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Atypical Robo-Advice For Investors
Toronto Star
Published Monday, June 16, 2014
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 "robo-advisor."

For investors in exchange-traded funds, there's a new form of robo-advice from Canadian ShareOwner Investments Inc. The Toronto based 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 mutual fund salesperson for a fund-of-funds portfolio.

Once an investor selects a ShareOwners portfolio, the program will do more than just process buy-and-sell 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 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 American listed ones, are currently being used in the portfolio program. In choosing the underlying ETFs, says Seago, the basic concept is that a well diversified 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 asset allocation expert who holds a chartered financial analyst (CFA) designation.

Low costs are the main reason why investors would opt for a "robo-advisor" 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.

This article was originally published here

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