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 firstname.lastname@example.org. 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?
Update: Want to learn more about Robo-advisors? Check out this complete guide to Canada’s Robo-advisors from my friends at Young & Thrifty.