WealthSimple is a Canadian based robo advisor that promises to put your investing on autopilot. In our WealthSimple review, we take an in-depth look at Wealthsimple’s features, investment style and fees.
Wealthsimple is a Canadian based robo-advisor that provides accounts to investors in Canada, the U.S., and the U.K. The service has only been in existence since the beginning of 2017. But it already has more than 65,000 clients with over $1.5 billion in assets under management.
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But don’t let Wealthsimple’s newness scare you away. They’re a team of world-class financial experts and technology talent from Silicon Valley. What’s more, they’ve raised $165 million in capital from the Power Financial Group, a $1.4 billion financial holding company.
As a robo-advisor, Wealthsimple constructs portfolios based on Modern Portfolio Theory (MPT), using low-cost, index-based exchange traded funds (ETFs). This let them build portfolios that include thousands of individual securities, through a small handful of funds. Most portfolios are invested in a mix of stocks and bonds, both domestic and international.
What’s more, the company offers four different portfolios. This includes a portfolio centered on socially responsible investing (SRI) and a Halal portfolio that invests based on Islamic principles.
Some of the features available with Wealthsimple include:
- Accounts available: Individual and joint taxable accounts; trusts; traditional, Roth and SEP IRA accounts
- Minimum initial investment: None on the Wealthsimple Basic plan
- Account fees: See individual portfolio descriptions below
- Free financial advice, any time: Wealthsimple gives investors access to consultations with a Certified Financial Planner.
- Rebalancing: When your asset allocations move away from your desired portfolio allocation, Wealthsimple will automatically rebalance your portfolio. This will take place any time a portfolio allocation varies by more than 20% from the target. A portion of an overperforming asset will be sold, and the proceeds reinvested in an underperforming asset. This is a process that also enables you to “buy low and sell high” on an ongoing basis.
- Automatic dividend reinvesting: This feature lets you maximize the benefit of compounding of investment earnings.
- Tax-loss harvesting: This feature is available on all taxable accounts at no additional charge. It involves selling losing positions so they can offset taxable gains. It’s something of a “backdoor” tax deferral. It lets you put off taxable gains so your investment can grow more.
- Account security: All accounts are insured by SIPC for up to $500,000 in cash and securities, including up to $250,000 in cash. They also use state-of-the-art security measures, including encryption, when handling your financial information.
- Smart Savings: A high-yield savings account promising a higher rate of return than the national savings account average. Also features unlimited free-free transfers with no minimum account size.
- Customer service: Wealthsimple is available for customer service or investment advice by phone or by text. Availability is Monday through Friday, from 8:00 AM to 8:00 PM, Eastern Time. But additional customer service is available by email, 24 hours a day, seven days a week.
- Promotion: Doughroller readers get their first $10,000 managed free for a year when they sign up for their first account at Wealthsimple.
Wealthsimple has four separate portfolios:
- Socially Responsible Investing (SRI)
Below are the details for each of the four portfolios.
The Wealthsimple Basic portfolio is the simplest of the four. It’s designed for accounts with balances between zero and $100,000. The management fee is 0.50% per year, with the first $5,000 managed free.
It offers the following services:
- Automatic deposits
- Tax-loss harvesting
- Dividend reinvesting
- A personalized portfolio
- Human financial advice
The Basic Portfolio can be set up in one of three types:
- Conservative portfolio, which includes 65% bonds and 35% stocks.
- Balanced portfolio, including 50% bonds and 50% stocks.
- Growth portfolio, with 80% stocks and 20% bonds.
The portfolio is made up of 10 different ETFs, including six stock funds and for bond funds:
|US Stocks||VTI||Vanguard Total US Market ETF||All|
|US Mid-Cap Value||VOE||Vanguard Mid-Cap Value ETF||All|
|US Small-Cap Value||VBR||Vanguard Small-Cap Value ETF||All|
|Foreign Stocks||VGK||Vanguard FTSE Europe ETF||All|
|Foreign Stocks (exporter & dividend tilt)||DXJ||WisdomTree Japan Hedged Equity Fund||All|
|Emerging Market Stocks||VWO||Vanguard FTSE Emerging Markets ETF||All|
|Municipal Bonds||MUB||iShares National Muni Bond ETF||All taxable accounts|
|US Inflation Protected (TIPS) Bonds||TIP||iShares TIPS Bond||Conservative, Balanced|
|USD Govt and Corporate IG Bonds (includes EM)||BND||Vanguard Total Bond Market ETF||All|
|High Yield Bonds||ANGL||VanEck Vectors Fallen Angel High Yield Bond ETF||Conservative, Balanced|
The portfolios will be constructed in a similar fashion, whether taxable or retirement. The main difference is that retirement accounts will not include municipal bonds, since the accounts are already tax-deferred.
This is Wealthsimple’s portfolio for larger investors. It requires a minimum investment of $100,000 and lowers the annual management fee from 0.50% to 0.40%. The Black portfolio also includes a financial planning session with an expert financial advisor. This is an opportunity to discuss your long-term goals, and how your portfolio will help you reach them.
