Presenting Canada’s cheapest robo-adviser, the best performers and the ones who don’t like Canadian stocks much

It never gets easier for robo-advisers.

They were tested in a stock market crash in 2020, and passed. Now, they’re up against a bull market where investing success has rained down on almost everyone. Why pay a robo-adviser to manage a portfolio of exchange-traded funds for you when you can buy stocks for free and watch them go higher?

The 2021-22 edition of the Globe and Mail Robo-Adviser Guide shows you why. Robo-adviser portfolios have for the most part generated competitive returns over the past one-year and three-year periods, even after their modest fees.

Robos are building a résumé as a steady, cost-effective way to invest if you want help managing a portfolio, but there are some big differences between the players in areas such as fees, portfolio construction and returns.

The Robo-Adviser Guide covers these areas and more for 10 different players. Each was asked for details on a growth portfolio with a strong emphasis on stocks over bonds. A growth portfolio would work for a younger investor or someone who can handle stock market volatility and has a time horizon of 10 years or more.

A quick and easy benchmark for comparing robo growth portfolios is a growth-oriented asset allocation ETF such as the iShares Core Growth ETF Portfolio (XGRO-T). XGRO’s total return (price changes plus dividends and interest income) was 18.4 per cent for the 12 months to Sept. 30, 10.1 per cent on an annualized three-year basis and 9.1 per cent over five years.

Note that XGRO’s returns reflect the cost of its individual ETF holdings and its management expense ratio of 0.2 per cent, but not the advice fee that robos charge to build and manage your portfolio. Never choose a robo based on past returns alone. Focus as well on fees and portfolio-building style.

Here are five observations on the data in this year’s guide:

1. Fees vary by a surprising amount: Questwealth Portfolios in most cases has the lowest costs by far on an all-in basis, which means ETF fees plus advice fees.
2. Canadian stock weightings are a big differentiator in portfolio-building by robos: Some make Canadian stocks their top holding, while others don’t even list them among their top three holdings.
3. Almost all companies have been around long enough to show five-year returns: Put more emphasis on these than shorter-term results.
4. Minimum account sizes vary, but are generally quite low: Robos clearly welcome small accounts in a way that other parts of the investing world do not.
5. Most companies offer a full range of account types; the only one offering registered disability savings plans is ModernAdvisor.

What is a robo-adviser? A primer:

• What do you get? A robo will gauge your investing needs and risk tolerance and then build you a suitable portfolio of low-cost ETFs. Continuing management ensures rebalancing so you stay true to the prescribed mix of investments.
• What does it cost? Robos charge a portfolio management fee, which is generally applied monthly; there are also fees to own ETFs, but those are taken off the top of your returns by ETF companies (ETF returns are reported after fees). Commissions for buying and selling ETFs are included in the portfolio management fee. The exception is Smart Money Invest, which charges one cent per share.
• How do you track your results? On a mobile app or on your computer. Robos tend to be a step ahead of other investment companies in clearly showing personalized returns, fees and other information.
• Help: You can call or teleconference with staff; some firms assign a designated portfolio manager to clients.
• Security: Assets are typically held by third-party or related investment dealers that are members of the Canada Investor Protection Fund, which protects eligible accounts for up to $1-million in losses caused by dealer insolvency.
• Alternatives to robos: Asset allocation ETFs have fees as low as 0.2 per cent and are available in a variety of portfolio mixes. You may pay brokerage commissions to buy and sell them.

Download an Excel version of the guide.

Source: Data supplied by each robo-adviser. Data handling by Audrey Carleton.