With all the criticisms about mutual funds, it may come as a surprise that
the mutual fund industry is doing very well, thank you. As of the end of
November, Canadians had invested $1.47 trillion in mutual funds, according
to the Investment Funds Institute of Canada (IFIC). That was up 1.1%, or
$15.5 billion, from October.
By comparison, exchange-traded funds (ETFs), which have been touted as a
cheaper, more transparent way to invest, have $160 billion under management
as of Nov. 30.
And what about the new kid on the block, the robo-advisors? According to
Statista.com, their share of the Canadian wealth management market is a
paltry $4.2 billion. That’s like a pimple on the back of an elephant.
Except for one key forecast: Statista projects that the assets of Canadian
robo-advisors will grow by an average of 44% a year between now and 2022,
to a total of more than $18 billion.
That’s still small potatoes compared with mutual funds and ETFs, but it
represents a unique opportunity to companies looking to establish a
foothold in the wealth management business.
Robo-advisors are a new and relatively unknown concept. Investors answer an
on-line questionnaire, which directs them to the type of portfolio that
best suits their profile. Typically, these are broadly categorized as
conservative, balanced, and aggressive. Each portfolio invests in a
selection of ETFs, chosen by computer analysis (hence “robo-advisor”). Fees
are very low, especially in comparison with mutual funds, and small
investors are welcome.
The leading Canadian company in this business is Wealthsimple, which claims
to have $2.5 billion in assets under management. It offers three basic
portfolios, as described above, plus a socially responsible (SRI) version
of each. The management fee is 0.5% on assets up to $100,000 and 0.4%
beyond that. Add to that the fees charged by the ETFs in the portfolios,
which are about 0.2% annually, and the total cost is in the range of 0.6%
to 0.7%. By comparison, the average management expense ratio for a
comparable balanced mutual fund portfolio is 2.17%.
So far, Wealthsimple, which is heavily financed by Power Financial, has
dominated Canada’s fledgling robo-advisor sector. But BMO is making a push
with its SmartFolios, and smaller companies like Nest Wealth, WealthBar,
Modern Advisor, and Justwealth are vying for customer attention.
Recently, Canada’s leading non-bank online brokerage firm, Questrade,
announced it is moving aggressively to grab a share of what it sees as a
potentially large and growing market. It launched 10 Questwealth Portfolios
that will offer investors lower fees, more diversification, and active
The new lineup, which will replace the Questrade Portfolio IQ funds, will
charge basic management fees of between 0.2% and 0.25%. Total cost,
including ETF management charges, will be in the 0.4% to 0.5% range – about
20 basis points less than Wealthsimple.
Questrade offers five core portfolios from which to choose – Aggressive,
Growth, Balanced, Income, and Conservative – plus SRI versions of each. The
active management feature, unusual in robo-advisors, involves rebalancing
the portfolios periodically to reflect changing market conditions.
One of the concerns I have with robo-advisors is the difficulty of
comparing the performance of their portfolios with alternative choices,
including higher-priced mutual funds. Questrade offers performance numbers
back to 2012 for the Questwealth funds, but no comparisons with any other
So, I did a little research. The Questwealth Balanced Portfolio showed a
5-year-average annual compound rate of return of 6.75% to Sept. 30. It is
60% invested in equities and 40% in fixed income. I did a search and found
133 entries (mutual funds and ETFs) in the Canadian Neutral Balanced
category that had done better, even with higher management fees. However,
the average annual return for the Questwealth portfolio handily beat the
category average of 5.94% (advisor class) in the period.
This suggests that the Questwealth Portfolios won’t be the top performers
in their categories. But thanks to the low fees, they and other
robo-advisors should turn in respectable results at minimal cost. And, all
else being equal, the lower the costs, the more money you’ll have in your
For more information on robo-advisors, visit
Questwealth Portfolios, Wealthsimple, BMO Smartfolio, Justwealth, Wealthbar, Nest Wealth, and ModernAdvisor.
This is an edited version of an article that originally appeared in
The Toronto Star.
is one of Canada’s best-known personal finance commentators and
investment experts. He is the publisher of
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Notes and Disclaimer
© 2019 by The Fund Library. All rights reserved.
The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned carry risk of loss, and no guarantee of
performance is made or implied. This information is not intended to provide
specific personalized advice including, without limitation, investment,
financial, legal, accounting, or tax advice. Always seek advice from your
own financial advisor before making investment decisions.
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