Wealthsimple Review: Complete Guide to this Automated Investing Platform

Wealthsimple Review

There are a lot of new Robo Advisers out there. Wealthsimple is a Canadian company that was founded in 2014. It has grown to be the biggest robo adviser in Canada and has branched out into both the US and UK markets.

Wealthsimple has a good selection of investment ideas and offers its clients ready access to actual human investment managers. It is also registered in the US and UK, and is a member of the SIPC in the USA. At the time of writing, Wealthsimple has more than $1 billion under management.

One of the biggest benefits of the ‘robo revolution’ is that young people now have the ability to enlist the help of financial planners and professional portfolio managers. Wealthsimple is a perfect example of a robo adviser that offers a multi-tiered fee structure that delivers value to every client level.

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Wealthsimple has Something for Everyone

At its most basic level, Wealthsimple gives young people a great way to start saving for their future. There is literally no minimum account size. If you only have $1 to save this week, Wealthsimple will be happy to work with you. This is a great tool for younger people or anyone who needs to start saving right away.

Like many robo advisers, Wealthsimple relies heavily on ETFs to function. The company uses ‘Modern Portfolio Theory’ to invest across a variety of asset classes, depending on a client’s risk tolerances and goals.

Wealthsimple also offers some more exotic investment options, like Halal compliant portfolios, and products for Socially Responsible Investing (SRI). The company gives its established investors some pretty sweet perks and uses a time-tested methodology to invest their clients’ funds.

Unfortunately, not all the features that Wealthsimple offers to its Canadian clients are available to investors in the UK and USA. Wealthsimple is a new company, and over time they may be able to extend the services they offer.

Wealthsimple Projection

Get to Know Modern Portfolio Theory

Modern Portfolio Theory (MPT) isn’t that ‘modern’ anymore. Regardless, it is a good investment methodology that is widely used. Harry Markowitz first proposed MPT in 1952, and it has become a staple investment philosophy over the last 60+ years.

Basically, MPT proposes the idea that a diversified investment approach across a wide range of assets will yield better results than buying a few stocks and hoping for the best. Later on, in the late 20th century, another economist demonstrated that this investment philosophy is basically true.

In 1973 Burton Malkiel, a professor of economics at Princeton published “A Random Walk Down Wall St.”, in which he shows that an investor who buys a broad index of stocks (like the S&P 500) will outperform the vast majority of fund managers.

MPT has been a big help for many investors, but it isn’t universally valid.

In 1969 the precursor to the Quantum Fund was founded by George Soros. His assistant Jim Rogers joined it in 1973 when it expanded its reach and officially became the Quantum Fund. Some consider it to be the first modern hedge fund, though similar forms of fund management go back to 1949.

Between 1969 and 1974 what become known as the Quantum Fund generated returns of more than 300%, while the S&P 500 fell by more than 3%. Both George Soros and Jim Rogers are billionaires.

Despite the occasional anomaly, MPT’s popularity has only grown with time.

MPT led to the creation of both mutual funds and Exchange Traded Funds (ETFs). Now robo advisers are building on the success of these financial innovations, and offering nearly anyone top-tier investment management at super-low rates.

It is important to keep in mind that a generation ago ETFs were just getting started, and anyone who wanted to use MPT would have to buy into mutual funds. Robo advisers offer a lot more value than a mutual fund for MPT-based investment strategies, as most of them have fees that are well below 1% of assets per year.

Portfolio Example

Easy Portfolio Options at Wealthsimple

Wealthsimple has been able to build a client base and expand its assets under management to $1 billion by offering straightforward pricing on solid investment products. The company uses low-cost ETFs to build client portfolios.

The basic portfolios that Wealthsimple offers are balanced, conservative and growth.

The growth portfolio has an 80/20 stock/bond split. The balanced uses a 50/50 split, and the conservative portfolio has a 65/35 split that favors stocks over bonds. From a risk perspective, the ‘balanced’ portfolio would appear to be the most risk-averse, given the even weighting of debt and equity.

There are other portfolio options for Muslim investors, and Canadians can trade in shares for free with Wealthsimple. Best of all, Wealthsimple allows its clients to connect with human investment managers if they want to.

For established investors with more money invested, Wealthsimple includes the services of a wealth manager as a part of its fee structure!

How To: Get Started With Wealthsimple

It is very easy to open an account with Wealthsimple. You will need to have a bank account in the US, but aside from that, just about anyone can start saving with Wealthsimple.

