Robo-advisor basics
Online investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition advisers, also known as “robo-advisors” or “online advisers”, are online advice models available to Ontario investors that provide discretionary portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition management.
Some investors may assume that a “robo-advisorRobo-advisor A business that offers professional money management services to investors over the internet. See also, Online Investment Advisor.+ read full definition” 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 tradeTrade The process where one person or party buys an investment from another.+ read full definition. 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 mixAsset mix The percentage distribution of assets in a portfolio among the three major asset classes: cash and cash equivalents, fixed income and equities.+ read full definition 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 assetAsset Something of value that a company or an individual owns or controls. Examples: buildings, equipment, property, a car, investments, or cash. Can also include patents, trademarks and other forms of intellectual property.+ read full definition mix (the portion of funds invested in equitiesEquities Another word for investments in the stock market.+ read full definition and bonds or fixed incomeFixed income An investment that pays regular income to you. Examples: Guaranteed Investment Certificates, Canada Savings Bonds and types of other bonds.+ read full definition 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 liquidityLiquidity Refers to how easy it is to change an investment or asset into cash, without affecting the price. Liquid assets include most stocks, money market instruments and government bonds. Your home or other property is not very liquid.+ read full definition (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.
Fees
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.
Additional services
Online investment advisors may offer additional services such as insurance, financial planning, and taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition planning.