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The world of robo-advisors is taking storm as an excellent alternative to the traditional investing we’re used to.
It’s tempting to go the DIY route in investments and forgo the management fees that traditional investing offers, however it’s here where robo advisors provide a middle ground.
While financial advice from a seasoned investor can be helpful, having the choice to not pay management fees is an attractive proposition.
Platforms such as Wealthsimple are emerging and providing an alternative to traditional investing and financial planning.
In fact, In Canada, Michael Katchen’s Wealthsimple has become the dominant ‘robo-advisor’ in a growing industry.
In an interview with Forbes Magazine, Michael describes how he spent time building 1000Memories, a Silicon Valley-based startup, where he also ended up working on a spreadsheet to assist his peers in setting up investment portfolios.
The project helped spur the idea of the Wealthsimple platform in 2014, which boasts being able to work entirely on a smartphone.
Michael points out that traditionally, large lump sums of investment are required to get access to quality advisors.
This system as such, usually has excluded a younger investor crowd from getting involved in investing.
Wealthsimple aims to overcome that by removing any minimum investment quantities and allow access to quality advisors.
Starting up in Toronto, Wealthsimple has grown immensely over the past six years, acquiring Canadian ShareOwner Investment Inc and diversifying into different products.
At the original time of writing, Wealthsimple did not have much more than their Invest offering.
Their current offerings include:
- Wealthsimple Invest
This is the original product Wealthsimple started with, their online investment service.
- Wealthsimple Trade
The first no commission, mobile stock trading app in Canada.
As of December 2020, a desktop platform with limited features was made available to users, with a promise of more comprehensive capabilities in the future!
- Wealthsimple Crypto
An extension to the above, the latest offering from the Wealthsimple team, allowing Canadians to trade Bitcoin and Ethereum through the Wealthsimple Trade app.
- Wealthsimple Cash
A hybrid no fee, no minimum balance savings account and chequing account in one, which was offering 1.7% interest rate on savings upon introduction – it’s come down to 0.9%.
Chequing account features such as a Visa debit card, ability to deposit your pay, bill payments and e-transfers are said to be coming soon.
Only the Visa debit card is showcased on their website at the moment.
- Wealthsimple Tax
Wealthsimple acquired SimpleTax in 2019, a ‘Pay What You Want’ income tax software.
Currently offered to users with a bold guarantee of finding you the maximum return, or a refund of what you paid.
$5 billion in managed assets and over 1,000,000 customers across all products as per the Wealthsimple website.
Their Invest business has around 175,000 customers across Canada, US and UK as per a 2019 Bloomberg article.
For the purpose of this article, we’ll be focusing on Wealthsimple Invest.
What Wealthsimple Offers
Early on, I figured out that I should save money wherever possible so that at some point in my life I could invest it.
Looking to understand investing and making better use of the money sitting in my savings account, I dove into Wealthsimple.
To me, their greatest selling point was their automatic investing.
Linking to an existing bank account or directly, the platform showcases projected growth over several decades.
Investment is a long-game venture for me and as someone who isn’t looking to have to constantly review their investment portfolio, Wealthsimple proved to align with my objectives, allowing me to easily get my foot into the world of investing.
The fear of having to research individual stocks and having the real threat of making a wrong decision, and ultimately losing money is very real for beginners like myself.
For that reason, the investment model of Exchange-Traded Funds (ETFs) can be a major incentive to work with Wealthsimple.
Spreading your eggs across several baskets, Wealthsimple invests in a variety of assets including:
- Government bonds
- High yield bonds
- Short-term bonds
- Real estate
- Dividend stocks
- US stocks
- Canadian stocks
- Foreign stocks
- Emerging markets
With ETFs, the price of a share will change throughout the day as they are bought and sold.
ETFs differ from mutual funds because shares trade like common stock on an exchange.
Thus, whether you’re interested in saving for retirement, opening a Tax-Free Savings account, personal taxable account, RRIF, or LIRA, your assets are invested in a wide net.
Although that may mean not making immediate profit, it also means not taking any huge, devastating losses.
For a rookie in the investment world, this is a plus as it keeps investors on the journey to see the bigger picture.
And really, investing is a big picture, long-term venture.
Part of the orientation when opening an account includes a quiz to decide what kind of investment strategy is best suited for you.
