Online investment advisers, also known as “robo-advisors” or “online advisers”, are online advice models available to Ontario investors that provide discretionary portfolio management.
Some investors may assume that a “robo-advisor” is a fully automated computer system that generates and delivers advice to investors. While that is how some firms operate in the United States, requirements are different in Ontario. A human adviser will be involved in – and be responsible for – the investment decisions that are made for you even if most processes and communications are done online.
How online investment advisers work
In Ontario, online investment advisers provide discretionary portfolio management. This means the online adviser makes investment decisions on your behalf without your specific approval for each trade. The process is not fully automated. It’s a hybrid model where human advisers have a role alongside technology.
While some online advisers may develop a tailored asset mix and investment portfolio for each client that includes individual stocks and bonds, in most cases, model portfolios consisting of exchange-traded funds (ETFs) and/or low-cost mutual funds are used.
The online adviser will manage your portfolio and, from time to time, will re-balance it to maintain the portfolio’s asset mix (the portion of funds invested in equities and bonds or fixed income investments).
Opening an account
To start, the online adviser will ask a series of questions to gather important information about you. This is known as the Know Your Client (KYC) process.
The information is used to confirm your identity as well as give the online adviser a good understanding of your personal circumstances and financial situation as well as your investment goals, risk tolerance, and level of desired liquidity (the ease of converting assets to cash).
Before your money is invested, an adviser must review, and if necessary, adjust your investor profile and selected portfolio to ensure that it accurately reflects your needs and risk tolerance.
You can always contact your online investment adviser if you have a question or concern. Most online advisers can communicate with you by telephone, email or online messaging.
Online investment advisers charge a fee. In general, the fee is a percentage based on the value your portfolio. Some advisers may charge a flat monthly fee instead. Trading and administrative fees may also be charged.
Online investment advisors may offer additional services such as insurance, financial planning, and tax planning.