The Rise of Robo-Advisors: Why You Should Invest with One
Protect your investments People have turned to technology to help them manage their money. Learn more about what robo advisors can do for you.
ModernAdvisor CEO Navid Boostani details the value of robo-advisors for Canadians — breaking down their performance levels, investment strategies, and the safety that comes with investing online.
Mediaplanet: Why is investing through robo-advisors becoming more and more popular among Canadians?
Navid Boostani: Canadians are progressively spending more time online and on their phones. Most people shop, pay their bills, and book their vacations with a few clicks. Robo-advisors offer the same user-friendly experience when it comes to managing one’s investments.
MP: What additional value does ModernAdvisor provide over other mutual fund advisors?
NB: ModernAdvisor’s fees are about one-third of a traditional advisor’s. Also, because we don’t have an account minimum, we can offer the same quality service to anyone, regardless of whether they have $1,000 or $1,000,000 to invest.
MP: Are an investor’s financial assets safe with a robo-advisor?
NB: At ModernAdvisor, we hold all client accounts in their name at a large, independent financial institution. This separation between client monies and ModernAdvisor provides a very important layer of safety to our clients. In addition, client funds are covered under the Canadian Investor Protection Fund up to $1M per client.
MP: Why do robo-advisors have a better return than traditionally managed mutual funds?
NB: In short, lower costs and smart asset allocation. A ModernAdvisor portfolio, on average, costs 1.5 percent less than a typical mutual fund per year. An active fund manager has to beat their index by 1.5 percent before fees just to make up for the higher costs. That’s no easy feat, and there is academic research that shows the same. Also, robo-advisors take advantage of global investment opportunities to improve investment returns and reduce risk.
MP: What type of investment strategies are used by ModernAdvisor?
NB: Similar to many large pension funds, we take a top-down approach to investing. We start by following a Noble Prize-winning methodology to determine the appropriate mix of assets in each portfolio based on target risk characteristics and market-specific factors such as valuations.
We then implement the desired asset allocation using high-quality, low-cost, exchange-traded funds (ETFs) that are passive in nature. To make sure client portfolios maintain their risk and return characteristics, our system monitors every account on a daily basis and rebalances them as required.
MP: Can investors talk to an advisor if they have questions or need additional support?
NB: Absolutely. I find the term robo-advisor is somewhat of a misnomer because it de-emphasizes the human element in the service. Our clients have easy accessto licensed advisors through online chat, email, phone, and even video calls.