The race toward lower-cost investing continues as Questrade Wealth Management Inc. is set to slash fees on its robo-advisory service this weekend, as well as increase the number of investment portfolios offered to investors.
The rebranded platform Questwealth Portfolios, formerly known as Questrade Portfolio IQ, will cut its management fees to 0.25 per cent from 0.7 per cent on Saturday morning, making it the cheapest online portfolio manager in Canada. For investors with more than $100,000 of assets invested, that fee drops to 0.2 per cent. The robo-adviser will also increase the number of actively managed portfolios, which will include – for the first time – socially responsible investing (SRI) portfolios.
Robo-advisers – also referred to as online portfolio managers or digital advisers – offer clients an online risk-assessment tool that very quickly calculates an appropriate asset allocation based on age, financial goals and risk tolerance. The results provide clients with a recommended investment portfolio predominantly made up of exchange-traded funds. The majority of robo-advisers charge between 0.5 per cent to 0.7 per cent for services, with some offering zero fees until an account can build assets to $5,000 or $10,000. The inclusion of SRI portfolios isn’t new to the market, as many of the competitors in the industry – such as WealthBar Financial Services Inc., Wealthsimple Inc., and Modern Advisor Canada Inc. – have added these options over the last several years.
During its revamp, Questrade has redesigned its portfolios with lower management expense ratios and improved diversification. For example, it will offer portfolios that include a higher number of ETFs from providers such as WisdomTree, iShares and State Street Global Advisors. Average MERs in the Questwealth portfolios will drop to 0.19 per cent from 0.41 per cent in the previous iterations. (The MERs are charged in addition to Questrade’s own management fee.)
Managing $8-billion in assets, Questrade is widely known for its discount brokerage platform, which charges $4.95 for stock trades and commission-free ETF purchases. Together, the company’s brokerage and robo-adviser platforms are opening 30,000 accounts per year; Questrade will not disclose how much of its assets are directly held in its robo-adviser business.
Canada’s largest robo-adviser is Wealthsimple, which manages more than $3-billion in assets in over 100,000 client accounts, and recently launched an unlimited zero-commission trading platform for do-it-yourself investors called Wealthsimple Trade, which has put more pressure to cut fees on traditional brokerages, including Questrade.
Eliminating commissions altogether isn’t a strategy Questrade is looking to duplicate, said president and CEO Edward Kholodenko.
“There are always going to be platforms that will try to entice clients ... but at the end of the day someone has to make a profit somewhere,” Mr. Kholodenko said in an interview with The Globe and Mail. “You cannot run a business on zero margin. The client is going to have to pay for it one way or another, so clients should make sure to pay attention to the fine print.”
While regulators have been pushing for heightened fee transparency – which Questrade has also highlighted in their aggressive marketing campaigns focused on the high cost of investing in mutual funds – Mr. Kholodenko said investors also need to pay attention to overall performance.
“People focus on fees, which are extremely important, but that is assuming the portfolio also performs well,” he said. “Investors also need to focus on total returns, which get overlooked quite often.”