How To Choose The Right Robo-Advisor For You

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 your first $10,000 managed for free by 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 your first $10,000 managed free for a year!) 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