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What’s a Robo Advisor?

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Like any catch-phrase, the term doesn’t quite tell the whole story

Even if you don’t read the financial section of your newspaper every day, you’ve probably heard the term “Robo Advisor” already. You may even be wondering if you should have one yourself. But what is a Robo Advisor, exactly?

A bit of history

The term Robo Advisor was first used by Investment Advisors to describe investing services with no client interaction, as if robots were running everything. It now refers to an online investment service that uses software to help manage and rebalance their clients’ investment portfolios. This type of Robo first appeared in the U.S. in 2008.1 The software these services were based on was already being used by professional financial managers to automate some of their work at the time. But the idea of making that software available online, to individual investors, was new.

By 2012, the term Robo Advisor was in common use in the media. It was a catchy way to refer to a relatively new service category – it made it sound like investing was run by robots and artificial intelligence – and it stuck. But like any catchphrase, it doesn’t quite tell the whole story.

Like any catch-phrase, the term doesn’t quite tell the whole story

Robo Advisors in Canada

Online portfolio management services using cost-effective ETFs (Opens in new tab) became available in Canada in 2014.2 And with the introduction of SmartFolio in 2016, BMO became the first major Canadian bank to launch one. The regulations governing these services in Canada are slightly different than in the U.S., however. One significant difference is that the rules here are “technology neutral.”3

Put another way, in order to be approved to carry on business in Canada, an online investment management service can’t be entirely automated. An advisor must always be involved in decision-making. The online and automated aspects are just part of the service, making it more efficient and, typically, less expensive. These services also have to make sure your investments are suited to your needs and objectives, the same way an Advisor has to “Know [Their] Client.”

So is SmartFolio a Robo Advisor?

Yes and no. SmartFolio is a hybrid online service with some automated aspects and some manual processes. We don’t love using the term to describe SmartFolio, since it’s a bit misleading, and doesn’t give credit to the talented teams of professionals who manage our portfolios and are dedicated to supporting you. But if you’re hearing the term used in a Canadian context, SmartFolio does fall into the category of online investment management services or “Robo Advisors.”

SmartFolio gives you the convenience and affordability of an online service, with a model portfolio of ETFs, all backed by a team of experts with more than 300 years of combined financial experience. Not to mention, our BMO ETFs are so good that many other Robo Advisors include them in their portfolios as well. Safe to say, the robots haven’t taken over just yet.

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  1. A History of Robo-Advisors
  2. ShareOwner: Canada’s first ETF robo-advisor
  3. CSA Staff Notice 31-342 Guidance for Portfolio Managers Regarding Online Advice
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