Robo-advisors

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
DanH
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Re: Robo-advisors

Post by DanH » 04 May 2016 18:05

You can ask now since many dealers have their systems CRM2-compliant today. Or you can just click here to see generic sample reports.

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Re: Robo-advisors

Post by Spudd » 04 May 2016 18:25

Wow, the managers in that sample report are really earning their fees! Double digit returns for every time period except past 1 year. :lol:

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Re: Robo-advisors

Post by kcowan » 05 May 2016 06:32

DanH wrote:You can ask now since many dealers have their systems CRM2-compliant today. Or you can just click here to see generic sample reports.
So this is $1036 on $15300 in 2015?
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Re: Robo-advisors

Post by GreatLaker » 05 May 2016 09:15

kcowan wrote:
DanH wrote:You can ask now since many dealers have their systems CRM2-compliant today. Or you can just click here to see generic sample reports.
So this is $1036 on $15300 in 2015?
But they do have an uncanny ability to know the market value of the account on Dec 31, 2030. That itself is priceless.

"Market value of your account on December 31, 2030 $52,792.34"
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DanH
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Re: Robo-advisors

Post by DanH » 05 May 2016 09:32

kcowan wrote:
DanH wrote:You can ask now since many dealers have their systems CRM2-compliant today. Or you can just click here to see generic sample reports.
So this is $1036 on $15300 in 2015?
No. And I don't know if this report was put together with the idea that both (cost and performance) reports can be integrated. This sample is confusing because it's current to December 31, 2030! Not sure why they did that but...here's how you'd look at it.

Recall that all of these reports are prepared once annually. The costs cover only what's been charged/paid over the previous year. This total is found at the bottom of page 3 in the above sample - and totals $1,035.

On page 6 is a table showing changes in the value of the account - i.e. over the past year and since inception. To match up with costs, focus on the left column - over the past year. You can calculate a rough average value from that table by averaging beginning and ending values: (51,063.49 + 52,792.34) ÷ 2 = $51,928 or ~$52k. If what you want to do is calculate a % cost, then you have 1035 ÷ 51928 = 1.99%. But since this doesn't include fund management fees kept by fund sponsor, I doubt that this is an integrated example (i.e. an actual example where the cost and performance were designed for this type of exercise). I think the numbers were just made up quickly simply to give people an idea of what they'll get.

Another way to compute average value - particularly if flows are proportionately large - is to take the "$ change in value" over the past year and divide it by the trailing year % return. But again, that's not really accurate either - just another option. The only way to get an accurate average is to have a series of end-of-day market values - which won't be on any report.

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Re: Robo-advisors

Post by DanH » 05 May 2016 12:44

GreatLaker wrote: But they do have an uncanny ability to know the market value of the account on Dec 31, 2030. That itself is priceless.
I'd be even more impressed if regulators could predict if this rule would still be in place by 2030 :wink:

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Re: Robo-advisors

Post by kcowan » 05 May 2016 13:33

It seems like they are not letting CRM2 get in the way of their obfuscation.
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Re: Robo-advisors

Post by DanH » 06 May 2016 10:28

This is at least partly the result of regulators wanting a precise accounting of everything. That causes two problems. First, dealers can't do that since some of the costs do not flow through their accounting systems. As a result, the cost kept by product sponsors (i.e. not paid out as commissions) will not show up on this new cost/charges report. To their credit, the MFDA asked for ideas to get around this limitation to improve disclosure (to make it more complete) - an initiative to which we contributed. While the MFDA's actions have zero impact on me/us, they're pursuing the right path so we were more than happy to help.

That said, the industry is somewhat to blame given that they've fought so many investor-friendly proposed regulations so there is shared blame in CRM2's limitations.

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Re: Robo-advisors

Post by Bylo Selhi » 06 May 2016 15:19

DanH wrote:I read this Tom Bradley blog post the other day: Steadyhand and Robo - Compare and Contrast....
Back to robo-advisors, it seems to me that Tom and, more importantly large, established conventional financial planning firms, are missing an opportunity. Instead of fighting robo-advisors they should embrace the concept and use it to their advantage.

Consider young people entering the workforce and starting families. They have modest amounts of money to invest and modest financial planning needs. They're of little interest to the conventional FPs because they don't generate enough commission/trailer revenue to be profitable. But if you can hook them now on low-cost robo-advice you can develop a relationship with them. Then over time, as those clients' assets grow and their financial lives become more complex, you can offer them more personalized advice on a more profitable basis. The point is that now, since they're already your clients, the cost of "acquiring" them is marginal. In fact since you're already managing their accounts you know a lot about them and they know a lot more about you than would be the case if you were trying to get them by just "dialing for dollars."

Granted, this requires a long term view. So it's likely not appropriate for sole practitioners. But for bigger firms the cost of adding a robo-advice option for smaller accounts ought to be small and the potential rewards down the road large.
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Re: Robo-advisors

Post by Peculiar_Investor » 14 Dec 2016 07:46

As posted here:
Quebec wrote:finiki has a new page: Robo-advisor.

