Robo-advisor
Robo-advisors use technology to lower costs, and require little to no human contact.
Also known as online investment advisors, robo-advisors create processes like opening an account and providing automated, algorithm-driven financial planning and investment management. You’ll likely be offered portfolios containing lower-cost investments, such as exchange-traded funds (ETFs). As a result, robo-advisors charge lower fees because of lower operating costs.
Robo-advisors often provide discretionary portfolio management. This means they make investment decisions on your behalf without your specific approval for each trade.
Robo-advisors ask clients to complete a questionnaire about their risk tolerance, financial circumstances, and their investment goals and objectives. The robo-advisor’s algorithm then takes that information and produces a portfolio recommendation for the client. Ensure the robo-advisor understands your needs before it makes investments on your behalf.
Make sure you understand each robo-advisor’s offerings and fee structure before you invest. You should be able to call and have a conversation with someone who works for the robo-advisor if you’re interested in making a change to your portfolio’s risk or investment mix.
You may want to consider using a robo-advisor if you:
- are digitally savvy.
- are comfortable having your investments managed without human interaction.
- want lower fees.
- are open to recommendations based on algorithms.
Before making a decision, keep the following in mind:
- Investments bought on your behalf may not be as personalized.
- Recommendations are only as good as the information you provide about yourself.
- Before you use any robo-advising platform, run a search on aretheyregistered.ca (from the Canadian Securities Administrators). It’s important to ensure the platform is registered.
- It’s also important to look at how robo-advisors serve you. Some firms call you at various points in the process, while others do everything online through questionnaires or live chats.
- You should look at how you’ll be able to ask questions or change your investment strategy, including if you’re able to talk to an investment advisor over the phone at any time.
- Robo-advisors may or may not give you the option to adjust your portfolio’s risk or investment mix.