Robo – Advising: A Next-Gen Idea or the Next Fad

Robo – Advising: A Next-Gen Idea or the Next Fad

In this week’s post, I will be looking at Robo-Advising the industry’s newest trend.

If you were to ask me today what one of the greatest flaws in the financial industry is –  it would undoubtedly be the appeal to millennials. Sure, banks have tried to attract young individuals with promotions such as free TV’s, additional cash for switching banks and even bonus interest, however, when it comes to investing it seems there’s nothing there. For anyone to get a wealth management appointment at a bank or would like to get an investment advisor – the minimum for stock market investing is approximately 250,000$ (number can vary depending on the institution). However, where do the consumers with modest assets go for advice? Robo-Advising is that new trend that is trying to fill that void and although it is not exactly like traditional wealth management it is trying to replicate it.

In terms of the Big 5 banks, only BMO to my knowledge has ventured into this realm with SmartFolio.  I decided to take a look into this service and see what advice it suggested for me. Through several questions considering my age, investment knowledge and desired ROI’s (return on investment) – this is what came up.






Source: BMO SmartFolio


Looking at the results:

So in terms of actual advice and portfolio suggestions its accurate. The service pinpointed my primary investment goal in long term growth and suggested an appropriate asset allocation according to the answers I  provided.

If I were to compare it to a benchmark rule for asset allocation that states:

100-Age = Equity Percentage

100- 21 = 79%

The Robo-Advisor suggests 70% so its not to far off.

In terms of my investment goals the service suggests the following “The primary goal of this Model Portfolio is to maximize returns over time primarily through exposure to Canadian and foreign equity securities and to a lesser extent some exposure to Canadian and foreign fixed income securities.”

In terms of advice, the advisor does do a good job of narrowing down my investment habits and proposing a somewhat solid plan of action.

Major Concern: My major concern or comment with this particular service is that it still does not address my primary concern of getting my feet wet with the stock market. Although BMO SmartFolio is a new service it will suggest that you put your money in a portfolio of ETF’s and while I am in no way going to bash ETF’s it still does not provide me with the opportunity to purchase shares in the market. ETF’s are a very viable method to investing and for those looking for more information please check out my previous article on ETF’s.  At the end of the day, I still think Robo-Advising has its place in the investment world. By investing in ETF’s you do reduce your investing costs as they are not as costly to manage as mutual funds.

What we have here is a terrific middle ground that does appeal to an exploitable market. For those that do not desire the high MER’s of mutual funds but do not have the knowledge or savviness to invest on their own, Robo-Advising can fill that void. In addition, some of the major advantages of Robo-Advising are ultra low fees. In an era, where fees are under scrutiny and consumers are becoming more cognizant of every fee billed to them robo-advisors could be the future. With very-low advisor fees of under 1% per year – it has become an intriguing choice for many investors of all asset levels. In addition, in can be a perfect opportunity as an introductory investment especially for those that are still unsure on where to invest or do with their money, I do suggest to consider Robo-Advising. At the least, consider filling in the introductory questions to see your risk levels and asset allocation to see a broad framework of your investment goals.

Happy Investing!

Disclaimer: All of the above information is my own personal opinion. The figures shown were generated from my answers using BMO SmartFolio service. Please do your own research before purchasing any investments or financial services. I have not actually invested directly with BMO Robo Advising. In addition, there are other Robo Advisors – BMO was used as an example.

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All Figures shown were drawn from BMO SmartFolio:

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