In addition to traditional investment firms with in-person investment advisors, there are other investment service providers available for you to use if you choose. In this video, you’ll learn about two types: robo-advising and self-directed investing.
Robo-advisors, also known as online investment advisors, use technology to lower costs and create processes, such as opening an account, that require minimal or no direct human contact.
You’ll likely be offered standardized model portfolios containing lower-cost investments, such as exchange-traded funds. Because of their lower operating costs, robo-advisors can charge lower fees.
In general, the fee is a percentage based on the value of your portfolio. Some robo-advising services may charge a flat monthly fee instead, and trading and administrative fees may also be charged.
Robo-advisors provide discretionary portfolio management. This means they make investment decisions on your behalf without your specific approval for each trade. The process may not be fully automated; it could be a hybrid model where human advisors have a role alongside technology.
The robo-advisor will manage your portfolio and, from time to time, will re-balance it to maintain the portfolio’s asset mix.
When you open an account, the robo-advisor will ask a series of questions to gather important information about you. This information is used to confirm your identity as well as give the robo-advisor a good understanding of your personal circumstances and financial situation, your investment goals, risk tolerance, and level of desired liquidity.
Self-directed, or do-it-yourself investing, is where individual investors build and manage their own investment portfolios. Self-directed investors decide which investments they want to buy and sell, and when. Typically, they use discount brokers and online trading platforms to make their trades. As a result, they pay lower commissions and fees because they don’t get advice about the investments they choose to make for themselves.
You might consider self-directed investing if you want to be more hands on with your investments and develop your own plan. It’s important to understand your financial goals, time horizon, risk tolerance, and investment knowledge before taking the DIY route.
If you’re interested in using a robo-advising service, or doing it on your own through self-directed investing, consider the following before making your decision:
- Make sure that you have secure internet access. You should only access your investment account from a safe and secure location and device.
- Check registration before you invest. Make sure that you’re dealing with a registered investment service provider that’s in good standing before you disclose your personal and financial information.
- Read and understand the terms and conditions for investment services and purchasing investments. Make it a point to understand what fees and expenses you can be charged.
- Be sure you are comfortable with their customer support. Most online advisors can communicate with you by telephone, email, or online messaging.
Come on.
Reach out to the BC Securities Commission for more resources.
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