The future is now, robots managing our money. Computers using algorithms to help us determine the best investments for our portfolio that matches our risk tolerance and long-term investing objectives; science-fiction is no more folks…
Recently, a new online investment service called Wealthsimple was launched in Canada with this objective: to provide every Canadian, regardless of net worth or financial knowledge, access to smart, low-fee investing solutions. The team at Wealthsimple, including CEO Michael Katchen reached out to My Own Advisor recently to share news about this new service. Here’s my in-depth interview with Michael and what he had to say.
Thanks for the time Michael. Let’s get into it, what makes Wealthsimple unique from other Robo-Advisors or competitors?
There are the five key things that make us unique.
- Professor Eric Kirzner is head of our Investment Committee: Kirzner is head of value investing at the Rotman School of Management and was on the team that built the first Exchange Traded Fund (ETF) in the world in 1989. He has played a major role in encouraging the use of low-cost ETFs by investors for decades. Prof. Kirzner joined our team because he shares our belief that everyone deserves sophisticated investment management.
- Smarter investment service:
- Broader, global diversification. We build clients fully diversified portfolios across 10 asset classes customized for risk tolerance. 40% of our portfolios are in US-dollars, offering another layer of diversification.
- Automated daily rebalancing and tax-loss harvesting. We monitor your portfolio every day for opportunities to optimize performance. Our software will automatically rebalance your portfolio as it drifts beyond its target allocation.
- The best investment products, not just the lowest cost. We select the best ETFs for each asset class in your portfolio. Instead of just looking at cost, we look at the investment strategy and diversification of each ETF to get you the best exposure possible.
- Institutional pricing. We have negotiated institutional level pricing on ETF MERs and currency conversion, and we pass all savings on to our clients. If you add up the savings, it more than pays for our management fees (we’re really proud of that).
- Simpler platform: We are the only investment manager in Canada with a seamless, paperless onboarding experience. It may seem silly, but every other investment manager still requires paperwork to open most types of investment accounts. We also build everything for web and mobile.
- Complete transparency: Before you sign up, we show you what your allocation is going to be and demonstrate why we selected the ETFs in your portfolio. Your dashboard clearly shows the four numbers you care about (and can’t find easily with most managers): how much you put in, how much you’re up, what you paid in fees (yup, fees too), and the arithmetic gives you your balance today.
- Fee Structure: We have one of the lowest fees in Canada. We charge 0.35-0.505% and cover all trading costs and administration fees. We also don’t charge fees on your first $5,000 invested.
Very detailed response Michael, thanks for that. I read on your site Wealthsimple builds “a personalized portfolio for you that considers your unique needs and goals. In particular, we focus on accommodating your personal tolerance for risk. Accurately assessing your risk tolerance is important.”
How is this done? Walk me through the process.
The theme here is to keep it simple for clients.
- First, clients visit the site and create a user account, then fill out a planning questionnaire to answer a series of questions about their savings goals and risk tolerance.
- Next, a client would set up a phone call with one of our Wealth Concierges to review the questionnaire and recommend a final portfolio for them.
- Finally, the money is transferred into the account and the client can see in real time the value of their portfolio, total fees paid to date, and total growth of their principle.
Assuming investors now understand their risk tolerance, what products will you use for an investors’ portfolio?
We build clients fully-diversified portfolio across 10 asset classes using low-cost ETFs. We use a combination of ETFs from Vanguard, iShares, and Purpose Investments. We select the best ETFs for each asset class using the following criteria: methodology, cost, liquidity, and tracking error.
How much does all this cost? Let’s use a $50,000 RRSP account and a $10,000 TFSA for a couple in their 30s as an example.
We want to make things simple for our clients and this includes our cost breakdown. Using your example, we will say a client has $60,000 in total assets. The first $5,000 is managed for free, and the remaining $55,000 is managed at 0.5% annually. So the total cost would be $275.
This is presupposing that this couple is only investing through one account. If both are investing, then they would each get $5,000 managed for free reducing the total cost to $250. We are upfront about our costs, and we do not charge our clients any administration fees or trading costs.
