You may have heard the term 'robo advisor' and assumed it was a service for tech-savvy millennials. Well, not so fast! Many investors moving towards digital wealth are:
- Nearing or in retirement,
- Tired of losing their wealth to high fees and mismanagement
- Searching for a way to make their money last as long as possible.
Sound like anyone you know? We thought so!
Robo advisors are giving Canadians a better way to invest—through access to professional portfolio managment at a fraction of the traditional cost.
Want to learn more? Here are the top 5 robo advisor myths explained:
1. Robots manage your money.
With 'robo' in the name it's no surprise people imagine a room of faceless robots managing their money. Which isn't the case!
Robo advisors use technology where possible to make the investing process easier and more transparent. Instead of filling out a pile of paperwork and waiting weeks to open an account you're able to do so quickly from the comfort of your home. A secure online portal walks you through the process and humans are available to help by phone, chat or email.
Technology is used to develop a portfolio based on your investment goals, timeline, and risk tolerance. Your registered portfolio manager will review it and you'll have a call together to go over everything, and ask any questions you might have, before your money is allocated. Integrating technology into the service keeps costs low, allowing robo advisors those charge dramatically lower fees.
Rest assure, there's a human behind every step and available for anything you might need along the way.
2. Your money isn't safe.
Security is incredibly important to robo advisors. They're subject to the same strict regulations as any other company in the financial services industry. And unlike some traditional investment advisors, our portfolio managers have a legal responsibility to put your best interests first.
Robo advisors are using bank-level security measures to ensure data is collected and processed securely. Your money is held separately in an account with your name on it at a custodian, usually a large long-standing bank. Like any other investment account your account is protected against insolvency by the Canadian Investor Protection Fund (CIPF) up to $1,000,000.
3. They're only for millennials or investors with small account sizes.
Millennials might be early adopters of technology but the average age of investors using a robo advisor is in their 40s. This isn't surprising as it's established investors with large accounts that have the most to gain by switching to lower fee models.
The average mutual fund fee in Canada is 2.5%, one of the highest in the developed world. Most robo advisors charge around 80% less. The impact of this savings compounded over time is huge.
The majority of our clients are in their 40s-70s with an average account size of six figures. We're the only robo advisor in Canada to charge a monthly subscription fee rather than a percentage of assets under management—fees are capped at $80 per month—meaning clients keep even more of their wealth.
4. Robo advisors are a fad.
Banks and traditional wealth management companies aren't against robo advisors, in fact, many are starting to use the same technology to stay competitive. Digital wealth management has become an essential tool for all firms in the industry. This kind of technology really is the future.
5. You have to choose between a robo and a traditional advisor.
It doesn't have to be either or, you can have both! Many people start by moving over one or part of an account to try out the platform and make sure it meets their needs. They might move an RRSP or open a new account like an RESP for a grandchild. You want to build trust with the person managing your money, we completely understand that. Do your research, ask your questions, and make decisions you're comfortable with.
The most important thing is to know you have options. Gone are the days of being unhappy and confused over your investments. Low, transparent fees and clear advice should be the new normal. That's what digital wealth management represents.
Click here to learn more about Nest Wealth, Canada's first subscription based robo advisor and the one recommended most by Certified Financial Planners.
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