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How to Pick the Best Robo Advisor for Beginners in Canada

Robo-advisors have transformed the investment paradigm due to the provision of a valuable resource that is both accessible and affordable to beginners. If you are new to investing and live in Canada, this guide will show you everything you need to know about choosing the best robo advisor for your needs.

What Are Robo-Advisors?

A Robo Advisor is an automated platform that offers investment management services with very little human intervention. Sophisticated algorithms are used to determine, create, and manage diversified portfolios specifically designed to meet the risk tolerance and financial goals of an investor. Robo-advisors are an attractive choice for beginners because of their low fees, ease of use, and easy accessibility.

To compare the best of the best options available, check out our guide to the Best Robo-Advisors in Canada.

Why are Robo-Advisors Great for Beginners?

  • Low Fees: Robo-advisors generally have lower management fees than traditional financial advisors.
  • Simplified Investing: You don’t need to have extensive financial knowledge; the platforms take care of everything, including portfolio allocation and rebalancing.
  • Access to Diversified Portfolios: Diversify investments automatically across all asset classes.
  • Accessibility: Begin with minimal investment amounts.

The Main Things to Consider When Choosing a Robo-Advisor

1.      Fees and Account Minimums

It’s essential to understand the fee structure. Most robo-advisors charge a fee for the percentage of assets under management (AUM). This fee is different for each platform, including ETF expense ratios. Keep in mind the total cost of investing when you are comparing options. High account minimums are an essential advantage for beginners. For instance:

  • Wealthsimple: No minimum requirement, 0.5% management fee on deposits below $100,000, and 0.4% for balances over $100K. Good for beginners. For more information, check out our in-depth review of Wealthsimple Robo-Advisors.
  • BMO SmartFolio: Has a minimum investment of $1,000, and management fees begin at 0.70% on the first $100K, gradually decreasing to 0.40% for those with portfolios over $500K.

Furthermore, some robo-advisors offer promotions, like fee-free periods for new customers, so it’s worth checking current offers.

2.      Investment Options

Your choice of investment options can make a huge difference. Robo-advisors use ETFs to create portfolios and ensure they’re diversified. Consider these portfolio types:

  • Standard Portfolios: Typically, these portfolios consist of a combination of equity and fixed-income ETFs, offering broad market exposure.
  • Socially Responsible Investing (SRI): The SRI portfolios focus on companies that prioritize environmental sustainability, social responsibility, and ethical governance (ESG). For example, Wealthsimple and RBC InvestEase offer SRI-specific options.
  • Halal Investing: Robo-advisors, like Wealthsimple, that cater to investors following Islamic principles offer some Halal portfolios compliant with Sharia law and excluding industries like alcohol, gambling, and interest-based finance.

Evaluate the platform’s ability to adjust these portfolios to your personal financial goals and ethical preferences.

3.      Account Types

Tax-advantaged accounts are a major focus of Canadian investors. Ensure your chosen robo-advisor offers the accounts you need, such as:

  • Tax-Free Savings Account (TFSA): Grow investments tax-free.
  • Registered Retirement Savings Plan (RRSP): Perfect for retirement savings with tax deferral benefits.
  • First Home Savings Account (FHSA): A new type of account designed to help Canadians save for their first home.
  • Non-Registered Accounts: For general investing without tax advantages.

For instance, platforms like Justwealth offer niche accounts like RESP portfolios designed for education savings. Of course, you want to match the account offerings with your investment goals.

4.      User Experience

A seamless and intuitive user experience for beginners can make the investment process far less intimidating. Key features to look for include:

  • Ease of Onboarding: A platform like Wealthsimple walks you through a simple questionnaire to establish your risk tolerance and investment preference.
  • Portfolio Monitoring: The ability to track your portfolio performance easily through mobile apps or desktop dashboards.
  • Educational Resources: Some robo-advisors have blogs, webinars, and tools to improve financial literacy.

5.      Access to Human Advisors

Although robo-advisors are mostly automated, having access to human financial advisors can offer an added layer of support. This is especially useful for beginners who are unsure of their portfolios or even their financial goals.

  • RBC InvestEase: It offers a low-cost way to get in touch with financial advisors and is able to provide personalized advice whenever you need it.
  • CI Direct Investing: Blend automation with human expertise and include dedicated advisors for higher-tier accounts.

This feature can really add significant value to your investment experience, whether you need it for occasional guidance or more regular support. If you’re unsure whether a robo-advisor or a traditional advisor is better suited for you, check out our comparison: Robo-Advisors vs. Traditional Advisors: Which Is Better?

Conclusion

Choosing the right robo-advisor is a big step in your investment journey. By considering factors such as fees, investment options, and user experience, you can find a platform that meets your needs and can help you reach your financial goals. Start your research today and take the first step towards building your wealth.

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