How would you rebalance the above portfolio for this couple? Walk me through the process. What prevents this couple from intervening?
When you think about it, there is no magic date for rebalancing. Yet, most people who rebalance will do it once a quarter or, most likely, once per year. The right way to rebalance is based on thresholds. For example, if your portfolio drifts far enough from its target allocation, it no longer has the appropriate risk profile for you. Therefore, you rebalance to get back to your target allocation.
At Wealthsimple, we use a threshold-based rebalancing system. We monitor your portfolio everyday and if it drifts beyond certain thresholds, we automatically rebalance it. The way we rebalance is systematic and process driven, meaning we have removed any emotional bias from the equation.
What value are you providing with Wealthsimple over this couple picking and choosing 3-5 of their own Exchange Traded Funds (ETFs) with their online brokerage?
I think this is similar to what makes Wealthsimple unique.
- We believe that a more broadly diversified portfolio offers better risk adjusted returns.
- We offer our clients access to a dedicated Wealth Concierge who can provide support on, for example, investment management, personal finance, and tax management.
- Wealthsimple is founded by financial experts and technology entrepreneurs, and we bring the expertise and innovation to put your money to work for you.
- We have one of the lowest fees in Canada. Our management costs are 0.35-0.50% of AUM (Assets Under Management), and we have negotiated institutional pricing on all our investment products.
- We have created a user-friendly interface that makes tracking your portfolio simple on your computer or mobile phone. And each client’s total investment, return and fees are clearly displayed.
- With the institutional pricing that we have negotiated, it’s less expensive to hire us than it would be to recreate this portfolio on your own. In other words, hiring us is cheaper and way more convenient than doing it yourself. We’re really proud of that.
What happens if this couple wants to leave Wealthsimple?
While we do not want to see any of our clients leave, they can simply call their Wealth Concierge who will help them close their account. And there is no fee or charge to leave – we are upfront about our costs and do not believe in hidden fees.
Not that this will happen, but what happens to this couple’s money if Wealthsimple goes bankrupt?
We certainly plan to be around for a long time but of course want to reassure any new client their investment is 100% secure and protected with Wealthsimple. So here’s how it works: When a new client signs up for a Wealthsimple account, we open an account in their name at Virtual Brokers – our brokerage partner, which was rated the #1 broker in Canada by the Globe and Mail. Using a custody partner, like Virtual Brokers, adds another layer of protection for our clients. They are a member of the Investment Industry Regulatory Organization of Canada and members of the Canadian Investor Protection Fund, which insures investors up to $1,000,000. If Wealthsimple ceases operations, the client’s account will remain with Virtual Brokers, and they can choose to keep their account with them, transfer it to a new broker, or liquidate it for cash at any time.
Are members of the Wealthsimple team using this service themselves and if so, who?
Yes, all of the Wealthsimple advisors and team members are clients. This is something we are all very passionate about and believe in. In Canada, between the service and the team behind the company, we are second to none. We want to bring our investment solution to everyone, and it starts with us.
Where can investors learn more?
People can find us online at www.wealthsimple.com for more information about our service, prices and team or feel free to shoot us an email at email@example.com. Alternatively, we encourage people to visit our press page to see what others, like yourself, are saying about Wealthsimple.
Thanks very much for the time Michael.
What’s your take on Robo-advisors? What are your thoughts on Wealthsimple? Want to learn much more about Robo-advisors? Check out this comprehensive post to the Best Robo-Advisors in Canada.
Any updates on this article? I’m thinking about switching my managed portfolio at Raymond James to WealthSimple. How have they done over the last couple of years?
Overall, I believe WealthSimple has gained some market share – although I don’t have the numbers to confirm.
The fees are low but the performance relates to your funds/ETFs – not how they manage the funds unlike a portfolio fund manager.
Here is my affiliate link to ModernAdvisor as well – you can actually try it out for free with $1,000 of their money!
