Written by: Evelyn Suvajdzic, CPA, CGA
I read a recent article in Business in Vancouver written by Albert Van Santvoort regarding investing fees in traditional finance firms versus robo-advising services. All costs may not be clearly evident leaving you, the consumer, comparing apples to oranges and paying more for less.
With the advancement of technology we have been introduced to more user-friendly services in the financial sector. We should, however, be aware that user-friendly is not necessarily user-focused.
Robo-advising uses computer algorithms and artificial intelligence to trade investments; the cost associated with these services is advertised as low-fee trading options offering financial and trading services.
The article states that beginning in August 2018 Wealthsimple Financial Inc. and Fidelity Investments Inc. started offering no-fee trading options.
What does “no-fee” really mean? When you make a “trade”, which is a buy or sell of funds, a fee is included as a percentage of the assets under the firm’s management. The exchange-traded funds also charge an additional annual percentage as a management fee. These fees are often nearly the same as standard brokerage fees invested in individual stocks.
Robo-advising replaces a personal advisor who would take other factors such as your tax and estate issues into consideration when advising on investment portfolios. Low fee and no fee advising relies on algorithms, which means when a stock reaches a certain price, either up or down, it is sold and invested in other holdings to keep the percentage of the portfolio holdings at a predetermined level.
Make sure you are aware of all the fees you are paying in each situation. Traditional investment brokers are required to clearly state what they charge for their services. They can also give advice as to when to take CPP or how to manage your portfolio going into your retirement years. Robo-advising may be low cost investing, but make sure it is the right fit for your needs.