What can robo advisors do for you that your financial advisor isn’t doing?

Randy Cass, NestWealth.com

By Randy Cass

Special to the Financial Independence Hub

If you’re like many Canadians, your financial life story may go something like this: over the past 20 years you’ve been busy taking care of multiple financial commitments. You may have gotten married, bought your first home and have made some good headway to paying it off, you may have even had a child or two and gone back to school to further develop your career.

Now in your 40s, you’ve achieved quite a bit and are probably starting to seriously think about how you will fund your retirement, children’s education, a bigger house or something else specific to you. Throughout all this, you’ve managed to put away around $100,000.

Congratulations! But, this is most likely not enough for you to be considered a good prospect for most financial advisors. You’re either left to do it yourself [DIY] or your hard earned money is probably going to be put into an expensive option, typically in a mutual fund paying up to 2.5% in fees each and every year.

Though, you may not know just how much you’re paying and may even believe that you don’t pay anything at all because fees are not currently reported on investment statements. What’s more, these fees will likely destroy up to 50% of your potential gains in wealth — yes, small fees have devastating effects over time — leaving you with much more work ahead of you and a harder time reaching your goals. If this is not a slap in the face, I don’t know what is. The good news is that there are new options available for individuals just like you.

Financial services industry in flux

We’re seeing great changes in the financial services industry right now, where the best practices that used to only be available to those with millions of dollars are becoming available to more Canadians. You take better technology, low-cost products like exchange-traded funds (ETFs), experienced financial professionals working at new companies providing digital wealth management and you end up with better solutions for investors.

Robo advisors at forefront of “fin tech” revolution

Digital wealth management firms or “robo advisors” are at the forefront of the changes we’re seeing right now and may be able to help you achieve your financial goals. Instead of placing investors into buckets (or mutual funds), you answer a series of 9 or 10 questions that speak to your financial situation, investment time horizon, life goals and risk tolerance.

With the use of leading technology and a dedicated portfolio manager, at Nest Wealth, we’re able to put together a customized portfolio solution of low cost ETFs that meet your individual needs. Your portfolio sits on the efficient frontier, that is, you get the maximum benefit for your specific risk tolerance.

Low fees plus Advice

The thing is Nest Wealth is not about just establishing a portfolio of low cost ETFs and never touching it. This is a professional wealth management solution with a portfolio manager assigned to your account. Your portfolio manager will help get on track and makes the decisions that most people, even with the best of intentions, get too busy to make. This usually includes rebalancing your portfolio when assets stray from the proper mix. Adjusting your portfolio as your life situation changes. And, making sure that you are in the best products for the asset classes you need to be in. These are all part of a complete solution that I think gives Canadian investors the best of both worlds: customized low fee portfolios plus human advice. So what you’re in fact getting is a better solution and way to invest your savings.

Even if you’re just starting out or if you’re closer to retirement than in our example, the type of service offered by digital wealth management firms equally apply to you. The important thing to remember is that there are a lot of empirical studies on the best way for individuals to invest and it’s very similar to how many large institutional investors manage their portfolios. You figure out your risk tolerance. You create a properly diversified portfolio. You minimize your fees as much as possible. Stay the course and rebalance when things go off side. That’s it. It’s boring but it works.

Have follow-up questions? Please feel free to reach out to us at randy@nestwealth.com.

Randy Cass is the founder of NestWealth.com, bringing more than 15 years experience in the financial services industry. Previously Randy managed quantitative portfolios at the Ontario Teachers’ Pension Plan and institutional assets at Orchard Asset Management. His previous company, First Coverage, won multiple awards as a top start-up including a financial services Morningstar award for best use of Technology in Canada before it was ultimately sold in 2011. Randy hosted Market Sense on BNN between 2012 and 2014.

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