As customer expectations change, looks like the financial industry is trying to keep pace. Recently TD Asset Management decided to launch its own suite of Exchange Traded Funds (ETFs). This makes TD the third “big bank” player to provide its own suite of ETFs, following Royal Bank (RY) and Bank of Montreal (BMO). I recall this is the second time TD has tried to launch its own suite of ETFs, the first time was a failure due to lagging growth – how times quickly change.
Also in the news BMO Wealth Management group is launching SmartFolio, a new personalized portfolio management service. I suspect this initiative is in response to and to compete with other blended approaches to manage investor portfolios such as those provided by robo-advisors like Wealthsimple and Nest Wealth, among others. You can check out my overview of Wealthsimple including my interview with CEO Michael Katchen here. Staying with Wealthsimple for a moment, it recently acquired boomer-oriented ShareOwner. ShareOwner has an established history of something I am fond of – they are best known for their dividend reinvestment plans for hundreds of Canadian and U.S. stocks.
You can certainly use synthetic dividend reinvestment plans (DRIPs) for stocks and ETFs with all the big bank brokerages but it looks like BMO’s SmartFolio is trying to carve out its own niche.
The rise of robo-advisors and “SmartFolios” is understandable. Consumers are looking to take more ownership over their financial affairs but they don’t want to pay an arm and a leg to do it. Investors are learning more and more that high money management fees over long periods of time kill portfolio values. I came to this realization myself a few years ago. I’ve already provided an overview of Wealthsimple operations so for today’s post I figured I’d provide an overview of SmartFolio and offer a take on this new service.
What is it?
Launched by BMO Nesbitt Burns Inc., the bank’s brokerage division, SmartFolio seeks to close the gap between the digital notifications and investment advice that occurs with adviceDirect today, and what consumers are asking for – a more hands-off but more affordable way to invest.
Who is the target audience?
This service seems directed at Canadian investors who are just starting out, with as little as $5,000 to invest. BMO clients will have access to cost efficient ETFs (like ZCN, a low-cost leader in the Canadian equity fund space) and pre-constructed portfolios managed by BMO Asset Management experts.
Like other online robo-advisors and other discount brokerage services, SmartFolio requires clients to complete a risk questionnaire that will steer them to an appropriate mix of stocks and bonds. A recommended portfolio is selected from there. As a curious guy I took “the test” myself, a series of ten questions to see if my hybrid approach to investing using dividend paying stocks and indexed products was reflected in any of the pre-defined portfolios. This was my result: I was recommended an equity growth portfolio with 90% stocks and 10% fixed income allocation.
What is the cost?
During my interview with Wealthsimple, I was informed for a hypothetical portfolio comprised of a $50,000 RRSP and a $10,000 TFSA, for a couple in their 30s, the total cost per year for Wealthsimple services was $275. That works out to a money management fee of about 0.5% annually. Mr. Katchen has been poking at Canada’s big banks for some time, stating in an article “I challenge the big banks to join us in creating a new kind of platform that puts clients first, and avoids the high costs, low transparency and basic technology of their current offerings”.
Mr. Katchen got part of his wish with BMO’s SmartFolio – advisory costs are about 0.7% annually for the first $100,000 and lower costs are provided for larger accounts, as assets held increase. The cost of the ETFs in your portfolio would be extra.
First, as I’ve learned over the years there’s always room to lower costs for investors but it seems clear to me over the last year big banks and other financial firms are listening to customers, acting on what they hear, and striving to meet their demands for digital, on-demand information, and more robust portfolio management. This is a good thing. Second, it also appears these firms are doing this to get ahead of upcoming requirements. Coming this summer, new industry rules require investment firms to provide clients with detailed portfolio performance information. Third, BMO is looking to increase their bottom-line, and I don’t blame them. They are a big business after all and their goal is to make money for shareholders. I am one of them.
In summary, with new regulations to be enforced and lower-cost solutions coming into effect, it looks like it’s a win for consumers going forward – investors have options – and if you’re not happy with your portfolio, your advisor or both, you’ve got some lower cost alternatives folks.
What’s your take on these new products and services? Good or bad for the consumer? Great news for bank shareholders?