Once I opened my account, I was directed through a series of questions to find the best investment portfolio for my needs.
These questions included:
- What level of growth I’d like to see
- Investment goals
- Spending habits
The assessment aims to direct you and your funds to an investment strategy that fits your profile.
After going through the online questionnaire, the following portfolio options were presented to me:
Where Does Wealthsimple Invest My Money?
You might be wondering:
“Can I chose a specific portfolio type and then determine how the diversification happens?”
The short answer, is no, you can’t.
I guess you can say this is the double-edged sword of automated investing.
You provide your funds to Wealthsimple to invest and you aren’t able to adjust within the specific portfolio type – they invest on your behalf according to your goals.
However, you can, at any point decide you want to switch from, say a growth portfolio, to the balanced one or to the conservative one.
Wealthsimple aims to maximize diversification by investing across different asset types as well as diversifying within those assets itself.
And this is the case whether you open an RRSP, TFSA, LIRA to bridge your retirement savings, RRIF, RESP, or other savings account.
Wealthsimple will even work with you to manage finances and investments for your business as well.
The below chart gives you a sense of some of the different ETFs.
The various assets that Wealthsimple will invest in are displayed in the first column.
Within those assets is an ETF that represents diversification of several assets within that one asset type.
Essentially this is diversification within diversification, or widening your investment ‘net’.
Moreover, the far right column shows which portfolio type would probably correspond to the specific asset.
A more growth oriented portfolio would likely focus more of your investments in the higher risk and higher reward assets.
A more conservative portfolio would focus on the less-risky assets.
Now, for a rookie, I don’t really know the individual stocks that Wealthsimple is investing in.
And frankly, I don’t care.
If I did, I would invest in individual stocks and not use a digital investing service.
You can look up any of these ETFs with their ticker symbols to see how they have performed in the past.
As my knowledge and comfort around the stock market grows, I definitely will look into purchasing individual stocks on my own, I’m just not there yet!
|Canadian Stocks||XIC||iShares Core S&P/TSX Capped
Composite Index ETF
|US Stocks||VTI||Vanguard Total Stock Market ETF||All 3|
|US Stocks||VUS||Vanguard US Total Market Index ETF||Growth|
|Global Stocks||ACWV||iShares Edge MSCI Min Vol Global ETF||All 3|
|Foreign Stocks||IEFA||iShares Core MSCI IEFA ETF||All 3|
|Foreign Stocks||XEF||iShares Core MSCI EAFE IMI Index ETF||All 3|
|Emerging Market Stocks||EEMV||iShares Core MSCI Emerging Markets ETF||All 3|
|Canadian Government Bonds||ZFL||BMO Long Federal Bond Index ETF||All 3|
|Canadian Medium-Term Bonds||ZAG||BMO Aggregate Bond Index ETF||Conservative, Balanced|
|Canadian Discounted Bonds||ZDB||BMO Discount Bond Index ETF||Conservative, Balanced|
|US Real Return Bonds||QTIP||Mackenzie US TIPS Index ETF||All 3|
Aside from diversification and creating a portfolio based upon your needs, Wealthsimple also offers advice through both real-person portfolio reviews as well as producing a ton of informative content.
In the Learn section of their website, you can find:
- Investing Master Class
A 45 minute, 10 video series that will give you a good sense of things you need to know when starting to invest personally.
- Personal Finance 101 Content section
Here you’ll find tons of informative articles covering topics such as general finance, accounts, investing, saving, taxes, home buying and much more!
- Wealthsimple Magazine
Showcasing case studies and use cases from platform users along with more learning resources.
You can find advice from industry leaders and the journeys of real people and real businesses at different financial levels, showcased and created as case studies as a sort of social proof for the various services offered.
From new immigrants to students to single parents and artists, the Magazine tries to showcase how people benefit from the various ‘ups’ that a no-minimum investment robo-advisor offers.
What Is Wealthsimple Trade?
Recently, Wealthsimple has introduced a single stock-trading option under their Wealthsimple brand, aptly named Wealthsimple Trade.
Investors can now also follow individual stocks and buy/sell them.
This is a sort of ‘leveling up’ experience as early users who would likely have built up a knowledge-base around investing can now use their knowledge to trade individual stocks themselves.
