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portfolio strategy

The novelty stage is officially over for robo-advisers, which means it’s time to pivot from talking about what they do to how well they do it.

The first firms in the robo business in Canada have either reached their five-year anniversary or will shortly. Although still a small segment of the investment advice business, robos have established themselves as a strong option for people seeking low-cost help in building and maintaining investment portfolios built mainly with exchange-traded funds, or ETFs.

Five years is also long enough for investors to get meaningful information about the returns generated by the portfolios robo-advisers use for clients. The 2019-20 Globe and Mail Robo-Adviser Guide will help you assess the return information that firms provide on their website.

The guide also includes detailed comparisons of the fees each robo-adviser charges. If you’re wondering what to expect in future returns from a particular robo firm, give more weight to low fees than stellar past results.

Prepare for a challenge in comparing returns at robo-firms. Some report monthly returns for the model portfolios they use for clients, others quarterly. Some offer comprehensive annualized returns, which are easiest to use for comparison purposes, while others use combinations of annualized, cumulative and calendar-year results.

All too often, benchmark comparisons are left out of the reporting on model-portfolio returns. Without benchmarks, you can’t properly grade returns.

The Globe and Mail Robo-Adviser Guide helps you assess returns by including information on:

  • Whether model portfolio returns are available for prospective clients to look at on a firm’s website;
  • The use of benchmarks for context in assessing portfolio returns;
  • Whether returns are shown with portfolio management fees deducted, as well as the cost of the ETFs used in the portfolio.

As ever, the guide covers all the key aspects of choosing a robo-adviser. You’ll find comparative information on the provinces and territories they operate in, the kinds of accounts they offer, how personalized their business is, the cost of their advice and the fees attached to the ETFs they use. As you’ll see, costs can vary by hundreds of dollars per year, even thousands.

A few common features of the robos that appear the Globe guide:

  • Paperless account-opening with e-signature is standard, so there’s no need to fill out paper forms and send them in;
  • Commissions for buying and selling ETFs in your account are generally included in the portfolio-management fee. Exceptions: Nest Wealth charges as much as $9.99 per trade with a cap of $100 per year, per account; Smart Money Capital Management charges 1 cent per share with a $4 minimum per trade.
  • Almost all firms use pre-set model ETF portfolios that match your investing profile; an exception is Nest Wealth, which provides unique portfolios for each client;
  • All rebalance your portfolio periodically – selling hot ETFs and buying cold ones – to bring you back to your target mix of stocks and bonds;
  • Assets are generally held at 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.
  • You can interact with your robo firm via its website, by phone and, often, through some combination of secure e-mail, live online chat and Skype.

Click here if you’d like to download an Excel version of the guide.

Data management for The Globe and Mail Robo-adviser Guide was provided by Audrey Carleton.

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