“ROBO” Advisors – Technology-driven new entrants into the ETF space

Online Brokerages (aka Discount Brokers) allow DIY investors access to tools, information, and content, enabling them to buy and sell the ETFs they see fit deploy in their portfolios, using them either as a “core” or as a “satellite” components of said portfolios.


For investors looking to delegate the decision making process related to asset allocation (between cash; bonds; equities; commodities; etc) respectively the selection of individual ETFs, but also the ongoing process of deploying incoming cash flows, respectively rebalancing the portfolios and implementing tax-related strategies (such as tax loss harvesting), a new player has emerged on the scene relatively recently – ROBO Advisors.

Things To Consider When using a ROBO Advisor

Perhaps paradoxically, ROBO Advisors don’t relish the name that has stuck thus far in the market place any more than “Smart Beta” Providers like the name Smart Beta. In both instances, it likely relates to the fact that it can be seen as having a negative connotation. In the case of ROBO Advisors, it is because the notion of entrusting all decision making to an “algorithm” is seen as perhaps going too far in the de-personalization of investment management activities, which are still very much seen by many as requiring that “human” touch and element.

Arguably though, if an investment policy and program has been well thought out, implementation can benefit meaningfully from a systematic and automated approach making the best possible use of technology – so, why not? At that, of course, ROBO Advisors themselves will explain that the human element isn’t eliminated, but rather, that it is available and accessible “on demand” and as needed.

Either way – ROBOs are likely to become increasingly relevant here – as they have in the US. The key question will be whether their value proposition – making great use of ETFs and adding on some wealth management related functions to the process at a price point meaningfully lower still than that of either a full service broker or a mutual fund will be enticing enough. After all, DIY are presumably happy with Discount Brokers, while many needing greater assistance may not necessarily migrate to ROBO Advisors for fear of missing the familiarity associated with the current Advisor, or Mutual Fund relationship.

Here is what the Globe and Mail’s Rob Carrick had to say about ROBO Advisors – Click Here!

And what the Canadian “Couch Potato“‘s Dan Bortolotti’s piece heralding the arrival of Canada’s first ROBO back in June 2014 had to say – Click Here!

Cost – Relative to a Full Service Broker, an ETF Strategist, or a Mutual Fund, a ROBO Advisor solution can be expected to entail meaningful cost savings. These will vary from ROBO to ROBO and also as a function of the size of the account.

Service – What is or isn’t included as part of the service will vary amongst ROBO Advisors, and – successful “algorithm” or not – will likely also depend on the human element as part of the decision of which ROBO Advisor you will opt to go with. For that reason, getting a sense of what they are about and how they go about their business and the solutions they provide will be an important determinant in your selection process.

Here are several of the ROBO Advisors that have emerged on the Canadian scene recently. For the moment, we will limit ourselves to listing them, with the goal of providing additional color about them next: