount brokers* that offer DIY investing.
What does the * mean?
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