Wealthsimple Promotions: $10,000 Managed For Free

Wealthsimple has only been around since 2014, and it is already Canada’s largest financial robo-advisor service. It launched into the US on January 31, 2017 and is expecting a dramatic increase in the uptake of its services, commensurate with the massive potential of the US market.

Wealthsimple’s staff is made of up world-class financial advisors, software engineers, designers and data scientists, many of whom have experience working for companies such as Apple, Google and Amazon. The company boasts offices in Toronto, London and New York. The numbers continue to climb but as of quarter 1, 2018 Wealthsimple has over $2 billion (CAD) in assets under management and more than 75,000 clients. Wealthsimple touts itself as a socially responsible investment option.

While Wealthsimple is not the only robo-advisor to waive account minimums and account management fees for deposits under $5,000, it certainly is a feature which is noteworthy for small investors who are otherwise locked out of the market by companies who require large account management fees which would likely eat into the small account balances over time.

Overall, Wealthsimple’s services will perform well for small and new investors, as well as for investors with more than $100,000 to spend.

How Does Wealthsimple Work?

Wealthsimple calculates a client’s tolerance for investment risks through responses to a questionnaire. It then recommends an investment portfolio mix which is suited to those tolerances.

Wealthsimple’s service features single stock diversification, tax loss harvesting, direct indexing, fractional shares and human advisors.

The company has three different account types, three different investment mixes and two different plans to choose from, which are outlined below.

Different Account Types

• Personal Account. This is Wealthsimple’s most popular account. It is a regular taxable investment account. While the account does not come with any tax benefits, it does have the dynamic feature of giving clients the freedom to further invest in or draw on their deposits, without restriction. This account is a great option for those looking to improve their investment returns on their taxable investment account through the power of a respected robo-advisor.
• Traditional IRA. This account allows clients to invest their pre-tax dollars. Tax is not applied to the money in the account until it is withdrawn in retirement when it is presumed the calculated taxation rate would be less. Early withdrawals are subject to taxes and penalties from the IRA. This is a popular retirement account because of its flexibility and tax-advantaged savings for the future. It is worth pointing out to would-be investors that because of the rules relating to taxation, this account is best suited to individuals looking to retire in the next ten years or so.
• Roth IRA. This is yet another tax-advantaged account, however, instead of using pre-tax dollars clients invest after-tax dollars. The benefit of this account is that while income tax is charged on deposits, withdrawals and capital gains are tax-free. It is similar to traditional IRA accounts in that further penalties and taxes apply to withdrawals made prior to retirement. The exception to this rule is when clients withdraw money from the account for a down payment to purchase their own home. This account is best suited to young professionals or those with a long timeline before retirement.

Investment types

Wealthsimple’s management strategy utilizes the modern portfolio theory, developed by the Nobel Prize-winning economist Harry Markowitz. This strategy is based on the maximization of returns on investment through the diversification of investment purchases.

Wealthsimple provides three portfolio classifications, each differing in risk classification, for clients to choose from. These portfolio classifications are outlined below:

1. Conservative – 65/35 stock/bond split
2. Balanced – 80/20 stock/bond split
3. Growth – 50/50 stock/bond split

As a point of comparison, the ETFs between Betterment’s portfolio and Wealthsimple’s portfolio is almost exactly the same, so no new ground is being broken with this offering.

Plan types

Clients can choose between a traditional investment portfolio and a socially responsible portfolio, which invests in 6 ETFs including emerging technologies, improving the diversification of local investments, affordable housing, social enterprises and clean energy. This allows clients who prioritize socially responsible enterprises to feel good about their investments while growing their personal wealth.

Signing Up For Wealthsimple

Signing up to Wealthsimple involves three easy steps:

1. New clients fill in an online information form which helps Wealthsimple to identify each individual’s risk tolerance for investments
2. Clients then select 1 or more of Wealthsimple’s Investment Management Options
3. Bank details are verified online.

Once these steps have been completed, it will take about five days for the client’s account to be up and running, and Wealthsimple will take care of the rest. Clients investing less than $100,000 are placed into the Wealthsimple Basic Program. Clients investing more than $100,000 are placed into the Wealthsimple Black Program. I outline the features of each program below.

Wealthsimple Basic Program

This is the basic investment service offered to those with less than $100,000. The management fee is 0.50% per year. It has the following features:

• Automatic rebalancing – Wealthsimple will periodically buy and sell investments to keep its client’s portfolios in line with their stated targets.
• Dividend reinvestment – Dividends are automatically invested back into the same ETFs, rather than paid out to clients, so the investment portfolio continues to grow.
• Automatic Deposits – Clients can set their own schedule for payments from their Savings or Checking accounts into their Wealthsimple investment account.
• Financial advice and support via phone, text and email.

Wealthsimple Black Program

This is a complete investment service designed for investors with $100,000 or more to invest. The service provides all of the offerings outlined in the Wealthsimple Basic Program and unlocks a discounted management fee of 0.40% as well as other goodies, such as a financial planning session with one of Wealthsimple’s human financial advisors and other tax-efficiency features such as tax-efficient funds and tax loss harvesting. The management fee rate is competitive with other robo-advisors on the market, such as Betterment, which offers premium services at 0.4% to 0.5%. Another option, Wealthfront, charges a 0.25% management fee (referral bonuses will help with this fee)

For those frequent flyers out there, the Wealthsimple Black Program also offers its members Priority Pass membership which allows VIP access for the member and a guest to over 1000 airport lounges around the world. I use my Priority Pass membership all the time while traveling, which I received with my Chase Sapphire Reserve card, and this service has been awesome.

