What are the tradeoffs with the small scale managed fund Wealthsimple?

Question

I recently encountered a targeted ad about Wealthsimple. From what I have read it is an investing tool for mobile devices that helps you passively invest. I understand that it is for people who are not too interested in watching individual stocks. They help manage up to $5000 for free and charge a fee for beyond that.

I think this would have been perfect for me two years ago, but I have already started to pick my own stocks and ETFs (some successful and others not so much). Since my career has changed for the better, I find it a bit harder to read news as it comes in while the market is open. I'm wondering if I should try this out with a small amount of money such as $2000 to $5000? Or would it make more sense to just keep adding to my index funds for passive investing?

Answer 1

Wealthsimple lists their prices as follows:

• 0.50% for $5001 - $249,999
• 0.40% for $250,000 - $999,999
• 0.35% for more than $1,000,000

Those are the fees you pay over and above what you pay for the underlying ETFs' management fees.

But why not just invest in the ETFs yourself? The Canadian Couch Potato website shows some sample portfolios. The ETF option has an average Management Expense Ratio very similar to that of the ETFs used by Wealthsimple, but without the additional management fee. Rebalance once or twice a year and you cut your fees from approximately 0.57% (if investing mid-six-figures) to 0.17%, for very little work.

Is it worth it to you? Well, that depends on how much you have to invest, and how much effort you are willing to put in. Wealthsimple isn't particularly unreasonable with their fees, but the fees do look a bit high once you are in to the six figures of investing.

On the other hand, I often recommend Tangerine's mutual funds to my friends who are looking at investing for retirement. Those mutual funds, last time I checked, cost 1.09%. That's about twice what Wealthsimple is charging. But they are easy to understand and easy to invest in; a good choice for my friends looking to invest $1,000 - $50,000 in my opinion.

So, and understanding this is just my personal opinion, I think Wealthsimple fits in a niche where Tangerine mutual funds carry too high a cost for you, but you don't want to do all the management yourself, even if this is just an hour or so of work, a couple of times a year. I wish they were cheaper, but their pricing makes sense for a lot of people in my opinion.

Do they make sense for you? If you are looking at investing less than $10,000, I'd stick with an option like Tangerine, only because that's an easier option. If investing more than $100,000 or $200,000, I think you are paying a bit much for what they offer. But, many people pay much, much, much more for their investments.

Answer 2

A few months ago, I met with the founder of Wealthsimple. As someone with higher than average about both trading and investing, I asked him whether his funds would be able to add more value to my Couch Potato portfolio not in terms of returns but rather in terms of management fees.

I also asked him this: if I wish to have a portfolio that has a specific % allocation towards emerging markets, would I be able to do so with Wealthsimple.

The answer to both of the above questions was that I'd be better off investing by myself.

I'd venture a guess and say that most people on SE Money wouldn't require a service such as Wealthsimple.

Answer 3

First--and I'm only repeating what has been said already--roboadvisors are a great way to avoid paying high MERs and still not have to do much yourself.

The Canadian Couch Potato method is great IF you are disciplined and spend the time every few months to regularly re-balance your portfolio. However, any savings you gain in low MERs is going to very likely be lost if you aren't re-balancing or if you aren't patient and disciplined in your investing. For that reason, the Couch Potato way isn't appropriate for 97% of the general population in my opinion. But if you are reading this, you probably already aren't a member of the general population.

For myself, life seems always too busy and I've got a kid on the way. I see a huge value in using a robo-advisor (or alternatively Tangerine) and saving time in my day.

The next question, which robo-advisor is best? I did a bunch of research here and my conclusion is that they are all fairly similar. My final three came down to Wealthbar/Wealthsimple/NestWeatlh. Price structures vary, but minus a few dollars here or there, there isn't a lot of difference in costs.

What made WealthSimple stick out was that they provide some options for US citizens that help me prevent tax headaches. They also got back to me by email with really detailed answers when I had questions, which was really appreciated. Their site and monthly updates are minimalist and intuitive to navigate. Great user experience all around (I do web design myself).

My gut feeling is that they have their act together and will stick around as a company for a long while.