No, we’re not a team of robots. And yes, you really can pick up the phone and call us.
Robo advising—or digital wealth management as we like to call it—is more popular than ever thanks to low fees and ease of use. However there’s still a lot of misunderstanding surrounding how it works, so we’re addressing the five biggest myths we continue to hear.
1. Robots manage your money.
OK, this one really needs to go.
We get it. ‘Robo' is in the name so it’s no surprise people imagine a room of faceless robots pushing around their money. Which is pretty unnerving (we wouldn’t want that either!). Thankfully it’s far from the case. Walk into the offices of any robo advisor and you’ll be greeted by a team of humans working away at their desks, just like any other workplace.
So where does the ‘robo’ come in?
We use technology where possible to make the investing process easier and more transparent, so you actually understand what’s going on with your money. Instead of filling out a pile of paperwork and waiting weeks to open an account you’re able to do it quickly from the comfort of your home. A secure online portal walks you through the process and people are available to help by phone, chat or email.
We also use technology to develop a portfolio based on your investment goals, timeline, and risk tolerance. Your very own ‘flesh and blood’ registered portfolio manager will review it and you’ll have a call together to go over everything—and ask any questions you might have—before your money is ever put into the market. Integrating technology into the service keeps costs down which allows robo advisors to charge dramatically lower fees to their clients.
There’s a human behind every step and available for anything you might need along the way. We just won’t offer to take you golfing, but did you really want to hit the links with your advisor anyways?
2. Your money isn’t safe.
Again, not true. Security is incredibly important to robo advisors. We’re subject to the same strict regulations as any other company in the financial services industry. And unlike some traditional investment advisors, our portfolio managers have a legal responsibility to put your best interests first.
As for account safety, we use bank-level security measures to ensure data is collected and processed securely. Your money is held separately in an account in your name at a bank-owned custodian, usually a large long-standing bank.
Like other investment accounts—assuming your robo advisor uses a custodian that's a member of IIROC—your account is eligible for protection up to $1,000,000 by the Canadian Investor Protection Fund (CIPF) in the event the custodian becomes insolvent.
3. They’re only for millennials or investors with small account sizes.
Millennials might be known as early technology adopters, but the average age of investors using a robo advisor like Nest Wealth is in their 40s. That’s right, 40s! This isn’t surprising as it’s established investors with large accounts that have the most to gain by switching to lower fee models.
The average mutual fund fee in Canada is 2.5%, one of the highest in the developed world. Most robo advisors charge around 80% less. You can imagine the staggering impact of this savings compounded over time. Better yet, see for yourself the actual difference in dollars this will mean over the life of your investments.
4. Robo advisors are a fad.
Nope, robo advisors are here to stay. The industry grew from $19 billion in 2015 to over $24 billion in 2016 and is expected to grow to $2 trillion by 2020.
Banks and traditional wealth management companies aren’t against robo advisors, in fact, many are starting to use the same technology to stay competitive. Digital wealth management has become an essential tool for all firms in the industry. If an advisor isn’t using software to help build and manage your portfolio we’d argue they’re doing clients a disservice. So no matter where you decide to invest your money, this kind of technology really is the future.
5. You have to choose between a robo and a traditional advisor.
You can have both! You’ve worked hard for your money, no one expects you to pick up the phone and move your life savings overnight. You’ve got to build trust with the people managing your money, we completely understand that! Many people get started by moving over one or part of an account to try it out. Maybe they’ll keep some accounts with a traditional advisor and move some to a robo advisor so they can compare how their traditional advisor is performing. Whatever makes sense for you!
The most important thing is to know you have options. Do your research and ask your questions, make a decision you feel good about. Gone are the days of being unhappy and confused over your investments.
Low, transparent fees and clear advice should be the new normal. That’s what digital wealth management represents.