Wealthsimple highlights the advantage of the lower fee with the Black Portfolio compared with the Basic Portfolio, as well as more traditional investing:
Wealthsimple Black also comes with additional tax efficiency. For example, in addition to tax-loss harvesting, they construct your portfolio using tax-efficient funds. You do this by holding various assets in accounts that offer the best tax considerations. For example, you hold assets that yield interest and dividends in tax-sheltered retirement plans. But you can hold investments that produce capital gains, which enjoy favorable long-term tax rates, in taxable accounts.
The Wealthsimple Back Portfolio is constructed in a similar fashion to the Basic Portfolio.
This portfolio also provides VIP airline lounge access at more than 1,000 airline lounges in over 400 cities. Black Portfolio investors get a complimentary Priority Pass membership for themselves plus one travel companion. It’s got nothing to do with investing, but it’s a nice perk.
The SRI Portfolio focuses on investing in companies that have the following characteristics:
- Companies with with low carbon emissions
- Companies that support gender diversity
- Businesses that support affordable housing
The SRI Portfolio uses the same allocations–Conservative, Balanced, and Growth–as the Basic and Black portfolios but offers investors an opportunity to invest in a way that’s consistent with their personal values.
The SRI Portfolio invests in six different funds, including stock funds into fixed income funds. The funds are as follows:
- iShares MSCI ACWI Low Carbon Target (CRBN)–Low Carbon, comprised of global stocks with a lower carbon exposure than the broader market.
- PowerShares Cleantech Portfolio (PZD)–Cleantech, comprised of cleantech innovators in the developed world.
- iShares MSCI KLD 400 Social Index Fund (DSI)–Socially Responsible, comprised of American companies that are socially responsible.
- SPDR Gender Diversity (SHE)–Gender Diversity, comprised of companies with more gender diversity among their leadership.
- PowerShares Build America Bond Portfolio (BAB)–Local Initiatives, comprised of bonds issued by municipalities to support local initiatives.
- iShares GNMA BD ETF (GNMA)–Affordable Housing, comprised of government issued securities that promote affordable housing.
Pricing for the SRI Portfolio is similar to that of both the Basic and Black portfolios. For account balances ranging from zero to $100,000, the fee is 0.50% per year, with the first $5,000 managed free. But the fee drops to 0.40% on account balances of greater than $100,000.
With growing Muslim populations in Canada, the U.S., and the UK, Wealthsimple created its Halal Portfolio that invests using strategies consistent with Islamic principles of investing. For example, the Halal Portfolio does not include bonds. This is because Islamic law prohibits profiting from debt. As such, the portfolio is comprised entirely of individual stocks.
The Halal Portfolio is a single portfolio that cannot be customized for each individual investor. The companies held within the portfolio must represent those that generally comply with Sharia law. The expert team at MSCI constructs this portfolio, since this is highly specialized investing.
Halal Portfolio invests in the stock of 50 individual companies. The companies included generally track the broader markets while simultaneously complying with Islamic law. By definition, the Halal Portfolio is considered an actively managed portfolio, since it does not invest in passively managed, index-based ETF’s.
In addition, there are no Conservative or Balanced portfolio options, since bonds are not permitted in the portfolio. Halal Portfolio is a pure Growth portfolio, and therefore higher risk.
Like the SRI Portfolio, the Halal Portfolio comes with a fee of 0.50% for account balances up to $100,000, and 0.40% on larger accounts.
The top 10 holdings among the 50 stocks held in the Halal Portfolio include:
- Johnson & Johnson (JNJ), 3.87% allocation
- Novartis AG-Sponsored ADR (NVS), 3.56%
- Exxon Mobil Corp (XOM), 3.38%
- SAP SE-Sponsored ADR (SAP), 3.26%
- Procter & Gamble (PG), 3.11%
- Canon Inc-Sponsored ADR (CAJ), 3.06%
- Total SA-Sponsored ADR (TOT), 2.94%
- Pfizer Inc. (PZE), 2.76%
- Alibaba Group Holding-Sponsored ADR (BABA), 2.63%
- Unilever N V-NY Shares (UN), 2.58%
- You can open an investment account with as little as $1. That opens Wealthsimple to new and small investors.
- The Socially Responsible Investing Portfolio lets you invest in a fully diversified portfolio that’s consistent with your personal values.
- The Halal Portfolio lets Islamic investors invest in a way that’s consistent with religious law.
- Tax-loss harvesting available on all taxable accounts.
- The fee structure at 0.50% for balances up to $100,000 is high compared to the industry average. Various competing robo-advisors will manage an account for as little as 0.25%
It’s hard to determine if one robo-advisor is better than others since they use similar investment formats. Even the features within each platform are remarkably similar. For this reason, fee structure takes on exaggerated importance. Wealthsimple doesn’t come up strong in that category. Its basic fee of 0.50% makes it uncompetitive with other major robo-advisors like Betterment and Wealthfront that charge only 0.25%. All things being equal, you’ll be more likely to go with the lower-cost provider.
Where Wealthsimple shines however is in its specialty portfolios. Though several robo-advisors offer socially responsible investing options, Wealthsimple is highly competitive, even with a higher fee structure. This is because most other robo-advisors charge similar fees for these portfolio options.
The Halal Portfolio is virtually unique in the robo-advisor world and may prove popular with those looking to invest their money in ways that are consistent with their faith.
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