If anyone is using a robo-advisor, it would be great to read about your experience here.

Comments about the finiki page are most welcome as usual, here or using the ''Help improve this page'' at the bottom of each finiki page. Or, best of all, you can be a geek and edit the page yourself.
Imagefiniki, the Canadian financial wiki New editors wanted and welcomed, please help collaborate and improve the wiki.

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Re: Robo-advisors

Post by DanH » 16 Dec 2016 07:38

From yours truly...Regulations will create scalability issues for Canadian robo-advisers

The essence of the article is that the rules and obligations of U.S. vs. Canadian robos are different in one very significant way. And that equates to a somewhat different business model (certainly a vastly different cost structure). And one robo has already run into regulatory trouble in Canada - with likely more to come.

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Re: Robo-advisors

Post by kostya » 16 Dec 2016 10:58

Thanks Dan, this is a great insight to show some of the core issues that fintech companies have to deal with in Canada and other countries with more complex regulatory requirements. Note that Canadian regulators also take steps to help these companies, one good example is the recent introduction of OSC's LaunchPad.

https://www.osc.gov.on.ca/en/osclaunchpad.htm

LaunchPad helps fintech companies to understand better the regulatory framework and also to create opportunities to "experiment" in what they call a closed "sandbox" environment in order to explore new processes and approaches.

So it goes both ways. I personally believe that there is space for both human and robo advice, because many financial topics touch not only numbers but some emotions that machines are just not able to cope with, at least not at this point. Human advisors is the only real way to address the human part of it. I hope that technology will evolve in a way that both kinds of service will compliment each other, though definitely there are some valid points of concerns on both sides, from competition point of view.

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Re: Robo-advisors

Post by Peculiar_Investor » 24 Jan 2017 16:54

DanH wrote:From yours truly...Regulations will create scalability issues for Canadian robo-advisers

The essence of the article is that the rules and obligations of U.S. vs. Canadian robos are different in one very significant way. And that equates to a somewhat different business model (certainly a vastly different cost structure). And one robo has already run into regulatory trouble in Canada - with likely more to come.
On point to the issue that Dan raised, Wealthsimple seeks relief from mandatory client calls | Rudy Luukko | Personal Finance | Morningstar
Rudy Lukko wrote:Leading online advisor Wealthsimple Inc. is seeking regulatory approval to accept new clients without having to speak with each of them. Michael Katchen, CEO, says the proposed change to a "no-call" model would not apply to all new clients, nor would it in any way restrict ongoing client access to the firm's registered advisory representatives.
Imagefiniki, the Canadian financial wiki New editors wanted and welcomed, please help collaborate and improve the wiki.

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Re: Robo-advisors

Post by CROCKD » 20 Jun 2017 15:09

From G&M Blogs
"Successful portfolio managers frequently talk about the importance of keeping emotions away from their investment decisions and remaining cold and objective. What’s more emotionless and disciplined than software? Businessweek reports that roboadvisers are crushing human investors"

Robots Are Eating Money Managers’ Lunch
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Re: Robo-advisors

Post by Sensor83 » 12 Jul 2017 13:37

Robo-Advisors mainly attract the millennial crowd and, I believe, they're a good way to encourage people to invest that might otherwise not. However, as far as the longevity of the robo-advisor business model is concerned, it's clear they have a profitability issue with low-account investors seeking competitive fees (e.g. the average earnings per client from most robo-advisors is only $50/year according to kitces article). Either way, they can still survive if they cater to businesses like Betterment which provides 401(k) offerings to companies and can collect revenue from that. And hopefully survive long enough that their AUM increases to profitability.

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Re: Robo-advisors

Post by chufinora » 12 Jul 2017 22:06

I agree currently they are attracting low AUM investors. I hope they thrive and attract the widows/(widowers) of DIY investors away from traditional 1-2% AUM fees of financial advisors/sharks. This is something I am personally looking for when I (likely) snuff it prior to my wife (I hopefully have quite a few years time horizon given I am in my fifties). Currently (when I last looked) the Robo-adivsors in Canada are not cheap enough and do not offer a good enough service (cf. US Robo-advisors).

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Re: Robo-advisors

Post by twa2w » 13 Jul 2017 16:02

CROCKD wrote:
20 Jun 2017 15:09
From G&M Blogs
"Successful portfolio managers frequently talk about the importance of keeping emotions away from their investment decisions and remaining cold and objective. What’s more emotionless and disciplined than software? Businessweek reports that roboadvisers are crushing human investors"

Robots Are Eating Money Managers’ Lunch
Interesting link but but not really the same as robo-advisors. The robots in the article are sophisticated algorythm trading programs not available to the average investor.

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Re: Robo-advisors

Post by DanH » 21 Jul 2017 11:02

I've been following a periodic series of posts on Jon Chevreau's blog by an advisor who took $5k and invested it with an unidentified robo-advisor (whose name shall remain Wealth Simple ;) I'm only 99.9% of that). I have been surprised by the number of changes in holdings he has experienced. This is the first post in which it's been confirmed that trading is actually algorithmic (i.e. computer driven). Previously, I thought that humans selected the products and even the portfolio models; and the software simply took care of the profiling and mapping to a human-constructed portfolio. In any event, an interesting read - both this instalment and the earlier posts.