We are happy to answer any follow up questions your readers may have regarding our services.
firstname.lastname@example.org if you have any specific investment questions.
Great stuff and thanks Dave!
Mark, how about doing review of other robo-advisers and a comparative analysis?
I am also curious about how multiple accounts (RRSPs, TFSAs and investments) will be handled as a single portfolio, accompanied with tax-loss harvesting. Can computers handle these without human intervention?
I think a detailed analysis would be good and I will need to add that to my list of articles to write.
On the question of managing multiple accounts and tax-loss harvesting, I believe a reader (Sebastien) has an upcoming meeting with Wealthsimple. I hope to post a follow-up to this article on my site if the reader and Wealthsimple are willing to share those details for others; I hope so, as this could be a learning exercise for all.
Nice rundown. The area these type firms appear to have their ducks lined up is in the administration and back-office side and most of the commentary I’ve seen revolves around this aspect. At the end of the day, it’s not about style. It’s about substance. It’s about return and performance and unfortunately this model is so new, there really isn’t any history on how they perform and more importantly, how investors behave when using them. Will they still revert to traditional behavioural tendencies by “tinkering”. We just don’t have any tangible reference point for this model yet, other than the generic passive management outperforms actively traded. Mutual funds also are very good at administration and process (I’ve worked in that side back in the day) but we know how they’ve done on performance. In addition, we don’t know how these algorithms “behave”. They can be tinkered as well. It is really early days on this and from my perspective I’d like to see this play out. I’d hate for the scenario of, “well my robo-portfolio isn’t doing that great, but their website really looks cool and it’s easy to use and that young man I talk on phone seems like a nice person!” come to fruition.
You raise some great points Aman.
Yes, mutual funds are very good at the administration-side, and I suspect Robo-Advisors will be very slick as well. The thing is, if folks can pay no more than 1% for their products AND some advice, this is MUCH better than 2%+ products and sub-par advice.
I’ll be staying with my own DIY portfolio for now, but I’m very interested to see how this plays out. I think Wealthsimple offers a compelling alternative.
Very interesting. It’s good that there are more and more competitive financial services available in Canada.
Interesting that the program will re-balance the portfolio for you. What a great service!
It is great the landscape is changing and evolving. I think this can only be great news for investors long-term.
So, how exactly does the “institutional rates” work? Wouldn’t the MER be the same whether I bought it through VB myself, or WealthSimple did? 0.5% is a lot when most people are basing their ETF choices on 0.05% differences. And since many brokers trade ETFs for free, trading cost isn’t much of an issues here. Maybe I just don’t understand, but I’d love to see how I could save money by going this route.
But, if it is true that the can save me money, and at least offset some of their fee, I’d be very interested. For myself, yes, but more so for family and friends that I wish to promote a simple portfolio with.
Also, I’m curious how WealthSimple balances across multiple accounts (TFSA RRSP non-registered) and how (if?) they pick the most tax efficient ETFs
for non-registered accounts (as was recently studied by Canadian couch potato)
I could likely get some more details from Michael Katchen if you wish…
I don’t think the MER is different or higher but I’m not 100% sure so I don’t want to mislead anyone. 0.5% is a lot more than full-on DIY investors would expense, but when most Canadians are paying 2%+, this is leaps and bounds different.
If you’re a buy-and-hold ETF investor in iShares and Vanguard products already, who does not tinker with your portfolio, potentially the benefits for you personally may be incremental. I would assume (although I cannot confirm) Wealthsimple would certainly select tax efficient ETFs for all accounts and treat all investments across all accounts as one portfolio based on an investor’s objectives.
Thanks for your reply Mark. I agree with what you say, it’s how I see it too. I would like to get confirmation as well though.
I’m kind of in the middle, where most of my investments are with TD eSeries, and everything is easy to manage/balance (at least within one investment vehicle). I think it would cost me more to invest through WealthSimple, but I would give it a try in a heartbeat if I found ther the to be value in it (on the surface it seems so).
