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Question from Chloë Brett from our Globe Money Facebook group: What are peoples’ thoughts on Wealthsimple? I’m at the point where I need to start investing in my future and I want to open an RRSP and TFSA account. I’m drawn to it because, as a low-income person, I appreciate that there aren’t any fees or minimums – until you hit $100,000 as far as I understand.

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Ben Felix helps Canadians invest their money, and writes about it at csinvesting.ca.

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Benjamin Felix is an associate portfolio manager with PWL Capital in Ottawa.

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Answer: This is a good question, Chloë, I bet a lot of people are wondering the same thing. Wealthsimple is the largest and probably best-known robo-advisor in Canada. They manage nearly $2-billion of assets for over 65,000 clients.

To assess Wealthsimple, you need to compare it with the alternatives. The reality for many people is that the alternative is doing nothing; not investing anything anywhere because of analysis paralysis. Another alternative to Wealthsimple might be purchasing high-fee, actively managed mutual funds from a bank. Investing through a bank’s high-fee funds might be a bit better than doing nothing, but it is certainly not optimal. For those two groups, the do-nothings and the bank mutual-fund investors, Wealthsimple is an excellent option.

Wealthsimple invests your money in low-cost index funds, which are the most sensible investment for most people. They do charge a fee for their service – 0.50 per cent of your invested assets on the first $99,999, and 0.40 per cent above $100,000.

To assess Wealthsimple properly, another alternative needs to be thrown into the mix. Investing in low-cost index funds is not terribly challenging, so doing it yourself might be a viable option for some people. Of course, this means getting over any analysis paralysis and doing a bit of legwork.

The choice between DIY index fund investing and using Wealthsimple’s service takes some consideration. The decision requires weighing the cost of Wealthsimple’s fee against how you perceive the value of the services that they provide.

One of the biggest challenges for any DIY investor is getting started. It takes some knowledge and time to figure out how to implement a portfolio of index funds. Wealthsimple makes this easy by implementing and maintaining your portfolio for you. Another way to look at it is this: Wealthsimple’s fee starts to look very small when you consider the implied cost of waiting a year or longer to start your DIY portfolio.

As great as the ease of use is with Wealthsimple, I think that much of the value in this area has been eroded by Vanguard’s new asset-allocation ETFs, which make DIY portfolio implementation very simple.

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If you have a taxable account you need to track your adjusted cost base. There are guides and tools that will help you do this, but it can be a tedious task. Wealthsimple tracks your adjusted cost base for you. This service has some value, but only if you have a taxable investment account.

Tax-loss harvesting means realizing losses on investments that are worth less than you paid for them; you can use these losses to offset capital gains. It is not a certainty that tax-loss harvesting will end up being beneficial, but it might be helpful for people in certain situations. I think that there is a small amount of value here for people in the right situation. Tax-loss selling is only available for Wealthsimple Black customers (invested assets over $100,000), and only matters if you have a taxable investment account.

One of the challenges that a DIY ETF investor faces is that ETFs have to be purchased on the stock market like a stock. This makes regular monthly contributions a bit of a hassle because you have to log into your brokerage account to place trades each month. Wealthsimple automates this for you, investing both your contributions and any distributions from your ETFs. There is definitely some value here.

Based on my professional experience, I believe that a lot of people want financial advice. I know my view of the world is biased because I only talk to people who are seeking advice, but I have talked to enough people to know that there is a market for financial advice. A DIY investor would need to hire a fee-only planner to get advice. Wealthsimple is offering advice as part of their service; I believe that this alone could justify their fee, pending the quality of the advice. Basic advice is available to all customers, and a more comprehensive financial planning session is available to Wealthsimple Black customers.

I am in no position to comment on the quality of advice that Wealthsimple provides. I have no experience with them as a customer. What I do know is that they announced in March, 2018, that they had reached 65,000 customers. On June 19, 2018, The Canadian Securities Administrators National Registration search showed that there are 10 people employed by Wealthsimple who are licensed to give investment advice. At 6,500 clients per licensed adviser, it may be a challenge to deliver great advice specific to the situation of each client.

I do not want to make it seem as if Wealthsimple is doing something wrong here – this is a by-product of their business model, and it is why they can keep their fees so low. However, it is a consideration for anyone deciding between DIY and Wealthsimple. I would not choose Wealthsimple based on the access to advice alone.

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Wealthsimple Black customers also get a complimentary Priority Pass membership that lets you into airport lounges. That’s kind of neat, I guess, but also seems like a gimmick. No real value there in my opinion.

All things considered, I do not think that Wealthsimple is providing so much value for their fee that everyone should invest with them. I do think that Wealthsimple is a reasonable option for people who do not want to manage their own index fund portfolio. On the other hand, with excellent free online resources such as The Canadian Couch Potato blog and Justin Bender’s DIY Investing YouTube videos, the lower-cost option of DIY investing is not out of reach for anyone.

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