Your First $5,000 Managed Free At Wealthsimple (Review)

wealthsimple review

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When Michael Katchen and Brett Huneycutt founded Wealthsimple, they had the goal to make it easy to invest on auto-pilot.

The co-founders wanted to provide Canadian investors with lower fee investing options and were so successful in their mission that they have since expanded internationally with offices in New York and London.

Like other robo-advisors, Wealthsimple automates the investing process, so you can be hands-off. The usual bells and whistles you might expect from a top notch robo-advisor are provided: tax-loss harvesting, automatic rebalancing, and even socially responsible investing.

Included in the annual fee of 0.50%, you can also get access to expert financial advice. With deposits over $100,000, the fee drops to 0.40% annually as part of the higher tier service, Wealthsimple Black.

A bonus for new customers is your first $5,000 is managed free for the first year.

Wealthsimple Spotlight

WEALTHSIMPLE SPOTLIGHT

wealthsimple logo

InvestorMint Rating

4 out of 5 stars

  • Wealthsimple Basic Fee: 0.50%
  • Wealthsimple Black Fee: 0.40%
  • Minimum Account Balance: $0

via Wealthsimple secure site

Wealthsimple Fees

Wealthsimple has two service tiers: Basic and Black. Wealthsimple Basic clients pay 0.50% annually while Wealthsimple Black clients are charged 0.40% annually, enjoy VIP airline lounge access and can schedule financial planning sessions with expert advisors.

Wealthsimple has two tiers of service, Wealthsimple Basic and Wealthsimple Black, depending on how much you deposit. For account balances under $100,000, investment management fees are 0.50% annually while above that threshold, fees are 0.40% annually.

In addition to slightly lower annual fees, Wealthsimple Black clients also receive access to customized financial planning advice and VIP airline lounge access.

ServiceDescriptionWealthsimple BasicWealthsimple Black
Personalized PortfolioLow-fee, diversified portfolio aligned with your risk profile.
Automatic RebalancingAutomatically keeps your portfolio balanced when investments drifts from target allocation.
Dividend ReinvestingDividends are automatically reinvested.
Auto-depositingAutomatically deposit funds according to a set schedule.
Expert Financial AdviceEmail, text, or call anytime you need financial advice.
First $5,000 Managed FreeFor 1 year, get your first $5,000 managed at no cost.
Tax-efficiencyGet free tax-loss harvesting.
Lower FeesAnnual 0.40% management fee.
Financial PlanningExpert advisers sit down with you to create financial plans.
VIP Airline Lounge AccessGlobal access to 1,000 airline lounges in 400 cities.

Wealthsimple Investment Method

Wealthsimple relies on Nobel-prize winning research to build diversified portfolios across asset classes.

Wealthsimple builds diversified portfolios, based on Modern Portfolio Theory, using low-cost exchange-traded funds.

Modern Portfolio Theory was developed in the 1950s by Dr. Harry Markowitz, who won a Nobel prize for his research.

The “big idea” is to lower volatility and maximize returns for your risk profile by using a collection of securities.

Before Modern Portfolio Theory, the common investing thesis was to aim for individual stock winners but stocks are risky by nature.

Where Modern Portfolio Theory earned its stripes was in mathematically demonstrating how to diversify risk where possible and maximize returns for given levels of risk.

This Nobel-prize winning research is not only used by Wealthsimple but almost all robo-advisors too.

It’s obvious why this approach is better for most passive investors over the long-term when you look under the surface.

Correlated stocks tend to suffer when economic woes hit. If you bought stock in an automobile company as well as an energy stock, you might see both suffer at the same time because the industries are heavily correlated.

But if you were instead to build a balanced portfolio with uncorrelated stocks from different industries, say technology and energy, your portfolio has a better chance of performing well.

wealthsimple diversification

A balanced portfolio, such as the one above, has exposure to a range of asset classes, including U.S. stocks, foreign stocks, emerging markets, municipal bonds, inflation-protected securities, government bonds and high-yield bonds.

