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What are Robo-advisors?

Craig Sebastiano

Online investment managers, known as robo-advisors, have grown in popularity over the past couple of years because they provide investors with a professionally managed portfolio at a lower cost than mutual funds.

How do robo-advisors work?

Before you open an account with a robo-advisor, you’re asked a series of questions to determine your risk tolerance and investment goals. Based on that information, your money will often be invested in a portfolio of exchange-traded funds (ETFs) that match your objectives.

What are the advantages of robo-advisors?

If you’re not a do-it-yourself investor like me, robo-advisors are a good alternative. They choose the ETFs and rebalance your portfolio for you. While robo-advisors are generally more expensive than picking your own ETFs (with fees as low as 0.06%), they’re cheaper than most active mutual funds (with fees usually above 2%).

What are the costs of using a robo-advisor?

There are usually two different fees you’ll be charged. There’s the advisory or management fee that’ll cost somewhere between 0.5% and 0.7% annually. This cost will gradually decrease as your account size grows. And there are the ETF fees (typically in the 0.2% to 0.35% range), which are passed on to you.

Is a robo-advisor available where I live?

There are some robo-advisors like Wealthsimple and BMO SmartFolio that are available no matter where you live in Canada. But others are only registered as a portfolio manager in certain provinces or territories with plans to become available across the country in the near future.

How much do I need to invest?

Some robo-advisors like Wealthsimple and Nest Wealth have no minimum investment whereas BMO SmartFolio and WealthBar have a minimum investment of $5,000.

What types of accounts are available?

Many robo-advisors offer both registered accounts (RRSPs, TFSAs, RESPs) and non-registered accounts.

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