Owning an investment account is like owning a vehicle, or anything complex. It requires maintenance. You are smart enough to learn to manage it yourself. But if you don’t want to spend your time and energy on it, and risk making mistakes early on, you are going to need help from someone. In investment, that person is an advisor.

But what if you didn’t want to spend the money to hire a person? A recent entrant on the scene is the robo-advisor. It’s a bit of a mis-nomer, because there are no robots, and you still have people working on your account. However, rather than give you personalized advice, they rely on rules-based investment decisions. In this way, they remove the thinking and judgement from the investment process, which can be a good or a bad thing, depending on whether you believe that human judgement is reliable or is the source of bias. The robo-advisor begins by using a questionnaire to slot you into one of five* pre-selected investment portfolios. (*Eg. QuestTrade’s Portfolio IQ.)

Does it make sense to hire a robo-advisor? It does, in the following cases. For people who want to learn to invest on their own, but need help in the beginning. For investors with a small account, so there is little room for personalization (eg. the “distance” between two pre-selected portfolios is small). For investors who don’t want or need any financial planning advice (eg. RRSP vs. TFSA vs. open, cash flow management, insurance, etc.). For investors whose paramount concern is either cost or avoiding mistakes. For investors who can set it and forget it, and don’t need hand-holding through downturns and market corrections.

If you read the last paragraph again, substituting opposites in each sentence, you can see what value I believe full-service financial planner / investment advisors offer. In addition, you will benefit from working with a full-service advisor when you have more complex needs, such as multiple accounts or if you want more personalizations, such as ethical investing or exposure to gold or emerging markets.

A transparent robo-advisor could be like investing with training wheels. Then, after some time, you take off the training wheels and either invest on your own or hire someone to do it for you. Even if you hire someone, you are capable of having an informed conversation and participating in the decision-making.

Appendix – The Canadian Robo-Advisors I looked at (in alphabetical order):

  • https://invisor.ca/
  • https://www.nestwealth.com/
  • http://www.questrade.com/managed-investing/portfolio-iq-overview
  • https://www.wealthbar.com/
What is a Robo-Advisor?

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