Robo-advising: What Investors Need to Know

Robo-advising is one of the big buzzwords in the investing world today, but it’s a fairly new term that many investors may not have heard before.

While this online-only way to invest has its benefits, there are a number of factors to consider before deciding if robo-advising is right for you.

What is Robo-advising?

Robo-advising is automated, online-only investing. It’s a form of discretionary portfolio management, which is when an advisor can make investment decisions for your account without requiring your consent for every 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 takes the information provided in the questionnaire and produces a portfolio recommendation for the client.

Robo-advising is sometimes referred to as online advising. In Canada, all robo-advisors have human advisors behind the scenes who determine if the portfolio recommendations are suitable for their clients.

What Should I Look for in a Robo-advisor?

Before you use any investing platforms, run a search on aretheyregistered.ca.

It’s 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. Ensure the robo-advisor understands your needs before making investments on your behalf.

In general, robo-advisors offer passive investment products like exchange-traded funds (ETFs). Make sure you understand each robo-advisor’s offerings, and fee structure before you invest.

You should also 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.

How Does Robo-advising Work?

When you sign up for one of these services, you usually enter some information about yourself and your investment goals. Then, the robo-advisor recommends financial products to help you meet those goals. Depending on the robo-advisor, someone may call you to confirm your goals and level of investment knowledge.

Robo-advisors may or may not give you the option to adjust your portfolio’s risk or investment mix. 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.

Who’s Using Robo-advising?

Robo-advising is increasingly popular because most platforms advertise low account minimums and potentially cheaper fee structures. Most, if not all, of the major players only operate online through websites and mobile apps.

People who are not interested in managing their own portfolios may also see benefits in using robo-advisors. Sophisticated investors seeking lower fees and more passive investment products also may consider using robo-advisors.

Where Do These Investments Sit in my Portfolio?

The key thing to remember is robo-advising is an approach to investing, not a specific product or fund type. You can choose to have some or all of your registered and non-registered accounts with a robo-advisor, including RRSPs and TFSAs.

It’s up to you to determine how much of your portfolio will be allocated to a robo-advising service. If you’re not sure, speak with a registered investment advisor.

Report a Concern

If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected] You can also file a complaint or submit a tip anonymously using the BCSC’s online complaint form.

InvestRight.org is the British Columbia Securities Commission’s investor education website.

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