2017 Robo Advisor Guide

By Nest Wealth on 20/10/2017Article 5 Minute Read

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Every year Rob Carrick at the Globe and Mail puts out his annual report on robo advisors in Canada.  It’s a tremendously helpful tool for people who are looking to research the industry and usually opens up the discussion with curious investors.  I thought this year it would be helpful for those of you learning about new investment options to clear up some common misconceptions about robo advisors.

Every year Rob Carrick at the Globe and Mail puts out his annual report on robo advisors in Canada.  It’s a tremendously helpful tool for people who are looking to research the industry and usually opens up the discussion with curious investors.   The guide recognizes Nest Wealth as using the ETF’s with the lowest fees in Canada, as well as having the best rates for portfolios with six figures or higher.  The report also calls Nest Wealth the first digital wealth solution in Canada.  This year I thought it would be helpful to clear up some common misconceptions about robo advisors for curious investors.

Here are 5 of the biggest robo advisor myths:

MYTH 1: Robo advisors are robots and can’t get to know you the way traditional advisors do.

Robo advisors are not robots! The term robo advisor simply speaks to the convenience of online investment management, and online access to your portfolio.

Robo advisors (or online wealth managers, digital advisors, digital wealth managers – whatever you choose to call them!), use technology to increase efficiency, create a better client experience, communicate more effectively, and lower costs. That means most are available to clients by email, video or phone calls, text, or meeting in person. There are humans behind the screens and processes in place to ensure clients’ needs are known and met.

MYTH 2: Robo advisors are riskier than traditional advisors.

Robo advisors are regulated and compliance is enforced, however there are still a couple misconceptions about risk and security, such as:

Portfolio Risk: You take on more risk by investing with a robo advisor

The risk a client takes on is the same with a robo advisor as it would be with a traditional advisor, because risk has to do with how your portfolio is constructed.

Data Security: Your data isn’t as safe with a robo as it is with traditional advisors

Security is a big deal for robo advisors, and there are many industry-leading processes to keep your information as secure as possible. Some robo advisors use bank-level security measures to ensure your data is collected and stored safely, such as encryption and continuously testing processes and procedures.

Account Security: Your money isn’t as secure with a robo as it is with traditional advisors

To protect investors against insolvency or bankruptcy of the advisor, some robos hold accounts at a custodian so they’re eligible for CIPF protection (which covers each account up to $1,000,000).

MYTH 3: Robo advice is just a fad!

A < /span>study by AT Kearny said that robo advisory is the “next step in the evolution of asset management and finance advice”, and that robos will be mainstream in the next 3 to 5 years. The same study estimated that by 2020, approximately 2 trillion will be managed by robo advisors.

Robo advisors have already proven themselves a valuable addition to the industry, as consumers demand easier and constant access to accounts, more digital services (most of us already handle so much of our lives digitally), and better client experiences.  

The industry is in the middle of a digital disruption, and while nothing is guaranteed, it seems robo advisors will be a lasting alternative to traditional advisors in the Canadian marketplace.

MYTH 4: Robo advisors are only for Millennials and younger clients

Robo advisors are not only for Millennials and younger clients. However it’s commonly believed they are because robos are still a relatively new technology that fits the Millennial stereotype (tech-savvy, gadget-loving digital sweethearts). While Millennials are generally early adopters in technology, they’re not the majority of clientele. In fact, the average age for most robo advisors in Canada is in their 40s!

MYTH 5: Robo advisors use preconstructed portfolios

While some robo advisors do use buckets, there are those that don’t and instead construct a completely customized portfolio. In order to do so, an interested investor would complete an online questionnaire about timelines, risk tolerance, and financial goals. Based on that information, a robo can show you, in real-time (isn’t technology cool?), a personalized portfolio. After that, you would most likely discuss the proposed portfolio allocation with your Portfolio Manager, and final choices would be made. Thanks to efficient and scalable technology, portfolios are also reviewed, monitored, and rebalanced regularly (for a fraction of the cost traditional advisors charge!).

Final Thoughts

Robo advisors will continue to impact the wealth management industry as technology evolves and client needs change. This is just the beginning!  Feel free to check out more about Nest Wealth or reach out if you would like to schedule a call or demo.