Vancouver ‘robo-adviser’ gives financial advice without the cost and emotion
WATCH ABOVE: WealthBar CEO Tea Nicola on Global News BC1’s Prime.
Billionaire investor George Soros once said, “if investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
It’s a mantra shared by Vancouver-based WealthBar, an online financial advising company that provides semi-automated financial advice, constructing diversified portfolios using low-cost exchange-traded funds (ETFs).
“It’s not speculative investing, it’s nothing high-risk,” says WealthBar CEO Tea Nicola, who founded the company with her husband Chris. “It’s really a simple and, dare I say, boring way to save your money.”
WealthBar, which started accepting clients last year, is part of a new generation of so-called “robo-advisers” that keep costs down by using software to assemble a client’s investment portfolio, monitor it, and occasionally re-balance assets.
They factor in a person’s income, age and appetite for risk to build a portfolio that largely consists of low-cost ETFs, which track an entire stock market like Canada’s TSX or the S&P 500 in the U.S., as well as government and corporate bonds.
“We’re trying to reduce the cost of investing by using low-cost products that have come on the market and try to give people bigger returns at a lower fee.”
Investing like a couch potato
Their approach roughly mirrors the “couch potato” model of investing, which suggests that most investors are best served by buying ETFs that track entire stock indexes rather than selecting specific stocks or mutual funds in an effort to beat the market.
Master stock-picker Warren Buffett has long recommended a couch potato strategy for most people, arguing that the average investor is better off buying low-cost ETFs rather than paying for traditional financial advisers, most of whom fail to beat the market.
Nicola says WealthBar largely takes a couch potato approach, but tweaks the strategy depending on a person’s long-term saving goals and tax situation.
Phrases like “boring” and “couch potato” may not sound sexy, but Nicola says their approach offers several advantages.
The biggest advantage is cost. They charge clients a fee of .35 to .60 per cent of invested assets, including trading costs, financial advice and administrative fees. Savings are compounded by the fact that they invest in ETFs with management expense ratios (MERs) well under 1 per cent. Those costs are substantially lower than advisers who receive commissions for selling clients mutual funds that can have MERs of 2 per cent or more. Canadian mutual fund fees, in particular, are among the highest in the world.
Taking the emotion out of investing
Taking an automated approach also helps remove the emotion out of your RRSPs. Emotion can often be an investor’s worst enemy, causing them to sell in a panic when markets are down and buy in a frenzy when markets are rising. WealthBar says their approach is to assemble a straightforward mix of assets and stick to it, occasionally rebalancing assets and largely ignoring the day-to-day vagaries of the market.
“It’s really hard to not react to your own account, to sell when you’re not supposed to, to buy when you’re not supposed to,” says Nicola. “Financial planning, in a way, forces you to act correctly.”
Nicola is the daughter-in-law of John Nicola, founder of Nicola Wealth Management, a Vancouver-based investment firm that serves high net-worth individuals.
Tea says she started WealthBar to serve clients who can’t afford large investment firms like her father-in-law’s.
“Our friends often ask me, ‘Can I get an introduction [to John Nicola]?’ The next thing that comes out of my mouth is, ‘Do you have a million dollars, because if you don’t it’s not going to happen,” she says.
The term “robo-adviser” was first coined in the U.S. where online advisers have been operating for years. Besides WealthBar, there are a handful of robo-advisers in Canada, including Nest Wealth, Wealthsimple, ShareOwner and Smart Money Capital Management.
Nicola says the term “robo-adviser” is not entirely accurate as regulations insist that each client has a real-life adviser they can contact by phone or online.
“The goal was to bring forth the same level of care and accountability to everybody,” she says. “The only way we could have done it was to build efficiencies somewhere else, which is why we’re online to reduce costs.”