At age 88, Darrell McDonald is done with DIY investing.
“This will be my second retirement, the first being almost exactly 30 years ago when my employer offered an early retirement package that I was happy to accept,” the Welland, Ont.-based Mr. McDonald said in an e-mail. He has hearing issues, so that’s how we corresponded.
Mr. McDonald currently handles his own portfolio through his bank’s online brokerage. He’s decided to look at two alternatives – a robo-adviser and a traditional investment adviser. Let’s work through both options to help not only Mr. McDonald, but all retired DIY investors who want to hand off their portfolios.
A quick investing profile of Mr. McDonald to start: He has a pension through his old employer, Ford of Canada, plus Canada Pension Plan and Old Age Security benefits. He primarily invests in stocks, but has recently included ETFs among the portfolios he manages. They include a registered retirement income fund and tax-free savings accounts for him and his wife, Yvonne. Together, these holdings are worth roughly a mid-six-figure amount.
Mr. McDonald has been investing in stocks for almost 70 years. “A lifelong believer, I bought shares in the company I worked for the first time I had $100 I didn’t need,” he wrote. “That was in the 1950s. After a 20-year break for matrimony, children and a first house, investing began again in the mid-1970s.”
His current investments are focused in the technology, health care and banking sectors, and he owns some broad-based ETFs as well. Asked for his favourite stocks, he mentioned Apple, Shopify, Amazon, Nvidia and Alimentation Couche-Tard.
There are practical reasons for Mr. McDonald’s turn away from DIY investing. “My thinking is that physical disability is a possibility at this stage of life that would leave my wife and family floundering,” he said. “I would rather they found a manageable setup that would be functional.”
The choice of robo versus human adviser seems a no-brainer for an 88-year-old, right? Machine versus human – cold technology versus warm human contact.
A limited number of seniors are using robo-advisers, though. At CI Direct Investing, formerly called WealthBar, 1 per cent of clients are 80 and older and 10 per cent are 60 and up. The average account size for 60-plus clients is $155,126
David Dyck, head of client services at CI Direct, said he came to the company in 2015 with the assumption that it was mainly for tech-savvy millennials. He quickly came to know an eightysomething client he referred to as George, who had left DIY investing for reasons similar to those of Mr. McDonald.
“Despite being from an older generation and having some learning curve issues because of the technology platform, he was open to working with us on solving those challenges,” Mr. Dyck said. “Now he’s a client who uses our platform regularly.”
As with any veteran DIY investor, low fees are important to Mr. McDonald. With a portfolio in the mid-six-figure range, his costs mainly consists of stock-trading commissions priced at $9.95 per buy or sell transaction. He estimates he has been making no more than 60 trades a year, which suggests annual fees could amount to a modest 0.12 per cent or so of his assets.
Mr. McDonald said he’s okay with paying a fee to a robo-adviser to manage his portfolio, but he feels that his wife might prefer having a human adviser to speak with. Let’s see how the fees for robo and human advice compare.
CI Direct Investing’s pricing for mid-six-figure portfolios is typical of robo-advisers at a bit less than 0.5 per cent a year, with trading costs included. Mr. Dyck said additional fees for investments would come in at 0.26 per cent for a balanced ETF portfolio and 1.55 per cent for a balanced portfolio built with private investment funds holding a more exotic mix of investments.
A full-service investment adviser from a bank-owned firm would likely suggest a fee-based account, where fees for portfolio management and trading are covered through an annual fee of roughly 1 per cent to 1.5 per cent of the total assets in an account. Additional fees would be paid to own investing products such as ETFs and mutual funds.
In the COVID-19 pandemic, there’s a surprising parallel to human and robo advice. To meet physical distancing requirements, human advisers have been working with clients through phone and video conferencing. It’s similar at CI Direct, where Mr. Dyck said advisers talk to clients by phone, by e-mail, by online chat or video conference.
CI Direct has differentiated itself from many competing robo-advisers in part by offering a higher level of human contact, sometimes even letting clients work with a specific person. “It’s not unusual that, over time, one of our clients will interact and build a relationship with one adviser on our team,” Mr. Dyck said. “When that happens, we try to accommodate that.”
Mr. McDonald wondered if he could keep some of his favourite stocks with a robo account, but that’s not the robo-investing way. Clients at CI Direct choose from among five ETF portfolios or three private investment fund portfolios, each with a different risk profile.
Each portfolio is a self-contained mix of funds – clients add money and CI Direct distributes it proportionally into the funds in the portfolio. A human adviser would likely be more willing to help Mr. McDonald keep certain stocks that have done well for him.
One of the advantages of traditional investment advisers is that many offer financial planning as well as portfolio management. Someone such as Mr. McDonald could get advice on minimizing taxes and estate planning, for example.
Robo-advisers are primarily investment managers, rather than planners, but CI Direct does offer financial planning to clients as part of the services they pay for with their regular fees.
To minimize disruption and maximize convenience, Mr. McDonald should move his account to the full-service brokerage arm of his bank. But if he’s willing to persevere through the momentary challenges of moving a account to a robo-adviser, there’s a payoff of lower costs combined with the potential for as much human support as he and his wife need over the phone and online.
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