Mid-year review of Aman Raina’s Robo Advisor portfolio
Investors tend to choose investments that are closer to our home for either familiarity and/or comfort/security often at the expense of ignoring lucrative opportunities in other parts of the world. It appears my ROBO is suffering from a case of Geographical Bias right now. Why is my ROBO hesitant to invest outside North America?

These events and decisions are quite puzzling to me because my understanding is that my ROBO is being run and guided by some highly educated academics who should know better about diversification. It doesn’t seem like they are practicing what they preach, which is a bit concerning.

I’m also a bit concerned about how much the asset allocation weightings have changed in just a few years. A core principle of investing by asset allocation is that once you set your weightings, you should essentially should set it and lock it in, meaning the weightings should not change materially and you should not be nibbling around the edges and tweaking the weightings. When one sector’s weighting strays way from its model weighting level, only then through rebalancing should assets be bought or sold accordingly. It doesn’t seem to be happening

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Re: Robo-advisors

Post by CROCKD » 27 Oct 2017 18:56

Robo-advisers find popularity where few thought they would
After discovering that he was paying more than $20,000 a year in fees, Bruce Pinn, a 57-year-old executive from Toronto, decided to make a drastic move and fire his investment adviser of 18 years.
At the end of the article there is graphic showing the average age of robo-adviser users at the various companies.
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Re: Robo-advisors

Post by Shakespeare » 04 Nov 2017 00:05

Behind the G&M paywall:

CIBC in talks with robo-adviser Wealthsimple, sources confirm - The Globe and Mail
Sources with knowledge of continuing discussions confirmed that Canada's fifth-largest bank and Wealthsimple are considering joining forces through a referral agreement, although there is no certainty a deal will result....

Wealthsimple's primary backer is investment giant Power Financial Corp., which has pumped three rounds of funding totalling $100-million into the robo-adviser to date.
Interesting...
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Re: Robo-advisors

Post by AltaRed » 04 Nov 2017 11:04

I originally had PWF high up on my list of securities I would sell if I needed money because of their exposure to IG. However, it seems their investment in WealthSimple maight be gaining traction and more importantly, dabbling in fintech.. Those that get it right might be the next major disruptor doing an end run amongst the startups. Have to wonder what the commissioned sales force at the likes of Wood Gundy must be feeling. Not a good time to embark on a conventional financial advisor career me thinks.
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Re: Robo-advisors

Post by kcowan » 04 Nov 2017 14:41

AltaRed wrote:
04 Nov 2017 11:04
Have to wonder what the commissioned sales force at the likes of Wood Gundy must be feeling. Not a good time to embark on a conventional financial advisor career me thinks.
WG seems to be embracing the needs for disclosure and gradually being absorbed into Investors' Edge.
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Re: Robo-advisors

Post by Vaper » 07 Nov 2017 20:09

My interest in robo advisors is driven by my age and health stage, a considerable portfolio, a wife who has no interest in investing and would rely upon our bank and my desire to put the portfolio on cruise control.
I am assuming that the portfolio asset allocation at my death will be maintained and rebalanced???? :?:

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Re: Robo-advisors

Post by AltaRed » 07 Nov 2017 21:34

I don't think it is that simple....and may depend on the specific robo-advisor. I've only started digging into WealthSimple, and they specifically say on their website that any assets transferred in from another institution will be sold and re-distributed along one of their model portfolios of primarily BMO, iShares and Vanguard ETFs. That would cause huge cap gains taxes for folks with a large non-reg portfolio.

Here is their Q&A on assets transferred in https://help.wealthsimple.com/hc/en-ca/ ... transfers-

They also determine the asset allocation depending on one's profile, e.g. Growth, Balanced, etc. and they do the re-balancing.

Here are their ETFs that make up their model portfolios https://help.wealthsimple.com/hc/en-ca/ ... represent-

After all, they are designing portfolios with a computer and that is what you get for 35bp (accounts $1+ million).
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Re: Robo-advisors

Post by AltaRed » 10 Nov 2017 16:09

I queried WealthSimple on their website's approach to selling 'in kind' assets on transferred in accounts vis-a-vis the capital gains problem on non-reg accounts and this was their reply:
Thank you for reaching out - we absolutely recognize that liquidating assets in non-registered accounts could trigger capital gains. When assets are transferred to us in-kind for these account types we do not automatically sell them off, they are reviewed by our Portfolio Management team on an ongoing basis and will only be sold off a) if the client confirms that they are okay with the capital gain/loss that will be incurred or b) the capital gain/loss that would be incurred is negligible. Clients also have the option to reach out to us and specify which assets they would not like liquidated and which assets they would like liquidated.
I guess the question is how they would manage a stock account vs a Couch Potato ETF portfolio. Could be widely different outcomes. Would take some specific dialogue on a case by case basis I think but may be more promising than their website suggests. YMMV
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