Atypical robo-advice for investors

BUSINESS: MONDAY, JUNE 16, 2014
Rudy
Luukko
Atypical
robo-advice
for investors
If you need expert help in crafting
an investment portfolio, the normal
thing to do is to hire someone to
advise you. The unconventional
alternative, which can be only a few
mouse clicks away, is a "roboadvisor."
For investors in exchange-traded
funds, there's a new form of roboadvice from Canadian ShareOwner
Investments Inc. The Torontobased discount brokerage launched
its model-portfolio service in late
May.
The service is delivered entirely
online. There's no one you can meet
with or talk to about your financial
situation, the risk profiles of the
various portfolios, or whether what
you want to invest in is indeed suitable for you.
Instead, once you sign up you'll be
directed to a web page that seeks to
help you identify in broad terms
your investment goals, risk tolerance and income needs.
After this self-assessment, you'll
then be asked to choose from one of
five managed portfolios.
Think of it as a self-service alternative to visiting a bank branch, answering a questionnaire and getting
a recommendation from a mutualfund salesperson for a fund-of-funds
portfolio.
Once an investor selects a ShareOwners portfolio, the program will
do more than just process buy-andsell orders for the underlying ETFs.
It will reinvest all ETF distributions
and rebalance the account to maintain a target asset mix.
ShareOwner makes it clear that it's
not responsible for what clients
Robo-advice isn’t for everyone,
writes Rudy Luukko.
decide to purchase. None of the
information it provides or the model portfolios it maintains are to be
considered advice or recommendations. "It's up to you to decide what
portfolio you want." says CEO Bruce
Seago.
Close to 50 ETFs, mostly Canadian-listed but also some Americanlisted ones, are currently being used
in the portfolio program. In choosing the underlying ETFs, says Seago,
the basic concept is that a welldiversified portfolio of low-fee index
funds is an excellent way to invest
for the long term.
Though nearly all of the underlying ETFs are from the iShares, BMO
and Vanguard families, the list will
vary. ShareOwner won't hesitate to
use products from other providers
in Canada or the U.S., depending on
which index ETF it believes is the
best choice. "We're not predisposed
to any one vendor," says Seago.
Each of the five model portfolios
will hold between six and 12 ETFs.
Investors also have the option of
building their own custom portfolio.
For these more self-reliant investors, ShareOwner still provides
automatic reinvestment of distributions and portfolio rebalancing.
The model portfolios are put together in-house by ShareOwner,
whose employees include an assetallocation expert who holds a chartered financial analyst (CFA) designation.
Low costs are the main reason why
investors would opt for a "roboadvisor" as opposed to a licensed
individual.
The fee charged by ShareOwner is
0.5 per cent of assets, but with a cap
of $480 a year. The larger the account, the smaller the fee in percentage terms.
To keep trading costs down, the
portfolio weightings are allowed to
vary somewhat before a rebalancing
occurs. If your investment objectives change, you can switch from
one model portfolio to another free.
Part of the ownership cost to investors consists of the management
fees and expenses charged by the
ETFs that the portfolios hold. ShareOwner estimates that the total cost
to investors – its fee and the ETF fees
– would be about 0.79 per cent
a year for a $50,000 portfolio.
By comparison, mutual-fund portfolios offered through adviser channels typically have ownership costs
exceeding two per cent.
Robo-advice isn't for everyone,
since it requires a certain level of
investment knowledge and comfort
level. But it's certainly cheaper than
the personal touch.
rudy.luukko@morningstar.com Twitter:@rudyluukko.