Build an ETF portfolio—with an adviser’s touch
Get the help of an adviser for a low fee
If you’ve been listening to the news lately, then you’ve noticed that low-cost automated investment services are making the leap from the U.S. market to Canada. While in the U.S. they’re called robo-advisers, a better word for the Canadian versions might be semi-automated “light advice” services.
Recent issues of MoneySense have talked about the arrival of NestWealth, WealthSimple (which has just received regulatory approval) and WealthBar Financial Services. WealthBar’s website says it will be arriving “soon” and is registered as a portfolio manager in British Columbia, Alberta and Ontario. As well, SmartMoney—owned by Money Capital Management—is also about to launch in Canada. Most of these use exchange-traded funds (ETFs) as the underlying investment vehicle. That means investors can expect to pay either a monthly subscription fee or an asset-based fee of about 0.5% a year. Even adding in the management expense ratios (MERs) of the underlying ETFs, the total cost should come in at less than half what actively managed Canadian mutual funds or wrap accounts charge.
Apart from these startups, you can also expect to see more established firms reinventing themselves with similar models. Take ShareOwner Investments Inc., of Toronto. Since 1987, it’s been the place knowledgeable Canadian investors have bought individual stocks through DRIPS (dividend reinvestment plans). Last May, ShareOnwer announced the launch of a new portfolio building service that’s based now on individual stocks but—you guessed it—ETFs.
As with its DRIP program for individual stocks, ShareOwner’s ETF portfolio service is very cost-efficient. Contributions and distributions are automatically invested in all the ETFs in one of the five model portfolios chosen by the retail investor. As with the other services, asset allocations are reviewed and rebalanced to ensure they stay with agreed target levels. For instance, if Canadian equities are supposed to be weighted at 20% of a portfolio, the service won’t let the allocation dip below 17.5% or above 22.5%, says ShareOwner president and CEO Bruce Seago. (Previous ShareOwner head John Bart, is now retired.)
Clearly, long-standing ShareOwner customers own individual socks but many are now also using ETFs as the core of index part of their portfolios, particularly for international exposure outside North America. ShareOwner has about 500 Canadian and U.S. stocks. There are no commissions to buy or sell but a fee of 0.5% of assets is charged on the portfolio value, billed monthly, and capped at $40 a month for any account over $100,000. As an example, an investor may want to add $500 a month to portfolios holding between eight and 12 ETFs. The $500 will be spread among all those ETFs automatically with each payment, in the correct proportions and with no trading costs. Similarly, any cash from dividends will also be deployed and fractional shares can be accommodated.
Because the emphasis is on core, broadly diversified ETFs, the funds are mostly from BMO, BlackRock Canada’s iShares and Vanguard Canada, Seago says, although others are available for those who want custom portfolios. He adds that even if clients want to invest in both individual stocks and ETFs, they would maintain separate accounts for them. For the most part, the model portfolios stick to the major asset classes or stocks, bonds and cash, but those who want to do so can get previous metals or gold exposure through ETFs—one that holds mining stocks, the other that holds bullion—directly.
While the service is aimed at do-it-yourself investors, personal human advice is provided for those who feel they need help choosing an appropriate portfolio. “Building a portfolio does require thinking about risk tolerance,” says Seago. “Once you know how much risk to take, you can pick one of our portfolios—most of which usually match up with the needs of our investors. We are adding a human element on top.”
Jonathan Chevreau is the editor-at-large of MoneySense. He blogs here and at findependenceday.com. Find him on Twitter @jonchevreau.
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