![]() "But we have to be very selective and ensure they fall within our overall selection criteria, including cost. "We believe there is value in actively managed products," says Udiaver, a CFA charterholder and former vice-president and director of TD Asset Management Inc. co-founder Pramod Udiaver, whose goal is to maximize risk-adjusted returns by using a combination of passively and actively managed funds. Taking a different view while keeping a close eye on costs is Invisor Financial Inc. ![]() "Despite charging higher management fees, most active fund managers rarely beat the index, particularly over the long term," Shareowner says on its website. It relies exclusively on ETFs that track either traditional market-cap-based indexes or "strategic beta" indexes that rely on rules-based quantitative screens. Canadian Shareowner, for instance, shuns active managers. Passive versus active holdings: Most robo-advisors rely exclusively on exchange-traded funds, while others use ETFs in combination with fee-based series of mutual funds that do not pay any embedded commissions to brokers or dealers. As with traditional asset-allocation services, robo-advisors rebalance as needed to maintain the strategic asset mix that's suitable for you. This mix represents the "efficient frontier" for each portfolio, which is the best combination of risk and return. ![]() Based on your replies to questions seeking to determine your objectives, risk tolerance, time horizon and need for liquidity, robo-advisory services will place you in a suitable asset mix. This means that once you choose a portfolio, the robo-advisor can make changes in the ETFs or mutual funds that the portfolios hold, without requiring your approval for each trade.Īsset allocation and rebalancing: One of the most valuable services of robo-advice is the convenience of periodic rebalancing. They've received regulatory approval to act as discretionary portfolio managers. Most robo providers are advice-givers, serving the majority of investors who need and want advice, and are willing to leave portfolio construction to experts. "As your wealth accumulates, think about whether you will want more complex services and diverse investment products than what can be provided by online advisors," the Investor Office of the Ontario Securities Commission recommends. If you need more than asset allocation and rebalancing, the current generation of robo-advice services will at best be only a partial solution. Canadian Shareowner states in a disclaimer that it "does not provide investment advice or recommendations and investors are responsible for their own investment decisions." In other words, don't blame Shareowner if you make a poor choice. The pioneering example of such a service for self-directed investors is Canadian Shareowner Investments Inc.'s Model Portfolio Service, launched in May 2014. The exception to this rule is a brokerage that makes clear that it's responsible only for order execution and does not hold itself out to be an advisor. They can be held liable if investors are able to select unsuitable portfolios. Online investment advisors have the same responsibility as any other advisors for the decisions that investors make. Though there's ongoing discussion in regulatory circles as to whether robo-advice deserves special treatment as a middle ground between self-directed and full service, that's currently not the case. The levels of advice: Regardless of how advice is communicated, know-your-client and suitability obligations apply. A portfolio-manager registration implies a higher level of proficiency and care than the standard applicable to most retail brokers and dealers. Ask about the robo-advisor firm's registration and the qualifications of its personnel. Depending on the firm and your account size, you may have someone assigned to your account, or you may be connected to the next available representative. This will normally be accomplished via phone or email. Once these inconsistencies are identified, the robo-advisor needs to have a process in place to sort out what's realistic for you. It should identify inconsistencies in responses, such as wanting equity-type returns but also being unwilling to tolerate shorter-term capital losses. The questionnaire and the human factor: A well designed questionnaire should take you a long way toward finding a good investment fit, but perhaps not all the way.
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