Robo-advisers target high net worth investors
Automated, algorithm-based services can benefit six-figure-plus clients as well, observers say
Most investors think so-called robo-advisers are for younger folks who don’t have much money to invest, let alone pay the fees and commissions charged by traditional financial planners.
But these days the growing and competitive online portfolio management service — which is akin to investing on cruise control — is targeting high net worth investors to go robo too.
Though the name conjures a cross between R2D2 and Siri, robo-advisers actually provide automated, algorithm-based portfolio management advice without much, if any, human interaction at a fraction of the fees charged by typical brokers. Based on your risk tolerance, your money is invested in thousands of companies through low-cost index funds and Exchange-Traded Funds (ETFs) that track different sectors of the global economy, keeping investments diversified to reduce risk.
Portfolios are monitored daily and automatically rebalanced if they drift beyond certain thresholds. And in most cases they have real advisers available by phone.
About a dozen robos have popped up in Canada, all aimed at making investing cheap and simple. That’s not usually associated with six-figure-plus clients who often want the “more face-to-face and hand holding” of a human rather than virtual wealth manager, says Anthony Boright, president of InvestorCOM Inc.
“They started out targeting millennials and younger investors . . . Now they’re clearly moving into the high net worth realm.” ANTHONY BORIGHT PRESIDENT OF INVESTORCOM INC.
“They started out targeting millennials and younger investors with smaller portfolios. Now they’re clearly moving into the high net worth realm,” he says.
But that’s not necessarily a bad thing for affluent investors — some of whom are young professionals too, he says.
“A larger portfolio doesn’t have to be a speculative portfolio where you’re trading and trading and trading,” Boright notes.
Kyle Prevost, a millennial personal finance expert who created the popular youngandthrifty.ca blog with buddy Justin Bouchard, says it’s a natural progression of the niche digital financial planning world.
For instance, the Wealthsimple robo-advisory firm, which has no account minimum, recently launched a premium service called Wealthsimple Black for clients with more than $100,000 in their portfolio. The new product offers even lower fees and perks such as financial planning with a real portfolio manager and an unlimited Priority Pass airline lounge access for the client and a guest.
“I really like this package, and it’s tough to beat in terms of value and perks,” says Prevost, 29.
He said competitor Nest Wealth’s annual fee model — which is capped at $80 a month — “starts to look very attractive as well” once you get into the $250,000 to $500,000 portfolio level.
Modern Advisor also has competitive fee pricing over $500,000, he notes.
Of course, robos may not be for everyone, particularly those looking for a full-service wealth adviser to provide a broad range of services including investment advice, accounting and tax services, retirement planning and legal or estate planning. But with all that, you pay much higher fees.
Still, the robo wave has brokers and financial advisers taking notice. For example, Toronto-based boutique wealth management firm Front water Capital just launched its own robo-advisory services (with a minimum $250,000 investment) after years of strictly providing traditional wealth management services to affluent families.
“I don’t think this cramps high net worth investors’ style. They actually have the most to gain from this type of investing, I think. The math behind passive investing with index ETFs is just as convincing at $500,000 as it is at $50,000,” Prevost says.
“And it’s really, really hard to try to pick winning stocks that outperform diversified indexes no matter what the portfolio size.”