Wealthsimple Tax Strategy

Wealthsimple offers tax loss harvesting to all clients in order to boost after-tax returns.

To lower your tax bill, Wealthsimple practices tax loss harvesting. The way it works is losing investments are sold to count against winning positions, and those losers are replaced by similar securities.

If you were to sell a loser just for tax reasons to lower your capital gains tax rate and buy it back right away or within 30 days, the tax benefit would be disqualified by the IRS based on the wash-sale rule.

wealthsimple details laptop

On the other hand, you can sell an ETF that tracks U.S. stocks on the Dow Jones Industrial Average and purchase a similar one on another exchange, say the NASDAQ, without violating any rules.

As you can imagine, tax loss harvesting can get a little tricky and it would be time consuming to make changes manually which is why the automated approach Wealthsimple provides is so valuable.

Tax-loss harvesting doesn’t exempt you from paying taxes to Uncle Sam but it is a way to defer taxes. You can think about it as an interest-free government loan.

When markets fall, tax loss harvesting can build up a nice tax credit that you can use in the future.

Wealthsimple Smart Investing

Wealthsimple reinvests dividends, automatically rebalances portfolios and allocates assets to socially responsible investments if clients wish.

Beyond tax loss harvesting, Wealthsimple uses other investment strategies to boost your returns over time.

REINVESTED DIVIDENDS

Some estimates from Professor Jeremy Siegel of the Wharton School of the University of Pennsylvania are that as much as 95% of wealth over most of the 20th century is attributable to dividends.

Reinvesting dividends may not seem like they make much of a difference in the short-term but over time they can really add up.

The way it works is when a stock issues a dividend, you can elect to take the dividend payment in the form of more stock instead of cash.

It’s a cheaper way to buy stock because you don’t pay the higher brokerage commissions costs to purchase more shares.

And over time, “small” dividends compound and can ultimately produce large gains.

PORTFOLIO REBALANCING

When you start investing, you will typically have a target allocation that matches your financial goals and risk profile.

If you are young, you probably have more stock exposure and if retirement is nearby you will typically have a greater composition of bonds.

The problem with allocating your assets and sitting back to watch them grow over time is that investments grow at different rates causing your allocation to skew in favor of some securities.

Automatic portfolio rebalancing is practiced by Wealthsimple to make sure investments that drift are modified to bring the overall asset composition back in line with your target allocation.

SOCIALLY RESPONSIBLE PORTFOLIO OPTIONS

If you care about how your dollars are invested and want to make sure they are aligned with your values, socially responsible investing is an innovative option and rare among robo-advisors.

The challenge historically with SRI portfolios is expense ratios run at a higher cost than standard ETFs – typically because more due diligence has to be conducted to gauge how well the securities are performing when compared using social impact metrics.

These costs run a little higher at Wealthsimple too, though it should be noted that they are set by the funds, not by Wealthsimple.

Six socially responsible exchange-traded funds are used at Wealthsimple:

ETF SymbolETF NameETF Description
CRBNiShares MSCI ACWI Low Carbon Target ETFStocks with lower carbon exposure than average
PZDPowerShares Cleantech PortfolioCleantech innovators
DSIiShares MSCI KLD 400 Social ETFSocially responsible U.S. companies
SHESPDR Gender Diversity Index ETFGreater diversity in senior leadership
BABPowerShares Build America Bond PortfolioBonds issued by municipalities
GNMAiShares GNMA Bond ETFMortgage-backed securities issued by government agencies to promote affordable housing

Wealthsimple Pros and Cons

Wealthsimple is great for beginners and millennials, as well as investors who prioritize after-tax returns and don’t want to be nickeled and dimed with hidden fees. The annual cost is higher than some other robo-advisors charge but the personal touch and support add a good deal of value, especially to Wealthsimple Black clients, who enjoy a fee break. Wealthsimple takes social impact investing seriously by featuring socially responsible investing ETFs, including a Halal portfolio approved by Shariah scholars.