In order to open an account you will need to:

  1. Fill out Wealthsimple’s online applications, and take answer some questions about your investment history.
  2. E-Sign a few Investment Management Agreements (depending on your country).
  3. Verify your bank account.

Opening up an investment account with Wealthsimple is just that easy. The company has many different kinds of accounts to choose from, depending on your needs. It generally takes them five business days to open your account once the forms are filled out, and then you can start saving for your future!

Wealthsimple Account Types

Wealthsimple has numerous accounts that are made for a variety of investment purposes. In addition to a standard taxable brokerage account, it also offers different kinds of tax-deferred accounts for long-term retirement savings.

If you want to open up more than one kind of account at Wealthsimple, it shouldn’t be a problem. For example, if you have maxed out the amount you can contribute to your IRA, you could open up a taxed brokerage account for any additional money you want to stash for the future.

Account Types

Standard/Brokerage Account

If you are just getting started with investing, or want to make sure you always have access to your money, a standard account is probably the right choice. You can start with as little as $1, and if you need to withdraw your funds, you can do so at any time.

The standard account from Wealthsimple will be subject to normal capital gains tax, but the company does offer a ‘tax loss harvesting’ feature to help minimize your annual capital gains taxes.

In the USA, stock market investors can sell losing positions against their winning positions and pay fewer taxes. Figuring out what to sell can be difficult, so it is nice that Wealthsimple built this into all its taxable accounts as a standard feature.

Joint Account

If you want to open up an account with another person, like your spouse, the joint account from Wealthsimple is a good option. There is no fundamental difference between the standard brokerage account and the joint account, it just lets you have more than one person as the owner of the portfolio.

One good reason to have a joint account is in the event of unforeseen circumstances. If you are saving for your future home with your partner, a joint account makes sure that they will have immediate access to the funds if something happens to you. It isn’t pleasant to think about, but bad things do happen.

Having a joint investment account makes sure that your spouse or partner won’t have to deal with a bunch of paperwork at a time when they are already under an enormous amount of emotional strain.

Tax-Deferred Accounts (IRA Accounts)

The US government lets people save a portion of their annual income without paying taxes on the money right away. Or in the case of a Roth IRA, invest with money that was taxed, and then withdraw it later tax-free.

Wealthsimple allows US citizens to open every major kind of tax-deferred account, and that is great news!

Standard IRA

Most people have heard about IRAs, but there are a few different options to choose from depending on your view of the market and how you are employed. The first Individual Retirement Account (IRA) to be introduced to taxpayers in the US allows you to sock away around $5000 USD (more if you are over 50), and deduct it from your taxable income.

For example, if you are 42 and make $60,000 a year, you could deduct $5,000 from that $60,000, if you can show that it was invested in an IRA. You will have to pay taxes on it later when you withdraw it after you reach retirement age.

The advantage to you is that the money you deposit will be pre-tax income, and will be able to grow for the rest of your life. Most people pay a double-digit percentage of their income in taxes, so a traditional IRA makes saving for the future much more efficient.

There is some fine print when it comes to deducting the full $5,000 from your yearly taxes. If your employer offers you a 401(k) plan, you probably can’t deduct the entire amount. Talk to a registered accountant if you have more questions about this aspect of funding IRAs.

Roth IRA

A Roth IRA is basically the same as a traditional IRA, but it is funded using taxed income. The idea is that taxes in the future might be far higher than they are today. Senator Roth introduced the idea of an IRA that is funded using taxed income back in 1997, and it has become very popular.

When you contribute to a Roth IRA, the money that you invest will never be taxed. Unless you decide to withdraw it before you are 59.5 years old, all that money in your Roth IRA can grow, and never be taxed again.

The downside to the Roth IRA is that there are different restriction on who would qualify to use one. Again, this is a matter for a tax professional who is aware of your economic and legal affairs. On the plus side, most people who have an employer-sponsored 401(k) plan can have a Roth IRA, which is pretty cool.

SEP IRA

With the rise of the gig economy and other small businesses, the need for new retirement savings structures has grown. The Simplified Employee Pension (SEP) Individual Retirement Account (IRA) is geared for small business owners who don’t have many employees.

A SEP IRA has a much higher contribution limit than other IRAs.

Depending on the particulars of your business, you may be able to contribute more than $50,000 of pre-tax income a year into a SEP IRA. There are more regulations about what you have to contribute to your employees’ SEP IRA, and if you plan to use this structure, talk to your accountant.

Thankfully, Wealthsimple offers all the major kinds of IRA accounts for its US clients!

