The Fintech scene in Canada just got a little bit more interesting. Financial innovation brought on by advancements in technology have opened up new investment options that disrupt traditional institutions; the trend is starting to pick up steam.
Robo-advisers have been steadily growing in popularity with players like Nest Wealth, Wealthsimple, and Wealth Bar relying on computer algorithms to manage investments and reduce costs. New competitors will continue to shift the landscape away from high investment fees and benefit investors.
Ladies and gentlemen, the latest online portfolio manager in Canada: JustWealth.
JustWealth, Who?
JustWealth Financial Inc. is a Toronto based company co-founded by Andrew Kirkland and James Gauthier. Kirkland, formerly a VP at Invesco Canada, specializes in client service while Gauthier brings asset management expertise from years with Scotia, TD and RBC.
According to Kirkland, “Trust in the financial services industry is decidedly low, which isn’t all that surprising given all of the conflicts of interest that exist.” The pair believe that transparent, honest advice combined with a focus in portfolio construction will allow them to stand out from their competitors.
All assets are held with Virtual Brokers, a division of BBS Securities Inc. who is a member of the Canadian Investors Protection Fund (CIPF). Investors are covered for up to $1 million for each type of account held.
Low-cost, personalized portfolio management
Justwealth offers 61 different portfolio options built from 29 ETFs from seven providers meant to “grow your wealth, generate income, or preserve your wealth.” Upon sign up, clients work with Personal Portfolio Managers and a support team to access services that include ongoing portfolio rebalancing and optional financial planning. Similar to other robo-advisors, clients can take advantage of advanced strategies such as tax loss harvesting.
Clients who opt for a Registered Education Savings Plan (RESP) account can benefit from specially structured Target Date portfolios. The portfolio’s asset allocation moves away from equity funds over time, and fixed-income funds are introduced as a child moves closer to enrolling for postsecondary education. This can help to reduce market risk.
The fees charged by JustWealth are in line with the competition: 0.50% for accounts under $500,000 and 0.40% for accounts with more than $500,000. Accounts with less than $25,000 are subject to a fee of $10 per month. While fees associated with trading are included in the annual fee, clients are responsible for the MER fees charged by ETF providers. They cost, on average, 0.25%, are automatically deducted and bring the fee up to a blended rate of 0.75%.
The minimum account size is $5,000, with the exception of RESP accounts where no minimum is required. Clients with over $1 million under management are able to build a customized ETF portfolio.
The Last Word
Canadians increasingly shop online, bank online and search for advice online. It’s only a matter of time before the general public take their investing online- if not for the convenience, certainly for the cost.
Are you ready to trust your investments to a robot?
The robo-advisor space sure is heating up! If you’re trying to decide between them, Sandi Martin from Spring Personal Finance did a great comparison calculator:
http://blog.springpersonalfinance.com/2016/02/investment-fee-calculator.html
To answer your bolded question at the bottom of this article, my answer is increasingly becoming a “yes”. The science behind passive, index-based low cost investing is sound. The main note of caution I have is whether to deploy a bit of a core passive index-based investing approach with some targeted active investing in select individual stocks chosen by me (not a mutual fund) and, if so, what that allocation between passive/active should be. Then, there’s deciding on what the optimal asset allocation should be and whether it should be primarily between different asset classes geographically or by sector and what the research is behind each.
Cost wise – Justwealth is among the lowest. And, really, for an “apples-to-apples” comparison, we need to exclude their estimated average MER of one’s chosen portfolio and look strictly at the portfolio management fee of either 0.50% or 0.40%, depending on asset size as, even in the self-directed discount brokerage realm, you’ll be paying the same MER on the chosen ETFs.
Of course, it is more expensive than self-directed discount brokerage, where I am, but why I’m considering the switch? Assuming one needs to make one buy and one sell of each ETF in their portfolio per year for both annual rebalancing and to make one’s annual RRSP contribution, I utilized a modest 7-8 ETFs in a typical model ETF portfolio, to keep things simple and also compared it with Scotia iTRADE, my current brokerage company for registered and non-registered investments. Their “per trade” fee for me, based on asset size, is $9.99. No online broker offers a fee less than $4.99 per trade and don’t be fooled by Virtual Brokers’ “The Penny,” which has a minimum of $4.99, and its “Commission-Free Trading Account,” which may be commission-free but requires a monthly trading platform subscription that is, to put it mildly, costly for non-professional investors. $9.99 is a reasonable fee.
Assuming 8 buys and 8 sells, since in a rebalance, you can’t realistically rebalance by buying one fund without selling another, that would also take into account one’s annual RRSP contribution at the same time and I get $160.00 in annual trading costs. I also have a locked-in RRSP with funds from a former employer’s Defined Contribution Pension Plan so that’s another $160.00 in annual trading costs, potentially, depending on the rebalance. Total cost to be a self-directed investor, excluding MERs: $320.00. Total portfolio management fee with Justwealth based on a combined $100,000 portfolio, again, excluding MERs for apples-to-apples comparison: $500.00.
What makes these guys different is both Andrew and James, though I’ve never met or spoken with them, seem really approachable and “down to Earth”. Both have portfolio manager backgrounds and have online scheduling capabilities if a client needs to have a short telephone conversation regarding their portfolio or obtain basic financial planning advice.
Factor in the fact that the trading costs are included in the annual portfolio management fee so contributions could be done on a monthly basis, allowing for Dollar Cost Averaging, if desired, as well as the fact these guys are Portfolio Managers, not Mutual Fund Advisors or Investment Advisors, which are held to the “suitability” standard, and are held to a “fiduciary standard,” and the evidence is pretty compelling. I’m leaning in that direction, for sure, and hope to make the decision in the next six months.
And that said, I’d likely opt to keep my non-registered portfolio and, perhaps, part of my TFSA, with Scotia iTRADE and manage that myself, allowing for that “active management” approach and shift the bulk of the longer term investment assets to an online portfolio manager. 🙂
Cheers,
Doug M.
Hi Doug,
Appreciate the feedback; I was previously interested in dabbling actively with a portion of my portfolio in a core and explore fashion. The source escapes me at the moment, but I read and found it reasonable to not exceed a 90/10 split between passive and active investments. I feel that up to 10% should sufficiently scratch the itch to try a hand at the market while maintaining the long term stability. Anything more than that and I’m afraid I’d be my own worst enemy. Not many factor their trading costs when calculating their returns; it’s nice to see that you’ve thought it through thoroughly. As for the folks from Just Wealth, I have spoken with them and am happy to report they are very approachable and happy to answer any questions that you might have. Good luck!