I signed up, and I’m scheduled to talk with them tomorrow afternoon so I’ll have a chance to ask those questions and see where they can fit in. Excited to see how it looks.
Great stuff Sebastian….I mean, I don’t think it costs a penny to find out more from them and that’s a good thing.
As a follow-up to all your detailed questions (and good ones at that), I would be interested in doing a follow-up article on my site if you wouldn’t mind. I can appreciate Wealthsimple is not for everyone but I believe this can be a valuable service for some investors who don’t realize how much bad behaviour and fees can kill your retirement plan. You already know this so you’re ahead of the curve.
Let me know if you don’t mind a follow-up article and I would be happy to write that up with you.
Thanks for the consideration!
@Sebastian – My understanding is that they can access certain ETFs cheaper than retail investors can.
What is going to be hard for many investors to understand, especially those who are fully-engaged DIY investors, is that there are certain behaviours that we might not even be aware of that cause us to stray from our long-term plans. Think of what is going on in the markets right now. How many of us are acting on some instinct about the direction of the market or on what some TV pundit said?
With a service like WealthSimple you’re not just paying for rebalancing but for the methodology and reassurance that you’ll stick to your plan and avoid bad behaviour.
I agree with you… Investors have bad habits. That’s one reason I would be quick to recommend this service to others. That habit isn’t really an issue for me though. I look at this correction as an opportunity. Stocks haven’t been this cheap since April or earlier. It’s like a time machine!
I liked the time-machine comment 🙂
i’m not sure i see what i would be paying for other than a rebalancing service. i would pay wealthsimple .5% and also the etf mer. i prefer the flat fee service such as rob’s or sandi’s.
maybe i’m the one who’s simple — i’m sure it will sink in eventually.
Flat-fee advisory services like Robb’s and Sandi’s may only grow with Robo-Advisors coming on board. This is because the awareness is much higher with these “larger fish” coming into the pond. Overall, anything that heightens the awareness of how much fees and bad behaviour kill investment portfolios is a great thing – this you know well Gary 🙂
Interesting. It’s good to see the investing services market in Canada become more competitive. It doesn’t have as many options as the US yet but we’re certainly getting there, and I hope that it’s because more and more people are investing their money so there is a higher demand.
Thanks for the comment Daisy and it will be interesting to see what happens as these services grow and take hold within the industry.
Thanks for the write up. I may try one of these new robo advisers soon to test how it goes with a small investment. Very well could be the direction investing takes in the future. Would love to see how wealthsimple racks up against their US counterparts according to fees and services.
Based on what I’ve read, I think for investors that do not wish to go/do not have the time nor energy to go full-on DIY, this might be just what they need. Based on the costs, the services seem very solid. Thanks for the comment Asset-Grinder. Let me know if you decide to go ahead…I would be interested to learn what happens.
Great interview, Mark. I’m really happy these services have come to Canada and now the real work begins to try to convince average Canadians that they’d be better served in a model like this than they are with a traditional bank mutual fund seller.
From what I’ve seen (and heard) from WealthSimple, I like the service it offers with the unique Wealth Concierge and low fees. Unlike some of the other “robo-advisor” firms, however, it offers a wider-range of ETF products and I’m not convinced that fits with the “simple” model they’re trying to portray.
For example, tactical stocks using a momentum-based strategy? Tactical bonds? Seems like a bet on Purpose Investment funds. I realize they will make it simple for investors by handling all this behind the scenes, but my preference would be a portfolio of 3 or 4 funds that people will understand.
Thanks for the comment Robb.
I think the Concierge service in particular has the potential to really take-off for them, this may help investors who are skeptical of the services and benefits of using this approach. It will be interesting to see how many Canadians jump on this stuff; fees and tinkering with the portfolio are two of the worst things for investors; as you well know and coach others on.
It will be interesting to see how companies like Wealthsimple change the investing landscape. I’m all for more of these services since it opens up the conversation about money management and investing; asking some tough questions of the new service-providers, the traditional service-providers (big banks) but also the investors themselves.