Smart Savings

Interest rates have been painfully low for almost a decade. Wealthsimple has created the Smart Savings account for its clients to offer some yield on their cash. The Smart Savings account is designed for fixed-income investors and invests exclusively in debt.

Unlike most bank accounts that offer little in the way of return, the Smart Savings account will pay something out on an annual basis. It also offers unlimited free transfers, which helps to keeps costs down.

Interest rates may rise over the next decade. For now, this kind of account is a good compromise between the safety of fixed-income investments, and the need to generate some amount of yield from your savings.

Savings Accounts

Trust Account

A trust account is a good way to save for your children’s future or ensure that your money has a legal distance from you. Trust law is nuanced and will vary from state to state. Wealthsimple allows you to set up an investment account for a trust, which is a pretty nice feature.

Halal Account

Muslim investors are required to abide by religious laws that govern what they can invest in. Wealthsimple offers a diverse number of investments that comply with Halal standards which require that Muslim investors avoid backing any business that deals in gambling, alcohol or pork products, among other things.

Wealthsimple Gives Big Perks to Established Investors

Wealthsimple does more than drop its fees for investors that choose to invest more than $100,000 with them. The company has two premium services, the Black Program, which kicks in at an investment of $100,000, and Wealthsimple Generation, for accounts of $500,000 and up.

Premium Programs

The Black Program from Wealthsimple drops the management fee from 0.5% of assets under management to 0.4%, but it offers a whole lot more.

Anyone who qualifies for the Black Program will receive:

  • A totally free consultation with a Wealthsimple advisory, to talk about investing goals and portfolio choices.
  • Free access to more than 1,000 airport lounges, as well as a companion pass for someone they might be traveling with.
  • Additional tax-planning features that are super handy for US and Canadian investors.

Wealthsimple Generation offers all that good stuff, plus:

  • Full-time access to a human financial planning team included with the 0.4% management fee.
  • A detailed long-term investment strategy.
  • Personalized financial reports.
  • Custom made portfolios.
  • 50% off Medcan health plans.

Wealthsimple is serious about attracting high-net-worth investors and includes a lot for 0.4% of invested assets per year. It isn’t as cheap as some other robo advisors on the higher end of the investment range, but it does give wealthier investors access to loads of human talent at low rates.

Financial Advisors

Great Data Delivery

Wealthsimple’s user interface is well laid out and gives clients a clear view of what is going on with their investments.

The interface displays all of the portfolios that you have a Wealthsimple on an easy to understand line graph. It breaks down all of the component portfolios (brokerage/IRA etc..) separately and also shows how your investments have performed over time.

In addition to providing a total portfolio outlook, the web interface describes how each portfolio is weighted. The fund holdings are given in list form, with the total percentage given for each fund. Overall, Wealthsimple makes it simple to track your investments and see where it is putting your money.

Special Features for Canadians

Wealthsimple started in Canada, and it offers some cool features for its Canadian clients. While they haven’t announced any plans to expand these features to the US and UK, they may do so in the future. It would make sense for them to offer the same level of functionality to larger markets, and up their competitive advantage.

Free Stock Trades

If you are a Canadian investor at Wealthsimple, you can trade more than 8,000 stocks, ETFs, and other US and Canadian listed instruments for $0 in commissions. The trading is done on Wealthsimple Trade app, which is available for iOS and Android. It is an amazing feature for a robo advisory to offer, which will hopefully be extended to other markets soon.

Roundups

A roundup is a sneaky way to save for your future. If you are a Canadian Wealthsimple client, you can opt to have the spare change from your purchases sent into your Wealthsimple account. This might seem like a silly way to save, but your roundups really do add up over time.

How Does Wealthsimple Invest my Money?

For investors outside of Canada, Wealthsimple will allocate your investment money into industry-leading ETFs and other index investment funds. With this approach, Wealthsimple clients are given diverse exposure to numerous markets and industrial sectors.

The investment angle that Wealthsimple takes is in-line with MPT, but it may not be a perfect fit for every investor. The big benefit to MPT is that your portfolios will keep pace with the overall market direction. The returns are also likely to be the same range as the broad market, and you won’t get left behind if there is a big rally.

Over the long-term, an MPT-based approach has shown itself to be a good way to take a passive stance on the markets, and still make money. Broad measures of equity markets tend to rise over long periods of time, probably due to inflation and index rebalancing that eliminates flagging companies.

On the other hand, if there is a big fall in equity prices, MPT-based portfolios that are weighted toward equities will get slammed down alongside everything else. A big fall in equity values right before retirement is a major risk for older investors.