Wealthsimple Trade is a separate entity under the Wealthsimple platform but offers some of the same benefits of its ETF-only counterpart. I wrote a separate review on Wealthsimple Trade which you can also read.
Users can buy both ETFs and individual stocks.
In addition, there are $0 commissions by Wealthsimple and no minimum investment.
Essentially the same unique-selling-proposition that the main platform offers carries over to this trading option.
Knowing this, I can potentially see myself continuing with Wealthsimple even as my knowledge of investing grows.
I can continue to invest in a diversified portfolio, while experimenting with single stock trading under the same umbrella.
Socially Responsible Investing with Wealthsimple
Personally, earning a profit through companies that are socially responsible is important to me.
It seems odd though to consider that investing in an automatically diversified portfolio puts you in partnership with dozens of companies.
I know it’s temporary as stocks are bought and sold, but neat concept nonetheless!
It’s easy to lose sight of the fact that you are buying a portion of these companies.
Keeping that in mind, for those who are socially conscious of supporting ethical organizations, the socially responsible portfolio is a great investment pathway.
How does Wealthsimple define socially responsible?
1. Low carbon – Global stocks with a lower carbon exposure than the broader market
2. Cleantech – Cleantech innovators in the developed world
3. Human Rights – Global stocks with a positive record on human rights and corruption
4. Environment – Canadian stocks that prioritize environmental and social concerns
5. Government Securities – Canadian federal bonds with AAA rating
And this investment option also provides its own diversification options with its client-assessment.
Personally, the socially responsible portfolio was very appealing.
Halal Investing Is Available
Wealthsimple has identified a growing need for investing for a variety of needs and values.
They’ve come up with a halal investment portfolio, for Muslim investors seeking to comply with the religious values of Islamic investing.
A portfolio without bonds or GICs, the halal investment portfolio helps Muslim investors stay away from profiting off of debt.
Industries such as: alcohol, tobacco, gambling and weapons are excluded from this portfolio as well.
Unlike other investment portfolios, the halal investment portfolio does not offer conservative, balanced, and growth options.
As an all equity portfolio, the halal investment portfolio is aggressively growth-oriented.
It’s important to note that the halal investing portfolio does not use ETFs.
Instead, it uses individual stocks.
However, this portfolio is constructed similarly to an ETF, tracking the market index as a whole rather than picking individual stocks.
Now you might be thinking, “why would you invest in a portfolio that doesn’t offer the very product that it sells itself on?”
Simple: Investing in Shariah-compliant portfolios has scarce opportunity for the average practicing-Muslim who is trying to plan their future finances.
While retaining some sort of diversification of assets on an easy-to-use platform, practicing-Muslims have access to a means of financial-literacy not previously possible in Canada.
So it all sounds great right?!
But the golden question remains: What does it cost?
Wealthsimple breaks down costs and fees into three different groups.
While each of these groups has more features than we’ve outlined below, at a high-level, here are the differences.
|Financial Planning Session||–||Yes||Yes|
|Dedicated Financial Advisors||–||–||Yes|
Originally, Wealthsimple Black and Wealthsimple Generation clients would benefit from Priority Pass membership.
However in May , the feature was discontinued and is no longer offered.
I’m sure they’ll add other beneficial features to compensate.
Is Wealthsimple Safe?
In terms of the safety of your funds, Wealthsimple and ShareOwnerInvestments are members of IIROC (Investment Industry Regulatory Organization of Canada) and funds are protected by the CIPF (Canadian Investor Protection Fund). There are certain limits as to how much can be insured.
This is industry standard in Canada in terms of providing protection for client funds.
In terms of the platform, Wealthsimple relies on what is called a 256-bit SSL/TLS certificate for safe, encrypted transactions
What this means is that the encryption key that must pass and be accepted with each transaction is made up of 256 binaries (0s and 1s) with 2^256 combinations to the key.
That means, 78 digit combinations.
So even with one of the fastest supercomputers in the world, it would take millions of years for this code to be cracked. Need I say more?
They also require two-factor login with a pin being sent to your phone each time you want to access your account.
What’s The Wealthsimple Sign Up Process Like
The Wealthsimple process starts with a simple ask for your email address and password but the key thing I want to call out is the statement they make:
In 5 minutes they’ll have you set up and on your way.
