How To Choose The Right Robo-Advisor For You

how to choose the right robo-advisor

As I’ve mentioned before, I did not do a whole lot of homework before choosing a robo-advisor.

Literally, I googled “robo-advisor for Canadians,” liked Wealthsimple, and invested.

This is a classic Des-shows-you-how-not-to-do-things moment in personal finance, like the time I bought auto insurance, the time I picked my credit cards, and the time I tried to save an emergency fund. But, unlike those times, there isn’t really a good story behind it, so let’s focus on what you should consider when you’re choosing a robo-advisor, shall we?

The basic concept of a robo-advisor is that you’re taking a passive approach to investing. You want to invest your money in the market as a whole, in a balanced way, for a low cost. You’re not into picking stocks and trying to beat the market, because honestly, who even has the time.

(Plus, dying of laughter over here, even Jim Cramer hasn’t beat the market over the past ten years. Dude literally has a TV show about stock picking.)

So how do you choose the right robo-advisor for you, if they all take this approach? Two ways.

Cost, and investment options.

These are the things I would look at if I were choosing a robo-advisor again today.

How Much Will A Robo-Advisor Cost?

Personal finance truth: you should ALWAYS know how much things cost, investments very much included.

How much a robo-advisor costs is by and large driven by one thing: how much money you have in your portfolio. Luckily, you probably have a good idea of how much that is, so you can figure out pretty quickly how much each platform will cost you.

Take a peek at your savings accounts, and get a ballpark number of how much money you want to put into the stock market.

See: What You Need To Know Before You Start Investing

If you have…. Less than $5K

Some of the math is easy, since some major platforms have minimum account sizes. Less than $5000 to invest? BMO Smartfolio isn’t for you, because that’s their minimum account size. Nest Wealth and Questtrade Portfolio IQ aren’t your best options either, since their fees are pretty steep on low balances, when you dig into the percentages. That said, Wealthsimple has no management fees for accounts under $5000 (and you can get a $50 bonus for signing up using this link!)

If you have… More than $500K

If you’re rocking a portfolio of $500K, things flip around for you (and also, you go Glen Coco.) At that size, NestWealth is one of your most competitive options, with fees of $80 a month, versus Wealthsimple at $165 a month.

This will be a fun problem to have someday, I think.

What If You’re Somewhere In The Middle?

For me – yes, I’mma hit you with some numbers here! – my portfolio is hovering around the $20K mark if you add up my TFSA and RRSP balances. Here’s what I would pay at some of those advisors if I were with them each year.

Nest Wealth ~$370
($20 a month, max of $100 in trading fees per year, and an average of 0.15% ETF costs.)

Wealthsimple ~$122
($6 per month, and an average of 0.25% ETF costs)

ModernAdvisor ~$150
($100 per year, and an average of 0.25% ETF costs)

Questrade Portfolio IQ ~$214
($11.67 per month, and 0.37% ETF costs)

BMO Smartfolio ~$190
($11.67 per month, and an average of 0.25% ETF costs)

The other factor to pay attention to, when it comes to pricing, is additional fees. Robo-advisors might have charges for things like not contributing a certain amount each year, executing trades or withdrawing your money. These type of things vary greatly between companies, and their likelihood is pretty dependent on how you want to use the accounts.

My best advice? Reach out to a robo-advisor you’re considering and ask them if you’re unclear on how additional fees might apply to your situation. It turns out, there are real people who would love to help you behind these so-called robots.

I’m sure they’d be stoked to hear from you.

What kind of investments do you want?

Ok, let’s be clear: this is me, human who returned every investment book she’s ever checked out of the library unread. So I’m not about to drop some hardcore “here’s what you need to invest in now” truth bombs.

This is about feelings. (Well, kind of.)

There are things in the world I feel strongly about, and have taken pretty public stances about. I’m pretty sure after this Medium post, no bread manufacturer is ever going to hire me, and that’s OK. I don’t want your vegetable bread money anyways.

I also don’t really want money from companies that are ruining the planet, or companies that are deeply bad to people. Easy enough to manage in terms of who I personally work for, but way harder to manage when it comes to who my money works for – ie. who I invest my money with.

That’s the thing with ETFs: they buy the market, and that market can include companies you might not want to touch with a ten foot pole.

While I haven’t found a way to exclude bread from my portfolio, I did switch all of my investments over to Wealthsimple’s socially responsible investing options as soon as they became available. That means I’m no longer investing in companies with bad track records on a broad measure of social responsibility – which includes things like not destroying the earth.

It’s becoming a popular option for robo-advisors to offer – I blame those awful millennials and how much they “care about the world” – and Wealthsimple and ModernAdvisor both currently offer socially responsible investing options.

For me, the moderately higher fees associated with an SRI portfolio (0.25% to 0.4% ETF fees, instead of 0.2% to 0.3%) are totally worth it, but going back to the how-much-does-it-cost part of things, it’s a factor you’ll want to consider.

So Which Robo-Advisor is Right For You?

I mean, who even knows dude. It depends!

I will say that, for me, given my current portfolio size and investment preferences, Wealthsimple is the best fit, which is why I’m so confident recommending it to other millennial friends who are getting started with investing (especially with that free $50 bonus! Literally the only thing you need to do is open a non-registered account – aka not a TFSA or RRSP – and they can send you the money. Once it’s in there, feel free to move it to a TFSA or RRSP if that’s your jam.) And if you did go and read that post I wrote about bread, you’ll know I feel pretty strongly about only promoting products I believe in, haha.

I’ll also say that if you know how much money you want to invest, you’ve compared the pricing of different services, and you’re comfortable with the investment options they offer – you probably know the answer for yourself at this point.

And if you’re rocking a $500K+ portfolio, high freaking fives.

