By Jonathan Chevreau
Interesting cover story on robo-advisers in the current issue of Financial Post Magazine, delivered with Tuesday’s National Post.
As an ex magazine guy myself, I find it fascinating that robo-advisers have made it to magazine cover status so quickly. A year ago they were barely known in Canada, although they’ve been a rising force in the U.S. for a few years now (chiefly via WealthFront).
In the FP feature story, deputy editor Andy Holloway describes veteran financial planner John Nicola, founder of Vancouver-based Nicola Wealth Management, which targets the 1% of investors with at least $1 million in investible assets.
Then the article moves on to the next generation: WealthBar Financial Services Inc., a (so-called) robo-adviser service headed by John Nicola’s eldest son, Christopher, and daughter-in-law Tea (pictured).
WealthBar is more down market than the senior Nicola’s firm, aiming to provide the 99% with “the latest evolution of online financial advice services … [using] software algorithms to assess investor risk profiles and then advise them about which investments … to hold.”
I happened to interview Tea Nicola myself late in 2014 for a column that’s in the current issue of MoneySense, when I interviewed some of WealthBar’s mostly happy clients. She supplied the photo above. Most of the clients I talked to were young investors who would rather not deal with the agony of day
-to-day market watching and stock-picking.
An online version of the Post article has not yet been posted as far as I am aware.
Robo with human advice on the side
The Post notes a twist on the usual “robo” model, in that WealthBar also uses human advisors to help clients with their insurance needs and financial planning, the latter via Tea. WealthBar charges 0.6% for those with at least $5,000 to invest, sliding down to 0.35% for those with $500,000 or more.
Note too that, as the Hub reported early in 2015, WealthBar has registered with all provincial regulators to take the service national.
The Post feature notes ETFs have been a hard sell in Canada, with over $1 trillion invested in mutual funds, versus a “paltry” $75 billion in ETFs. Maybe that’s why the same issue of MoneySense is again playing up mutual funds over ETFs on its cover.
In the Post article, John Nicola says robo-advisers will have to “sell and sell and sell” if they wish to overcome this reluctance to embrace the ETFs that are the foundation of robo-adviser platforms. Christopher Nicola suggests that individual investors are “uncomfortable” buying ETFs on their own:
“Canadians want an advisor and even though when they buy a mutual fund they aren’t getting in-depth financial advice with it, they feel like something happened there.”
Are balanced mutual funds that much different?
Seems to me there’s not a huge difference between robo-advisers and certain mutual funds. In fact, if you can find a good low-fee balanced mutual fund (like Mawer Balanced), it’s arguable you’re getting something very similar to a robo-service, and the fees won’t be that far apart. In the one case, you have active security selection of stocks and bonds and a view on overall asset allocation by the fund manager; in the case of robo-advisers, you have passively managed underlying ETFs but more active oversight of asset allocation and rebalancing, with two sets of fees: MERs of the underlying ETFs, plus the overall fee for the robo-adviser.
Either of which is probably better than blowing your portfolio up picking your own stocks or ETFs. In fact, over the years, I have often wondered — and occasionally written about — the curious circumstance that in theory all an investor needs from the mutual fund industry is a single global balanced fund. There you have active security selection, equities around the world, and fixed income all rolled into one. And yet I’ve never run into a single investor whose entire portfolio is in such a fund. If they exist, drop me a line at firstname.lastname@example.org.
Maybe there really isn’t anything new under the sun, even though this excellent article by Sandi Martin on how to pick a robo-adviser (also on the Hub) did suggest this is a rare example of something new in financial services.
Robo on the Decumulation Side
Finally, there’s the issue of whether robo-advisers will be able to deal with Decumulation as well as they deal with Wealth Accumulation. Doug Dahmer of Emeritus Retirement Income Specialists wrote about this in the Hub a few weeks back. Note his colourful phrase, Dollar Cost Ravaging.