You have a lot of options in Canada on how to save and invest for your future. Choice is good, but it can also be overwhelming for a lot of people. We’ve put together a short checklist of items to consider if you’ve been thinking about investing with a Canadian robo-advisor.
Ultimately, you should only trust your money to a robo-advisor you trust. Can you trust a business you’ve never heard of? Probably not. Yet, all robo-advisors are somewhat new given the category itself is in its early days. Ask people in your everyday life if they’ve heard of the company and if they can be trusted with your money. In addition, complete the same diligence you would with any other major purchase – visit their website, call and ask questions about the service, and then research and compare their service offering and fees to competitors in the marketplace.
Robo-advisors are backed by people, not robots. That makes it pretty important that you can reach these people when you need them. Whether you’re an early riser or a night owl, see when you can call, email or chat online with them. Robo-advisors are best for people who want a professional to manage their money for them but also have access to people when needed. If you’re calling during regular business hours and there’s no answer, consider that a yellow flag. No voicemail with clear instructions on when you’ll be called back? Red flag. If it is after hours or on a holiday, you should be able to leave a message and expect to be contacted on the next business day. Calling you back should be the highest priority. If it takes days to hear back on your initial questions, imagine how long it might take to get your money back if you ever decide to close your account. Always assess the level of accessibility in every robo-advisor you’re considering.
Given we are talking about your hard-earned money, it can’t be enough that someone has picked up your phone call or responded to your email or chat message. Assess what the people behind the business know about investments and portfolio management. Is the person you’re speaking with licensed as a portfolio manager or are they a salesperson? (You want to be dealing with a portfolio management firm in the robo-advisor industry).
If the person you’re speaking with is, in fact, a portfolio manager, confirm whether they are an advising representative, an associate advising representative or a registered representative. (They’ll be impressed with the question and happy to explain the difference). Also, ask about the professional experience that members of the team possess. Experience as an investment counsellor and/or discretionary portfolio manager would indicate you’re dealing with a professional with substantial experience managing the wealth of Canadians.
In terms of accreditation, look for professionals who possess the Chartered Financial Analyst (CFA) and/or the Chartered Investment Manager (CIM®) given the rigorous coursework and professional experience required to earn the designation.
If you’ve found a firm you trust, you can reach a person, and you’ve discovered the skills and experience they bring to the table, it’s time to have some fun at their expense. Ask a few (or 20) questions. Ask them what a robo-advisor is and how it works. Throw in a trick question such as ‘when was the team’s last investment committee meeting?’ This will reveal whether the business regularly holds meetings to discuss the economy and financial market performance for the purpose of providing clients with meaningful advice. Other technical questions you can ask include details of the asset allocation models, investment process and approach to rebalancing. If you have no idea what any of those questions mean, that’s just fine, because with a robo-advisor, you are paying someone else to be an expert on your behalf. Ask about fees – all of them, especially the hidden ones. If it feels awkward asking about hidden fees, imagine how they’ll feel when they’re answering you.
Can a robo-advisor give you butterflies? Why not! It’s important that a robo-advisor ‘gets’ you before you entrust them with your money, and we think there are two ways to tell if a robo-advisor really understands you and your goals.
First, based on your due diligence, do they offer a service that speaks to you? Ensure the robo-advisor makes it easy to sign up. Do they offer multiple portfolios that speak to what’s important to you? Fees should be low, easily explained and transparent. RBC InvestEase’s pricing, for example, is a simple, annual flat fee of 0.5% + management expense ratios (MERs).
The second way? Ask them why they should be so lucky to take care of your money for you. It’s essentially an elevator pitch for your money that you can assess on the spot.
If you get butterflies, then you know it’s the best robo-advisor for you.