Are you using a robo-advisor right now? If yes, what made you decide to choose that one – and do you have any other advice for selecting a robo-advisor to people who haven’t taken the plunge? If no – why not?

How to choose the right robo-advisor for you

Image credit: Pink Pot

Desirae is on a mission to demystify and un-boring financial info for millennials, so that we can all save more money, spend on stuff that matters to us, and still have a latte or two along the way. Money is literally why we can have nice things, and Desirae is committed to helping make sure you know just enough to make the right calls for you. (She’s also committed to her expensive dog, her side hustle, and her retirement fund.)

17 Comments on “How To Choose The Right Robo-Advisor For You”

    1. Desirae

      They might be a North American thing? Or maybe I’m just totally out of the loop on financial tech stuff in the rest of the world, haha. I know there are big ones in the States, and the ones in this post are all Canadian options – and they might even go by a different term in other places! But if you do find something comparable – automated, easy to set up, etc – I found it takes SO much of the fear out of investing, at least for me! (That said I’ve known about this investing approach – the buy-the-market thing – for like ten years, so I’ve had time to get used to the idea, lol.)

  1. Alyssa

    Also bookmarking! My fiance and I have been looking at which option is best for us, and I love love love all of this advice. I think it’s completely subjective, but in a lot of ways, we all want the same things – success. So I guess we’ll have to go wherever will provide us with the most of that! Thanks for sharing.

    1. Desirae

      Thanks Alyssa! It’s definitely subjective – I’ll be totally honest, if another option had come out a few dollars cheaper than Wealthsimple I’d probably be like *shrug* not switching yet. The mental energy involved in switching all of those account details is too real. It also helps that my investments, even though they feel like a Big Deal to me, are not in the “omg I could seriously make a very bad choice here” level just yet.

      I feel like $500K would just scare me at this point. It would be nice, yes, but also MIND-NUMBINGLY HORRIFYING.

    1. Desirae

      I’ve heard really good things about them! Sadly, they’re a US-based option and I’m Canadian (she said about every cool PF tool ever – what I wouldn’t give to use Personal Capital and have it actually work with my accounts!)

  2. Penny @ She Picks Up Pennies

    I actually chose not to go with robo-investing (yet). Instead, I went with Vanguard (fees are even less!). Regardless, major kudos to you. These are terrific tools, and I totally appreciate the insights and breakdown. You’re rocking your retirement savings!

    1. Desirae

      For all you say about being scared of investing, you’re a real DIY-er! You went and actually bought ETFs! By yourself! Which is way more complex than anything I’ve done with my signing-up-for-accounts-online and leaving-the-rest-to-professionals. Seriously, kudos – I know my fees could be teeeeeny tiny if I did the same.

      We’ll call this my luxury investment strategy to go with my luxury dog.

  3. Justin

    What exactly does a robo adviser provide you with, versus say just buying an iShares S&P/TSX 60 Index ETF? It can’t actively trade on your behalf correct? Do you just receive a weekly/monthly/quarterly recommendation to adjust your holdings to realign with your stated risk preferences? I’m definitely interested in them, but until my savings recuperates from my house purchase I’ll be sticking with ETFs. Both options definitely work better than stock picking over the long haul (and definitely better than my foray into options trading…oh well, that’s what being young is for right?)

    1. Desirae

      If you’re cool with buying and rebalancing your own ETFs, that’s definitely the lower-cost option and is ultimately the same type of approach – honestly, it’s just still a bit too involved for me, haha. I can only speak to Wealthsimple, but they buy and rebalance automatically for me, and my portfolio has 5 ETFs to make sure I’m exposed to the right market segments based on my risk tolerance (and my bleeding heart SRI preferences!) I can check on the activity anytime, but they take care of all of that and I’m not charged for each individual buy/sell for rebalancing, which is nice.

      1. Justin

        Oh that’s awesome! I didn’t realize they could actually trade on your behalf. I assumed due to markets regulations they needed approval before each transaction. That was just based on my brief stint in the world of mutual funds where discretionary trading was a big no-no. I’ll probably stick with my ETFs for now but the robo advisor seems like a great alternative.

  4. Matt Molkoski

    Great article!

    Only comment, and the reason I didn’t go with robo-advising is that, at least with Wealth Simple, you are charged their fee, as well as the individual fee for the ETF/Mutual fund that you are purchasing. So, the actual fee structure got a little too high for my liking.

    But it’s definitely way easier to keep balanced!!!

    1. Desirae

      Totally! That’s why I looked at the underlying ETF fee when calculating each potential annual cost, since most of them come in at around 0.25%, which is not nothing in addition to the roboadvisor fee too! At the end of the day, it was this or the Tangerine funds, which ring in at 1.07%, so it’s a happy medium for me until I get up the nerve to follow your lead and dive right into a fully self-run ETF portfolio!

  5. Melanie @ Dear Debt

    I just started investing after paying off all my debt. I was SO close to going with a robo-advisor, but ultimately went with Vanguard as the fees were lower. I think it’s def a good option to get started, but people should calculate what the fees are over the long term.

    1. Desirae

      TOTALLY. Oh man, I could not agree more Melanie – honestly, in a few years, once I’m a little bit more confident, it’s Vanguard (or similar) all the way for me. The fees are just -so- low. My issue was that I’ve known that was “the right thing to do” for like… I’m not joking, years, and never did anything about it. The robots were just a good, easy way to get me started, haha. Better than leaving my money in cash for another two years, right? (She said in the year that the markets went literally crazy.)

    1. Desirae

      I saw it in Rob Carrick’s newsletter after I had written this – it’s AMAZING! I sent it out to my email list that week as well, because omg, it is pure magic. I sent her a thank you as well! What a stellar tool (and this is an excellent reminder that I need to add a link to it on my resources page!)

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