US equity markets have fallen substantially a few times over the last three decades, so this is a realistic risk to consider.

Pros

  • MPT-based portfolios will give exposure to an increase in equity prices if the portfolio is biased toward equities.
  • In the event of a market crash, your losses won’t be magnified by exposure to a specific sector and may be offset by the portfolio’s bond holdings.
  • MPT-based portfolios are an easy way to invest, and low-cost ETFs have made it very easy to implement MPT investment ideas.

Cons

  • There is no safe way to invest money, and MPT is no exception. If you have equity exposure, and the broad markets fall, you will see losses along with everyone else.
  • It is common for a market sector to outperform the broad marker (for example, the FAANG stocks), an MPT-based portfolio won’t give you exposure to these sectors.

Wealthsimple Fees & Conditions

Wealthsimple has a very straightforward fee structure.

US investors that put less than $100,000 into their Wealthsimple account will pay 0.5% per year, and anyone who invests more than that pays 0.4%. Investors who put more than $100,000 into their Wealthsimple accounts will also receive some nice perks, which were described above.

There is no minimum deposit, and for investors with less than $100,000, Wealthsimple’s 0.5% management fee seems like a great value. For wealthier investors, paying a 0.4% annual management fee is a more difficult decision.

Other robo advisers cut rates far lower for accounts over $100,000 and offer perks as well. Wealthsimple does give wealthier investors access to human portfolio managers, which puts them in a slightly different position for comparison purposes.

The Wealthsimple Generation program for investments of over $500,000 offers a substantial amount of financial insight for 0.4% per year, as well as some very useful perks. When compared to using bespoke financial planning, and building a portfolio via the open market, Wealthsimple is worth considering for larger portfolios.

Wealthsimple Plans

Socially Responsible Investing (SRI) Portfolio

Socially Responsible Investing (SRI) isn’t a new idea, but there are a lot of portfolio options out there for investors who are social consciousness. There are actually robo advisers out there who only do SRI-based investing for their clients.

SRI is focused on making investments in companies that are working on new ideas that could change the economy for the better. While a basic materials company like Rio Tinto has no problem attracting capital, smaller companies that have new business models rarely have access to capital on preferable terms.

Wealthsimple creates its SRI portfolio by investing in a number of SRI ETFs. Clients can choose from:

  • Lower Carbon Emissions via the iShares MSCI ACWI Low Carbon Target: CRBN
  • Supporting Clean Technology with the PowerShares Cleantech Portfolio: PZD
  • Buying Socially Responsible companies in the US via iShares MSCI KLD 400 Social Index Fund: DSI
  • Gender Diversity with the SPDR Gender Diversity: SHE
  • Local Change Programs via the PowerShares Build America Bond Portfolio: BAB
  • Creating Affordable Housing with the iShares GNMA BD ETF: GNMA

To be sure, there are SRI robo advisers out there who offer much more in terms of both SRI options and investment areas. Wealthsimple’s focus isn’t an SRI-based investment approach, and it is nice that they offer some SRI options to their clients.

SRI doesn’t have to be an all-or-nothing investment philosophy. Investors can delegate a small part of their investment resources for an SRI portfolio with Wealthsimple, and leave the rest of their capital in other portfolios that are more in-line with an MPT investment approach.

Wealthsimple: The Rundown

Wealthsimple is a solid robo adviser for investors who want to take an MPT-based investment approach. Its fee structure is more or less in-line with other robo advisers for investors who have less than $100,000 invested.

The company is fully regulated, and US investors will have the same deposit guarantee that would cover them with any other broker or SIPC member. Wealthsimple doesn’t offer the range of ETFs or direct stock ownership options (for US or UK investors) that some other robo advisers have, which may be a turn off to some people.

While Wealthsimple might be a little bit limited in their offerings, its investment strategy is completely consistent with MPT. Instead of chasing market sectors Wealthsimple allows investors to buy into the broad equity markets, with some amount of debt holdings to help even out any potential downside action.

For established investors, Wealthsimple might seem a little bit expensive. A 0.4% annual management fee on accounts over $100,000 is on the high side, especially for an investment architecture that would be extremely simple to replicate with a brokerage account.

The perks that Wealthsimple offers to investors at the $100,000 and $500,000 levels are attractive. Direct access to a human financial planner is a great feature of their platform and could justify the management fee they charge.

Customer Reviews

On the Trustpilot review website, Wealthsimple has earned a “Trustscore” rating of 8.9 out of 10 which is excellent.