– that’s one hell of a feat, compared to the days when we would have to book time with financial advisors in a branch, go in, fill in and sign a bunch of documents after which we still don’t know where to invest.
While has forced us to go digital even faster, Wealthsimple is at the forefront of providing excellent digital capabilities.
The process then advises you of the next few steps and again tells you that this will only take about 3 minutes.
In a world where our attention is being pulled in many different directions, noting the amount of time it’s going to take helps us focus on completing it quickly, now, instead of coming back to it later.
They then ask for several personal details including your Citizenship, Employment details and your SIN number after which comes the exciting part – the part where they ask about your goals as seen below.
What do they ask?
Your age – To build the right plan for your investment timeline
Why are you investing?
Do you have any previous experience investing in stocks, bonds, mutual funds or other securities?
(High interest savings accounts don’t count)
Which type of investments have you purchased in the past?
If you decided to invest on your own and build a diversified portfolio, how do you think you’d do it?
Income and where it will come from?
How much are you comfortable saving per month? A general rule is 20% of your monthly income.
Do you currently have savings or investments?
What’s the value of property and other assets you own?
What about your debts?
If you were to invest $275,000, which scenario would you be happiest with:
Investing comes with risk. There’s no right or wrong answer, it’s more about what you feel comfortable with.
And just like that, based on my inputs they’ve crafted out a personalized plan.
From here, I can open up various types of accounts or transfer one of my existing accounts to them and I’m on my way.
Takeaway: All in all, it really is a very seamless process to get started. Quite impressed.
How Is Wealthsimple Support?
The Wealthsimple Customer Service team is available to answer any questions in regards to opening your portfolio.
The company offers live phone support which is available Monday – Thursday 9 AM to 6 PM EST and available until 5:30 PM on Friday (reduced from a previous 8 AM to 8 PM).
You can also reach them via email at email@example.com.
Overall, they are very responsive and helpful!
Now, the question is, how well does Wealthsimple perform?
Below, we breakdown the Pros, Cons, and ‘Best for’ uses for this digital investing service.
- Lower initial investments and fees than other advisory companies
No minimum investment sum which can also be adjusted on a lump sum or monthly basis, as well as lower management fees than many of the traditional players
You can even adjust how much you wish to invest, simply by logging in through your phone and making the appropriate changes
- Utilizes modern portfolio theory in investing your money
Investing in several stocks, an investor can reap the benefits of diversification and reduce the overall risk of their portfolio
- Free tax-loss harvesting
Ideal for investors with large taxable accounts, they offer to minimize your taxes as your investments grow.
It makes no sense to be penalized for growth.
By selling your current holdings and investing in new assets, Wealthsimple works to reduce your taxes and focus on account growth
- Integration with money-tracking software like Mint.com
Boasting full smartphone access to their platform, Wealthsimple can even integrate with the finance-tracking software, Mint.com to act as a double stack to your financial goals
It seems odd to say that this is both a strength and weakness.
However, investors who are used to having financial advice from a banker on the types of investments purchased will be frustrated with the automation and rebalancing that Wealthsimple prides itself on.
It can be frustrating to know that although you control how much and how frequently you invest, that you do not control specifically, where your money is being invested
In My Opinion Wealthsimple Is Best For
- Completely new to investing
Those that are very new to investing and don’t have the time to track individual stocks can benefit from both the diversification model as well as help from Wealthsimple’s advisors.
- Mobile heavy Users
Those who enjoy the benefit of online banking through their phone and using finance management apps can benefit from Wealthsimple’s mobile-friendly user interface to easily track their investments
While Wealthsimple pioneered the space in Canada, there are now a number of other options available including Justwealth, Nestwealth and Wealthbar. Further details on picking a robo-advisor are covered in this great article from Wealthsimple.
While our friends down south have even more options, it will be interesting to see how the sector evolves.
The introduction of Wealthsimple Cash will be a further push for fintech companies moving into the space of what only traditional banks would handle.
The upcoming banking features along with debit card are sure to also be game changers in Canada.
It looks like they’re on the path to becoming your one stop financial service provider, including a neat tax preparation software which I will be trying for the first time this year.
I look forward to seeing how the sector continues to evolve.