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The latest trend in investing advice has been stuck with an unfortunate nickname that may do it more harm than good.

"Robo-advisers" are online operations that build customized portfolios for clients, typically with exchange-traded funds, and then monitor and rebalance them on an ongoing basis. The price is roughly halfway between the rock bottom pricing of do-it-yourself investing and the cost of having an investment adviser. It's a good concept, but it needs a better name.

For one thing, the term "robo" suggests soulless, oppressive technology. Is anyone keen to receive a robocall while at home? Second, there's the use of the term "adviser." For the most part, robo-advisers barely qualify as advisers in the best sense of the word. That's not actually a problem, but we should be clear about what they do and don't do for clients.

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Robo-advisers already have a significant presence in the United States, where recent estimates have them managing more than $15-billion (U.S.) in assets. They're mostly in the startup phase here in Canada, with some firms up and running on a limited basis or available only in select provinces. For example, Nest Wealth is operating in Ontario for the moment, while Wealthsimple will launch Monday in Ontario and British Columbia. WealthBar is operating in B.C., Alberta and Ontario, but on an invitation-only basis for now (there's a waiting list to which you can add your name). Another player is the online brokerage ShareOwner , which offers model ETF portfolios to investors in all provinces and territories.

Each firm has a different fee model, but you should expect to pay something in the area of 0.6 to 1 per cent of the value of your account on an all-in, annualized basis. That includes the cost of advice, the fees associated with owning the ETFs in your portfolio (these fees are known as the management expense ratio) and the cost of the trades to buy your ETFs and then rebalance them periodically.

While online brokers for DIY investors have been around since the Internet took off back in the 1990s, the investment industry is only just now figuring out how to offer financial advice online. The discount broker BMO InvestorLine has pioneered a model called adviceDirect that provides advice to clients by phone and over the Web, but gives them final say on what to invest in. Now, robo-advisers are introducing a model where clients have all the work done for them.

It's a big leap to give your money to an online firm you've never heard of and trust the people there to invest it intelligently for you. And yet, robo-advisers make good sense for the right type of investor. That would be someone who has neither the time nor inclination to learn about do-it-yourself investing and wants advice at a reasonable price.

At this point, we need to discuss what an adviser actually is. Ideally, advisers create a customized financial plan based on your personal situation and then use it to guide your investing. However, some advisers are just salespeople who recommend products for clients to buy and then collect fees and commissions for the minimal work of monitoring the portfolio on a continuing basis.

Robo-advisers – let's call them online advisers instead – are a far better option than an adviser who merely sells mutual funds with the high fees that are common in the industry. They're also an improvement over a haphazard portfolio of mutual funds sold at a bank branch, and incompetent DIY investing based on chasing hot stocks or sitting entirely in cash.

But you don't get the full financial planning overlay for your investments with an online adviser. Instead, expect to have your portfolio based entirely or in large part on a questionnaire that asks about your age, current financial position and risk tolerance.

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There are variations on the theme, however. WealthBar does personalized financial planning that includes retirement projections and tax optimization, and most players offer the option of speaking to a live adviser by phone to discuss your portfolio.

Nest has the simplest cost structure at a flat $80 per month, or $40 if you're under the age of 40 (ETF fees are extra, and trades cost $9.99 apiece). The firm has a $25,000 minimum investment, but it's clearly after people with $100,000 to $150,000 or more.

Wealthsimple, targeting young professionals who are just starting to put serious money into their investments, has a $5,000 minimum investment and fees starting at 0.5 per cent of assets (ETF fees extra, but trades included). WealthBar has a similar pricing model – a minimum of $5,000 and fees starting at 0.6 per cent (again, ETF fees are extra, but trades are included). Another pricing variation is ShareOwner's $40 flat fee for accounts of over $100,000, or 0.5 per cent of your balance otherwise.

For context on price, the total fees on a portfolio of mutual funds held through an adviser might cost 2 to 2.5 per cent, close to a full percentage point of which would be routed by fund companies to the adviser and his or her firm. The fees on a low-cost DIY portfolio of ETFs might run you no more than 0.25 to 0.5 per cent, with trading commissions extra (they'd typically be $10 a pop, or zero if you have a broker offering commission-free ETF trades).

The portfolios that online advisers build for you typically include seven to 10 different ETFs from a select group of companies chosen by the firm. Wealthsimple has negotiated lower costs from the ETF companies it works with and says the aggregate ETF fee for clients would be in the 0.25-per-cent to 0.3-per-cent range. Nest claims to have ETF fees down as low as 0.15 per cent.

The investing process with these firms is simple and addresses concerns people will have about handing money to a virtual company with no history behind it. At Nest, WealthBar and Wealthsimple, accounts are held in the client's name at third-party financial firms that are members of the Canadian Investor Protection Fund. CIPF offers protection of up to $1-million for assets in accounts at member firms that become insolvent. Note: You should never send money to your online adviser directly. Instead, it should be sent to the third-party firm holding your account. Money in most cases can be sent in the form of an online banking bill payment, or by cheque. ShareOwner, which offers the most rudimentary online advisory experience through its model ETF portfolios, is a broker unto itself and a member of both CIPF and the Investment Industry Regulatory Organization of Canada.

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Don't be put off by online advice when you see the term robo-adviser used. Think instead of technology finally being used to offer a reasonably priced investing solution to people who aren't DIY material and who can't find what they need in the world of human advisers.


A guide for finding investment advice online

Robo-advisers, a buzzword describing online investment advice firms, are starting to appear in the Canadian market. Here are some key questions to ask before you sign up:

1. What advice do you provide?

Background: Online advisers typically create a portfolio for you based on your age, current financial circumstances and ability to tolerate stock market ups and downs.

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2. What's the price?

Background: Most firms either charge a percentage of your account value – 0.6 per cent or thereabouts per year is a typical starting point – or a flat monthly rate.

3. What will the monthly cost be for my own account?

Background: Tell the firm how much you have to invest, and find out what your monthly fee will be.

4. How are the fees paid?

Background: The usual way is to deduct them every month from cash in your account.

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5. What's included in the price?

Background: Brokerage trades needed to manage your portfolio may or may not be included in the advice fee; the cost of owing individual ETFs is not included and must be considered to arrive at your total cost of investing.

6. Do you have a minimum account?

Background: $5,000 is a typical minimum, but it could be higher.

7. Can I talk to any humans?

Background: Some firms have advisory staff available to go over certain points related to your portfolio; ask what investment industry credentials these people have.

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8. Where is my account actually held?

Background: All assets should be held in your name at a third-part broker that is a member of the Canadian Investor Protection Fund; your online adviser should simply be able to buy investments for you and move money around within the account.

9. What if you go bankrupt?

Background: Your account should be unaffected as it's held at a third-party firm.

10. How do I get money in my account?

Background: You should be able to send money directly to your account at the third-party firm via your online banking website – just set up the firm holding your account as a bill payee.

Rob Carrick

Your Globe

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