The fund manager buys and sells investments according to the fund’s ethos while you relax. Rather than doing the work of picking investments yourself, you simply buy into the fund that is managed on your behalf. When you invest in a mutual fund, you’re pooling your money with others to buy a portfolio of investments that are taken care of by a management company. According to The Investment Fund Institute of Canada (IFIC), Canadians have over $1.71-trillion invested in more than 4,000 mutual funds, managed by 140 different firms. Mutual funds have long been a favourite investment of Canadians - you may even own some yourself. That being said, many robo advisors like Wealthsimple offer a unique higher tier service for people who invest large sums of money.

less fees means less advice).įurthermore, if you’re an extremely high-net individual, a robo-advisor may not offer all the tax optimization and planning benefits you’ll get from a traditional human advisor. They’ll invest your money but don’t expect advice on how you should change your strategy if you plan on buying a house (i.e. Passive investing financial institutions provide a service rather than a one-on-one personal investing relationship. Robo advisors are also not intended for investors who need a lot of guidance and hand-holding. For instance, if you’re looking for quick, short-term gains, robo-advisors are not a good fit as their investment strategies rely on a long-term market outlook rather than on immediate returns. There are, however, some cases where a robo-advisor may not be right for you. Robo advisors are also particularly well suited for people looking to make medium to long-term investments (think five to ten years) because robo investment firms embrace the principles of passive investing and riding the market. As Canada has some of the highest investment management fees in the world (fees that can take a chunk out of your returns) robo-advisors are also a perfect fit for fee-averse investors. Since robo-advisors generally operate on the principle of passive investing without a human advisor actively managing your portfolio (at least to the degree of traditional investment managers), fees are also significantly lower than with traditional brokers. Robo advisors make investing extremely easy because all you usually have to do to get started is provide some basic information about your investment goals and risk tolerance and then you get matched with a pre-built portfolio that fits your comfort level.

They are particularly ideal for newbie investors who want someone else to take the reins, or experienced investors who want reliable returns without putting in hours of work. Whether you’re an inexperienced investor or an investing aficionado, wi th their low fees, ease of use and competitive returns, robo-advisors have something for everyone. The management fee covers things like rebalancing your portfolio, dividend reinvestment and customer assistance. A management fee (which is a percentage of the overall amount of money you have invested) is something you pay directly to the robo-advisor company. Be aware, however, that the management fees charged by robo-advisors are separate from the MERs charged by individual funds. Luckily, robo-advisors usually offer investing portfolios with ETFs that feature MERs well below even 1%. To make matters worse, Canadian investors pay some of the highest MERs in the world, with many funds charging MERs of over 2%! For example, if you invest $10,000 in an ETF with an MER of 2%, you’ll pay $200 in MER fees annually.įurthermore, investors pay this fee no matter how well the fund performs so an MER can take a big bite out of your earnings especially if the fund doesn’t do well. While you don’t need to understand all the fine points of how an MER works, it’s vital to be aware that an MER will cut into your earnings. the fee is deducted before the mutual funds returns are calculated). You don’t pay the fee yourself directly, rather the amount is paid by the fund itself before its overall returns are calculated (i.e. The fee is expressed as a percentage and indicates the amount that is subtracted annually from the fund’s overall holdings. The fee covers a spectrum of expenses, including the salaries of fund managers, operating expenses, market research, broker fees, taxes and more.

MER stands for “management expense ratio” and it’s an annual fee that is associated with managing a mutual fund or an exchange-traded fund (ETF). MER is a term you’ll frequently come across when investing so it’s crucial to understand what it means.

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