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Weathering a stock market crash was the last item on the checklist of milestones that robo-advisers had to reach before they’re considered a 100-per-cent legitimate way to invest.

Robos passed their stress test in 2020. In a pandemic where stocks were buried and then resurrected, new clients flocked to robos and robo portfolios held up reasonably well. The 2020-21 Globe and Mail Robo-Adviser Guide shows you how it all went down at 11 different firms. One name change since last year’s guide: WealthBar is now CI Direct Investing.

As always, the guide includes key comparative information like minimum account size, types of accounts available and the provinces and territories served. This year, there is also a close-up look at how portfolios are built, as well as costs and returns. There’s a special crash-test close-up of returns for the three months ended March 31, which was when the worst of this year’s stock market plunge happened.

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Robo-advisers are an ideal investment solution for people willing to pay a modest fee to have a portfolio of low-cost exchange-traded funds built to their requirements and then managed on a continuing basis. Investing with a robo is simple – you add money to your account any time and it’s invested for you. Via app or website, you can track your progress and fees paid.

This version of the Robo-Adviser Guide is based on a close-up look at each firm’s growth portfolio, which would be of interest to someone comfortable having most of their assets invested in the stock market, who keeps their cool in market declines and who has at least 10 years to go until they need their money.

A snapshot of the asset mix for each firm’s growth portfolio is shown, along with fees at various asset levels and returns in the near and medium term. One way to benchmark recent returns for robo-adviser growth portfolios is to compare them with the Vanguard Growth ETF Portfolio (VGRO-TSX), which offers a completely diversified portfolio for growth investors in a single package. This ETF lost 14 per cent for the three months to March 31 and made 7.1 per cent for the year to Sept. 30. Note that VGRO’s returns do not reflect the portfolio management fees charged by robos, which average around 0.5 per cent.

Evaluating robos on past returns alone is a mistake. Look at fees and an approach to portfolio building that makes sense to you. Some firms stick to broad stock and bond categories, while others add sub-sectors like long-term bonds and small-capitalization stocks.

Here are some robo-adviser basics that will help you get the most value from this guide:

  • What robo-advisers invest your money in: The most common investments are index-tracking ETFs, which are called passive investments because there’s no active stock-picking involved; a few firms mix in mutual funds or pooled funds.
  • Account opening: Paperless account-opening with e-signature is standard, so there’s no need to fill out paper forms and send them in.
  • Fees, part 1: Most robos charge for their services through a portfolio management fee applied as a percentage of account assets; some firms may have a minimum monthly charge or a flat monthly amount based on account size; portfolio management fees vary widely and differences can add up to thousands of dollars a year for large accounts. Modern Advisor and Nest Wealth do not charge portfolio management fees on accounts of less than $10,000.
  • Fees, part 2: An additional cost is the management expense ratio on the ETFs in a robo account; investors don’t pay the fee on the ETFs – it’s deducted by ETF companies off their gross returns (net returns are reported to investors).
  • Fees, part 3: Commissions for buying and selling ETFs in your account are generally included in the portfolio management fee. Exceptions: Nest Wealth charges $4.99 a trade with a cap of $100 a year; Smart Money Invest charges 1 cent a share with a $4 minimum per trade.
  • What the portfolio management fee buys you: Setting up a portfolio to match your needs, investing money proportionately in all your funds when you make contributions to your account and periodic rebalancing – selling hot ETFs and buying cold ones – to bring you back to your target mix of stocks and bonds. You can also talk to people at robo firms to discuss your portfolio.
  • Security: Assets are typically held by third-party or related investment dealers that are members of the Canada Investor Protection Fund, which protects eligible account assets for up to $1-million against dealer insolvency.
  • Contact: You can speak to someone at your robo by phone and, often, through some combination of secure e-mail, live online chat and Skype. Some firms offer a dedicated portfolio manager to talk to.

Click here to download an Excel version of the guide.

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Source: Rob Carrick, company websites. EM = emerging markets; ST, LT = short-term, long-term

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