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automated investing: demographics

The Foat family, clockwise from top left: Kirk, Anna, Dylan, 3, and Jack, 5. In their 40s, the Foats moved to an automated avisory.One for the Wall Photography

Years of traditional investing convinced Anna and Kirk Foat to try an online investment adviser.

Frustrated with high fees, complex statements and difficulties managing their accounts while looking to consolidate their various financial holdings, the London, Ont., couple made the switch to a robo-advisory service three months ago.

Far from the millennials that such financial technology is expected to attract, Ms. Foat, 40, and Mr. Foat, 48, are mid-career professionals with two children and substantial assets. They represent the widening demographic that is increasingly finding automated investing appealing.

Ms. Foat, principal of Big Dog Sales Consulting, a company that helps startups grow, considers herself an early adopter; indeed, she switched to an online bank in 1998. "People said, 'That's crazy, you need a teller,'" she recalls, noting that it took longer to come around to online investing, particularly given the fact that she had a trusted adviser.

When the adviser retired, the Foats found that the new one made frequent trades that added to already high fees and went against their desire to stay invested for the long term. There was no sense they were getting value, especially as "the industry is set up so it's difficult to get any statement in plain language," she says of their experience.

With the move to bring everything to Nest Wealth, an online digital advisory based in Toronto, the Foats now pay just $20 a month each and can keep better track of their portfolio.

Jenny do Forno, head of customer experience at Nest Wealth, says the company is finding that "demand for our service is broad and it goes across all demographics."

Nest Wealth is a Netflix-style subscription service, charging a fixed fee of $20 to $80 a month. Clients range from first-timers in their early 20s to an 88-year-old investor, she says, with an average in the mid-40s.

The "prime motivator" for all age groups is avoiding the high fees associated with traditional mutual funds.

"They could forfeit half of their portfolio over time. They want a sophisticated portfolio that meets their financial goals," she says, noting that with Nest Wealth, clients have access to professional advisers, while the technology brings cost-efficiencies that reduce costs while creating a better user experience.

Adam Nanjee, head of the financial technology group at MaRS Discovery District, a Toronto innovation hub, says digital advisories have seen "huge growth" because of the access they bring.

"Customers and consumers are saying, 'Give us our portfolios and the management of our portfolios at our fingertips,'" he says, noting that the services come with mobile-ready platforms and educate people about new markets.

"You can see your entire portfolio anywhere in the world, at any time."

The expectation is that users will earn similar returns as with traditional advisers while saving on fees, Mr. Nanjee says, although the technology is still in its infancy.

Ryan Riordan, assistant professor of finance in the Smith School of Business at Queen's University who focuses on fintech, says the "efficient portfolios" produced by robo-advisories should create the same exposure and trade-off between risk and return as traditional advisers.

There are a number of different formats and pricing schedules. They include Nest Wealth's subscription model, which appeals to higher-net-wealth individuals who appreciate the $80-a-month cap on fees, to services such as Wealthsimple, which gears costs to assets invested.

Small investors therefore pay low or even no fees to start, with the expectation that their accounts and costs will grow.

"Every new service that comes along has a new twist on the business model," Dr. Riordan comments, with each appealing to a different demographic. The very wealthiest investors often have access to specialized investment vehicles that are not included in efficient portfolios, for example infrastructure projects such as toll roads.

However, high-net-worth individuals who invest in standard fare such as stocks, corporate bonds and treasury bonds could use robo-advisories.

Ms. do Forno says Nest Wealth has slightly more female clients than male, noting that women are making more financial decisions and "tend to look more at all their options and not just default to the same traditional channels."

Ms. Foat thinks that online investing appeals to women because it "seems to be less daunting" than following the stock market every day. "It made sense to me," she says.

"It's the best of both worlds," she says, noting that traditional investment advisers "don't really know you," while some may have incentives to push certain investments and their advice is based on the same computer algorithms as robo-investing.

So far, the couple's investments seem to be doing well, which she's able to tell with a quick look at their online accounts rather than "reverse-engineering a statement" to figure out what has been gained, minus fees.

Mr. Nanjee expects a huge take-up of fintech advisory services when millennials begin inheriting wealth.

"There is going to be a lot of capital coming into the ecosystem," he says.

Not just for millennials

Nest Wealth reports that a broad range of demographics – and increasingly wealthy investors – are using its automated investment services.

• The average investor is in their mid-40s

• The oldest investor is 88

• The average account is in the six figures

• Women slightly outnumber male clients

• There is a trend toward household accounts where both spouses hold accounts

Source: Nest Wealth Asset Management Inc.