With a background in retail investments and mutual fund sales I have often had the debate on “brick and mortar” mutual fund solutions versus the slick, fully online, robo advisory services offering low cost EFT (exchange traded fund) portfolios. In this case I will examine the Canadian FinTech company Questrade, speficially focusing on their robo advisory service - Questwealth portfolios.
Questrade is one of the longest standing Canadian FinTech companies with roots stretching back to 1999 when Toronto based entrepreneur Edward Kholodenko co-founded the company with three partners. At the time they were focused on providing a low cost solution for DIY investors. In 2014, Questrade entered the robo advisory space launching Questrade Portfolio IQ: a low cost EFT portfolio solution targeted to new investors or investors who are not looking to pick individual stocks and securities themselves. The offering was later (2018) revamped and rebranded as the Questwealth portfolios we know today.
To quote from Questrade’s site, they are “everything a traditional financial institution is not; [they] set out to give Canadians better, simpler, and more affordable ways to become financially successful and secure”. Questrade accomplishes this by offering a convenient online investing service for fee conscious investors whether they are sophisticated investors with their own investment plan and ideas or they are hands off investors looking for the ease and simplicity of a low cost ETF solution. Questrade currently has $25 billion in assets under management and has over 200,000 accounts opened annually making it one of the fastest growing robo advisory services in Canada.
https://www.questrade.com/about-us/who-we-are
Questrade is known for it's transparent fees which are some of the lowest in Canada. The average MER (management expense ratio) of the underlying ETFs is about 0.19% with Questrade's management fee over and above that being 0.25% for investments from $1,000 - $100,000 and 0.20% for investments over $100,000. This means for the low cost of 0.39% - 0.44% you can have a diversified ETF solution. Compare that to the avergage mutual fund MER which is between 2.00% and 2.50% and that's a lot of savings. Now, you might be thinking what about the value of active management and oversight from portfolio managers in mutual funds? Well - that's one of things that sets Questrade apart from its competitors; they have a team of portfolio managers that actively look to provide excess reuturn in upswinging markets and added downside protection in downswinging markets.
https://youngandthrifty.ca/questwealth-portfolios-robo-advisor-review/
Questrade provides a quick glance into the technologies they use on the techonlogy section of their careers page (see images below). They have an extensive IT team which allows them to quickly implement changes and updates as new technologies, problems, and opportunities arise. I have also included a link to a video which provides some inside perspective from the Questrade team. I searched high and low to determine which of these technologies powered which parts of Questrade but I could not find much of any information. Stackshare listed Microsoft ASP.net, google tags manager, and google fonts as technoligies they utlize which does not yield much insight. I also searched for tech blogs to shed some light on the techonlogies behind Questwealth portfolios but found nothing noteworthy. Perhaps this is the downside of the retail advisors perspective but it would seem they keep this information close to their chest.
https://www.questrade.com/about-us/careers/technology
https://www.youtube.com/watch?v=Cb_NsPg8tIU
https://stackshare.io/questrade/questrade
In general, robo advisors use algorithms to help determine individuals' goals, attitudes towards risk, and risk tolerances. In Questwaelth portfolio's case, they would use the results from the questionnaire to recommend one of their 5 ETF portfolios. In addition to this Questwealth portfolio also offers responsible investment portfolios which come at a slightly higher fee but allow investors to align their personal values with their investments.
Questwealth portfolios is part of the robo adivsory domain of the Canadian FinTech industry. Major players in this domain include BMO smartfolio, CI direct investing, Invisor, Just Wealth, Nest Wealth, RBC InvestEase, and Wealthsimple. Technology has been on the rise for years and the robo adivsory space is a great example of this; there have been many start-ups and innovations driving prices (fees) down and the ease of access and low fees have made them desirable by many investors. Consolidation seems to be a trend as well as financial firms and instituitons try to provide one stopping shopping for financial needs in order to build full reltionships and drive sales and growth. Responsible investing is on the rise as well as more and more investors care about where their money is going and what it is used for rather than just the financial returns.
https://techbullion.com/10-latest-trends-robo-advisors/
Questwealth portfolios is one of the early adopters of the robo advisory space in Cananda. Since launching in 2014, they have had a great deal of growth and continue to be one of the biggest robo advisors in Canada. They are known for having rock bottom fees and excellent customer service, they also differentiate themselves by offering a hybrid investment model by incorporating a team of portfolio managers into their investment decisions rather than traditional passive investing done by many robo advisors.
For investment firms and robo advisors, one of the key metrics is how much money they manage; that is to say, what is their assets under management (AUM)? Questrade manages $25 billion in assets and have 200,000+ new accounts opened each year. Another key metirc for robo advisors is fees - how low can you go? Moneysense.ca and ratehub.ca both have great article's comparing key metircs and services provided by the top robo advisors in Canada which I have linked below. Looknig at these comparisons, it seems that they offer the lowest fees and rank highly in terms of AUM as well.
https://www.moneysense.ca/save/investing/best-robo-advisors-in-canada/ https://www.ratehub.ca/investing/robo-advisors
It is no suprise that research and innovation would be a key factor in how robo advisors are doing relative to their peers. Questwealth potfolios does very well in this regard; in fact, Questrade Financial (parent company) has been awarded with the best managed Canadian companies designation for 9 consective years (link to article below). This designation is presented to companies that have a clear and concise strategy, capability to invest in R&D, tools and proprietary equipment, and have a strong emphasis on corporate social responsibility.
Overall, Questwealth portolios and Questrade as a whole is a great Canadian FinTech company who have been leaders in the domain and continue to innovate. That being said, there is always room for improvement, and in my opinion this is where the perpspective of a retail advisor comes in handy. A part of the MER for mutual funds goes to cover advice and service on the account provided by the advisor; there has been a push for lower fees and fee transparency across the industry which has led to people having the great debate of advisors versus robo advisors. Luckly, these two do not have to be mutually exclusive and some robo adviors have already started this. For example, Wealthsimple offers financial planning for clients with over 100k in investments and in-depth financial planning for clients with over 500k. Financial planning can help individuals determine how much they need to save for something like retirement and can provide recommendations in regards to account types, investment types, timing of goverment benefits (Old age security, Canada Pension Plan) and much more. Questrade could consider implementing a similar regime where based on account size they offer a certain level of financial planning. They could also partner with or hire their own team of fee for service (individuals who chartge a flat fee for a financial plan rather than a percentage of assets) financial planners to offer this service for their clients.
Another technology that Questwealth portfolio could leverage/implement would be a service that interprets data from bank accounts, credit cards statements, and investment accounts, to help individuals track their spending. I currently work for Libro Credit Union who is currently working with MX Technologies Inc. to create an app Yooli, which pulls in information from all of your financial accounts and will generate a budget based on your spending, a net worth statement based on your assets and liabilities, and will give you an overall financial health score. I have personally tested the app and thought it was wonderful; I meet with people often who have no idea where there money goes and struggle to save. Technology such as this would cleary lay out their spending so they don't even have to think about it. (more information can be found in the article below). If Questwealth could leverage this technology to help their clients with budgeting it would likely lead to higher automated contributions, better reviews, more accounts, and most importantly, would put Canadians in a better place financially. Lastly, referencing Wealthsimple again, they have a feature called round up where you can hook up your investment account with your day to day account to round up debit transactions to the nearest dollar and invest the proceeds into your Wealthsimple account. This would be a great addition for Questwealth portfolios and would once again likely lead to a higher rate of savings for clients in the long run, and greater financial health for Canadians.