This post brought to you by BMO. The content and opinions expressed below are that of Million Dollar Journey.
It seems that automated online portfolio managers are the hype of the investment world these days. With BMO introducing SmartFolio, a new online portfolio management service and the first of the big banks, they contacted me to provide my opinion of their new product. My plan is to review all other similar automated services available to the Canadian market place and provide a comparison – similar to my discount brokerage comparison.
What is BMO SmartFolio?
BMO SmartFolio is a“hands-free” digital portfolio management service. You can open an account with as little as $5,000 and based on your risk tolerance, you are aligned to the model portfolio that best suits your investing needs.
How it Works
First you complete an investor profile by answering a series of personal and investment questions (10 multiple choice questions) and then you will be presented with a recommended model ETF portfolio (this is free). Each model ETF portfolio has an asset allocation of equity and/or fixed income that aligns to your investment objectives. There are 5 model ETF Portfolios (ranging from the least risky to the most risky, i.e. having the smallest percentage in equities to the largest).
- BMO SmartFolio Capital Preservation Portfolio;
- BMO SmartFolio Income Portfolio;
- BMO SmartFolio Balanced Portfolio;
- BMO SmartFolio Long Term Growth Portfolio; and,
- BMO SmartFolio Equity Growth Portfolio.
BMO expert portfolio managers monitor the model ETF portfolios every day. Where and when required, they rebalance the model ETF portfolio to keep the client on track with their investment objectives.
My Personal Investment Profile
To provide a more comprehensive review, I signed up for BMO SmartFolio to get a sample portfolio for my risk profile. I completed the 10 questions which started with some questions about income, investment knowledge and investment timeline. The survey then finished with a few questions on the amount of volatility you can tolerate. Based on my information, SmartFolio determined that I should have an Equity Growth Portfolio consisting of 90% equities and 10% fixed income. When the actual portfolio came out, it was actually 95.99% equities and 4.01% fixed income. Here are the positions that they recommended for me:
- BMO S&P/TSX Capped Composite Index ETF (ZCN) 29.82% (MER: 0.05%)
- BMO MSCI EAFE Index ETF (ZEA) 10.25% (MER: 0.20%)
- BMO Emerging Markets Equity Index ETF (ZEM) 8.11% (MER: 0.25%)
- BMO MSCI USA HIGH QUALITY INDEX CAD UNITS ETF (ZUQ) 10.19% (MER: 0.30%)
- BMO LOW VOLATILITY CANADIAN EQUITY ETF (ZLB) 19.49% (MER: 0.35%)
- BMO Global Infrastructure Index ETF (ZGI) 7.87% (MER: 0.55%)
- BMO S&P 500 Index ETF (ZSP) 10.26% (MER: 0.10%)
Fixed income 4.01%
- BMO Mid-Term US IG Corp Bond Hedged Index ETF (ZMU) 4.01% (MER: 0.25%)
While I’m comfortable with the equity exposure and some of the chosen ETFs, it’s still a bit too complex. For my real indexed portfolios, I basically hold four positions, Canadian equity, US equity, International equity, and a bond index. So if I were to put together a portfolio of this nature, I would keep: ZCN, ZEA, ZEM, ZSP, ZMU and dump the rest. This would also reduce the overall MER as well.
This is the big question that always comes to mind when evaluating services like BMO SmartFolio. Lets take a look at what they charge for their service.
- Minimum account size: $5,000;
- First $100,000: 0.70%;
- Next $150,000: 0.60%
- Next $250,000: 0.50%
- $500,000 and greater: $0.40%
- There is a minimum quarterly advisory fee of $15, but waived if you deposit $250 or more during that quarter.
So what does this all mean in dollars and cents? Lets look at some portfolio size examples:
|Account Size||Advisory Fee Paid Annually|
Note that the annual advisory fee does not include the management expense ratio that ETFs charge. Although most BMO ETFs are reasonably priced, their website states that the anticipated weighted average MER of a portfolio will be between 0.20% and 0.35%.
Here are some of the benefits of BMO SmartFolio:
- You have access to constructed portfolios comprised of BMO’s reasonably priced ETFs based on your own risk profile;
- Portfolios managed by BMO experts and effortless investing on your part;
- Relatively affordable compared to mainstream active management;
- Active monitoring and rebalancing; and,
- Full transparency into holdings, performance and transaction history;
The only real downside I can see is that clients are forced to use BMO ETFs. I’m not saying that it’s a deal breaker as most have reasonable MERs, but it would be nice to have some choice.
When BMO first contacted me to take a look at their new offering, I’ll be honest and say that I was skeptical. However, after reviewing SmartFolio, I can see how this type of service will be attractive to many investors who want to be more hands-free with their investments, but willing to pay a small annual fee. I’m looking forward to reviewing competitors in this niche to see how they compare to BMO.
Back to you, what are your thoughts on automated online portfolio management services? If you have experience with them, how does BMO compare to the competition?