Wealthsimple ProsWealthsimple Cons
Socially Responsible Investing: Few robo-advisors cater to socially responsible investing that tackles issues, such as gender diversity, cleantech, and environmentally friendly companies, but Wealthsimple alongside Betterment allows investors to align investment dollars with values as part of social impact investing.

To emphasize just how seriously Wealthsimple takes socially responsible investing, it even has a Halal portfolio of 50+ ETFs that has been approved by Shariah scholars.

Fees: Wealthsimple fees aren’t as high some rivals, such as Personal Capital, but at 0.50% Wealthsimple wouldn’t qualify for the list of best robo advisors for fees.
Tax Strategy: Rival robo-advisor Wealthfront is one of the best robo-advisors for tax strategy, but Wealthsimple recognizes the importance of after-tax returns by making automatic tax-loss harvesting and portfolio rebalancing free.Tools: Unlike Betterment, which has an extensive range of tools and financial calculators, Wealthsimple keeps tools to a minimum. You will find the basics at Wealthsimple but no extra frills to help you with retirement calculations and financial goals beyond its Magazine.
No Minimum Account Balance: No minimum account balance is required to sign up to Wealthsimple Basic, but if you want access to Wealthsimple Black, the higher tier service that includes customized financial planning sessions and access to VIP airline lounges globally, you will will need to deposit $100,000.
No Hidden Fees: You won’t get nickeled and dimed on fees at Wealthsimple. Instead, what you see is what you get so you won’t be hit with transfer, trading, or rebalancing fees.
Human Advice: Like other top tier robo-advisors, Wealthsimple makes human advice available. As with many rivals, dedicated financial planning sessions are available with financial experts to higher tier clients, though all clients can request phone appointments with customer support staff at any time.

Wealthsimple Fees, Minimums, & Features

Fees start at 0.50% annually and reduce to 0.40% for deposits over $100,000. Plus, new clients enjoy free managed service up to the first $5,000 for the first year.

CategoryFees
Management Fees0.50%
(up to first $100,000)0.40%
($100,000+)1st $5,000 free for 1st year
Investment Expense Ratio0.10%
(weighted average)0.23% → 0.26%
(weighted average SRI portfolio)
Account Minimum$0
(Wealthsimple Basic)$100,000
(Wealthsimple Black)
Annual, Transfer, Closing Fees0
Asset Classes16

Wealthsimple Accounts

Alongside standard accounts, Wealthsimple supports retirement accounts, including Roth IRAs, SEP IRAs and traditional IRAs as well as Trusts.

TypeCapability
PersonalYES
Roth IRAYES
Traditional IRAYES
SEP IRAYES
JointYES
TrustYES
529 PlansNO

Wealthsimple Tax & Rebalancing Strategy

Automatic tax loss harvesting and portfolio rebalancing is included in basic service.

TypeCapability
Tax Loss HarvestingYES
Automatic Portfolio RebalancingYES

Wealthsimple Summary

If you want to try out Wealthsimple, the barrier is low: free managed service for a full year on the first $5,000 deposited. After that, fees are 0.50% annually unless you deposit $100,000 or more in which case the fees reduce to 0.40%.

Beginners who are getting started will find Wealthsimple has enough bells and whistles to beat many traditional advisors. Where traditional advisors may charge north of 1%, Wealthsimple charges half that or less. Plus, you get free tax-loss harvesting and portfolio rebalancing thrown in as a bonus.

Wealthsimple supports a wide variety of accounts, including standard taxable accounts and retirement accounts, such as traditional IRAs, SEP IRAs, and Roth IRAs.

Plus, you get access to socially responsible investing options so if you care about how your dollars are invested and want to make sure they align with your values, Wealthsimple is one of very few robo-advisors along with Betterment who support SRI portfolios.

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