The Wealthsimple Black Program provides a great investment service level for people with a reasonable amount to invest, who otherwise would not have access to the more expensive traditional investment brokers and advisors in the marketplace.

Who Is Wealthsimple Suitable For?

There are two distinct categories of clients who will benefit from using Wealthsimple’s services. They are:

1. New and small investors looking to enter the market, but who have little to no capital to invest. Wealthsimple’s decision to have no account minimum and no account management fees for deposits less than $5,000 makes it the perfect starting place for new or small investors to dip their toes in the investment pond.
2. Investors with over $100,000 to deposit. These investors get the benefit of Wealthsimple’s Black Program with lower account management fees and other perks, such as a free consultation with a human financial advisor to assist with goal setting, tax loss harvesting and VIP access to over 1,000 airport lounges around the world.

Pros & Cons Of Wealthsimple

• The service is simple to understand and easy to use. With just three account types, three classifications of tolerance to risk and two plan types, investors need only make a few decisions to get a diversified portfolio which immediately starts to work for them.
• No account minimum. As previously noted, Wealthsimple’s decision not to have an account minimum requirement is a welcome service offering new investors and for those with a little capital to invest.
• Fractional shares. The ability to purchase fractional shares means investors can be assured all of their money is invested and working for them all of the time.
• Live Support. Clients have access to live support services to assist with the use of the management tool and investment advice. This is a welcome service offering in an industry which is notorious for giving its clients little to no support.
• Socially responsible portfolio. This is a standout in the robo-advisor market. Clients choosing this option can feel good about their investments while still growing their personal wealth. Wealthsimple’s socially responsible portfolio requires the robo-advisor algorithms to prioritize investments in clean energy, advances in clean technology, low carbon emissions, socially responsible companies and the like.
• Portfolio Review. Wealthsimple offers its clients a free portfolio review of accounts held with third parties. This service provides clients with an objective assessment of the performance of these third party accounts. The assessment includes an examination of account fees, taxation efficiencies and portfolio allocation.
• Available in Canada and the United States of America. While most robo-advisor services stop at the border between Canada and the United States of America, Wealthsimple has managed to step the divide. Wealthsimple was created in Canada, which remains its base.  The company expanded into the US market at the end of January 2017. Wealthsimple has enjoyed an envious level of expansion since its inception in 2014. It now has over $2 billion in assets under management and over 75,000 clients. The company is likely to continue on its expansion program within the American market. If this is successful, Wealthsimple may be a very stable location to invest your money for the long-term.
• Secure and insured accounts. Each account is secure and insured by the SIPC for up to $500,000, so clients are offered piece of mind about their investments with this company.

• High fees for investors with more than $5,000 and less than $100,000. While Wealthsimple’s lack of fees for small investors under $5,000 and the rate of 0.40% for investors in Wealthsimple’s Black Program is an attractive proposition for these classes of investors, it is a little on the pricey side for investors who fall between these categories. This is because their account management fees are charged at 0.50%, which is up to twice as much as its robo-advisor competitors, such as Betterment and Wealthfront, who each charge 0.25% for their basic services.
• No function to set goals. Other robo-advisor services such as Betterment, Wealthfront and WiseBanyan have goal setting functions which I think would be a welcome addition to Wealthsimple’s simple service offerings.
• Investment mix. While Wealthsimple’s portfolio model is similar to those provided by other robo-advisors, it would benefit from the addition of investments in commodities and real estate investment trusts which would further diversify the offerings of investment portfolios.

Summary Of Wealthsimple

With no minimum account balance and no management fees for deposits under $5,000 and a full investment service for deposits over $100,000, this is the perfect service for clients fitting between these two spectrums of investment types.

Wealthsimple’s service offering is simple and easy for clients to understand. Its three account types, three investment mixes and two different plans to choose from mean most people will find a product which is suited to their needs. Unfortunately, Wealthsimple’s account management fees at 0.5% just cannot compete with the 0.25%  rate offered by other robo-advisors, such as Betterment and Wealthfront. Investors falling within $5,000 and $100,000 in deposits would be better served to look at these services which purchase similar ETFs and therefore enjoy similar returns on investment.

Wealthsimple’s standout feature lies with its socially responsible investment option which deposits client’s money into morally and socially responsible organizations and enterprises.  This option helps clients to feel good about their investments while making money from them. It is definitely the company of choice for those investors who want to make certain types of morally based investment decisions.

Truth is, it’s hard to say which one robo-advisor is the best in the market. Most are using many of the same ETFs and other investment options in their portfolios. Void of any major dips or crashes in the market, most will average a yearly return of 8-11%. Just about all the big brokers have their own robo-advisory service so you may opt to simply go that route if you’re already a client with them. Otherwise, consider your projected investment capital and match that with the robo-advisor that will save you the most on fees. I review many of the other automated investment options below.

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• WiseBanyan Review 2018: World’s First Free Robo Advisor
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• Schwab Intelligent Portfolios Review: $100 Sign-Up Bonus
• FutureAdvisor Review 2018: Promotions And Offers
• Fidelity Go Review: Robo-Advisor With Low Management Fees
• Blooom Review: A Robo-Advisor For Your 401(k)
• Betterment Review 2018: New Promotions & Bonuses
• Wealthfront Promotions: $5,000 Managed Free + $5,000 Per Referral