A new era of better banking was quietly launched recently.
You can see it in the online investment advisory service that Bank of Montreal is about to debut, and in the new website introduced last month at TD Direct Investing, Toronto-Dominion Bank's online brokerage division. The common themes are clarity, simplicity, convenience and accountability. In other words, stuff that you often don't see when you deal with banks in the usual way.
The Internet changed banking for the better by freeing us from the tyranny of branch lineups and allowing us to do 99.5 per cent of our business anywhere we have a computer with online access. Now, we're seeing a second wave of innovation in which upstart competitors are forcing the banks to deliver a more customer-friendly experience both online and through mobile devices. Once you try it, you won't go back.
A great example of the changes happening in the investing business can be found in the growing number of online advisers, also known as robo-advisers because they manage your investments online. The Globe and Mail Guide to Online Advisers covers nine firms. We can shortly add a new name to the list: BMO SmartFolio.
SmartFolio was introduced internally at the bank earlier this month and will be offered to clients in January. A preview of the service suggests BMO has stretched itself to be transparent and welcoming, particularly to the millennial demographic that is thought to be a core audience for digital finance.
Instead of tossing off a mention of fees, BMO refers to "annual pricing" and invites you to type in the amount of money you want to invest to find out the cost. Like other online advisers, BMO SmartFolio requires clients to complete a risk questionnaire that will steer them to an appropriate mix of stocks and bonds. But in a welcome nod to accountability, the bank offers "why we're asking" notes to explain how the information clients provide will be used.
Still another clever twist can be seen in the way SmartFolio learns your net worth, which means your total assets minus the amount you owe. Investing firms have a way of making you feel poor in this sort of exercise by acting as if six- and seven-figure amounts are normal. BMO's multiple-choice answers start at less than $50,000 and top out at $200,000-plus.
Starting this summer, new investing industry rules will require investment firms to provide clients with detailed information on how their accounts are performing. BMO has already addressed this change by borrowing from a new theme in financial planning called goal-based advice. Instead of flogging clients to invest for the long term, you coach them to save for a particular goal. SmartFolio customers can set a goal for their account and then see online how close they are to reaching it.
They also see the change in value between the current value of the account and the amount they invested, information that investment companies too often fail to provide. Seeing this level of disclosure makes you marvel at the arrogance of so much of the investment industry in not being accountable for the results achieved for customers.
TD Direct Investing's new website replaced an exhausted design that typified the old philosophy of online investing, which was to treat all customers as if they were investing veterans who are mainly interested in making money in stocks. Log into a TDDI account now and you get a graphic view of how your accounts are doing, as well as the numbers. There's also a plain-English dashboard that has a button for buying and selling, a departure from the usual use of the more intimidating word "trading."
The weak spot in the banks' embrace of digital finance will almost certainly turn out to be pricing. SmartFolio's is as sound as any online advisory firm, but the costs are on the high side, at 0.7 per cent for the first $100,000 and lower costs for larger accounts. If you bring the minimum $5,000, you run into a base level fee of $15 a quarter, or a hefty 1.2 per cent. The cost of the ETFs in your portfolio would be extra, as BMO makes clear.
Costs differ a lot in digital banking and investing, but the bottom line is that customers are treated better. If your bank or investment firm is not delivering, you have alternatives.