Wealthsimple Ratings

Here’s what Wealthsimple’s clients have to say about the company:

I signed up a couple of months ago. So far I am very satisfied. New money transfers from my bank account have been seamless. I’ve had a couple of snags with my existing accounts, but the customer service team had been very responsive and helpful, which for me almost overcome the issues. It’s a new business and so I expect a few hiccups. I am very satisfied with my experience and performance so far (although I recognize that it’s not a sufficiently long period to really assess performance).
Alex Mercer

Wealthsimple is great if you are doing regular monthly contributions. (weekly for me). If you do this at a regular brokerage. the $9.99 fees per transaction will eat your portfolio. the awesome part is it automatically rebalances every time you put money. and it buys fractional shares.
Mike

I’ve had no issues with them and I like the simplicity of a robo advisor. I’m 10 months in and up 9.5% money weighted between my RRSP and TFSA invested in their aggressive growth picks. I haven’t had any need to contact them, besides the initial phone interview to conform my risk tolerance, so I can’t really comment on that. But I do like their app, web interface, and the ability to link with Mint. Sure, I could go straight ETFs with a low cost broker, but I think the 0.5% fee they charge is worth it until I amass a larger portfolio.
Andrew Turner

A Great Way to Start Saving

Let’s be honest, someone who already has a $500,000 portfolio is going to have a lot of options when it comes to how they invest. Wealthsimple is an interesting option, but there are many other services out there who could look after your money for $2,000 a year.

Younger people have a harder time getting involved with saving and investment, and Wealthsimple is a really great tool for that market. MPT is a good way to invest for people who just want to ‘set it and forget it’, and there is very little that can go wrong with an MPT-based approach.

Instead of having to devote time and resources to learn about how the financial markets work, how to minimize taxes and numerous other things, a twenty-something can open up a Wealthsimple account for $1, and start saving.

Very few investors can actually beat the broad markets for any amount of time, because the indices that measure the markets replace failing companies with successful ones. This is called rebalancing in financial jargon, and the ETFs that Wealthsimple uses do this automatically, and at rock-bottom prices.

Pros

  • Low account opening costs.
  • Loads of features.
  • Integrated tax loss selling.
  • Many kinds of account types.
  • Halal accounts.
  • SRI portfolio options.
  • Smart Savings account makes sense.
  • Fully regulated in the US, UK, and Canada.
  • Great features for Canadian investors.

Cons

  • Limited portfolio options.
  • No direct stock ownership options for US or UK clients.
  • Fee structure less competitive for accounts over $100,000.

Time to Open an Account at Wealthsimple?

If you are under 30 or need a good robo adviser who uses a very popular investment strategy to manage money, Wealthsimple is worth a look. They offer good value for their fees, and your money will be invested in good quality ETFs from the best names in the business.

For investors with more than $100,000 to park with a robo adviser, Wealthsimple is a less compelling platform. It is handy if you want to rise the broad markets, and have access to a human investment adviser.

The real dilemmas start to emerge at the $500,000 level, as $2,000 buys a lot in the world of investment management. To be fair to Wealthsimple, their annual fee of 0.4% is very low by historical standards, but there are other robo advisers out there who offer similar services for lower rates.

Overall Wealthsimple is a good choice for young investors or anyone who wants to take an MPT-based approach to investing. Its user interface is easy to use and will show you how your investments have been doing over time.

For more information about Wealthsimple, check out their website right here.

Visit Wealthsimple

Wealthsimple

8.6

Ease of Use

9.0/10

Fees

8.0/10

Reputation

8.0/10

Customer Support

9.0/10

Design

9.0/10

Pros

  • Low account minimum and no extra fees
  • Investment in fractional shares
  • Easy to Use
  • Access to financial planners
  • Tax-Loss Harvesting

Cons

  • Limited portfolio options
  • Fees can be higher than other platforms
  • No direct stock ownership options for US or UK clients.
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Nicholas Say grew up in Ann Arbor, Michigan with a father that would read him the Wall St. Journal along side of other bed-time fare. He has traveled extensively, and been lucky enough to study a changing global economy in person. Nicholas spent many years in the Southern Cone of South America, sometimes in the middle of the countryside where livestock starts its journey to all points of the globe. Today he is thoroughly bemused with the stance that Central Banks have taken in the wake of the 2008 meltdown. There is no telling what will come out of the global financial system next, but he is glad that he lives somewhere that gold can be bought and sold readily!


nicholas@moneycheck.com
https://www.linkedin.com/in/nicholas-say-3a419a85/

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