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.
Table of Contents
- Wealthsimple Spotlight
- Wealthsimple Fees
- Wealthsimple Investment Method
- Wealthsimple Tax Strategy
- Wealthsimple Smart Investing
- Wealthsimple Pros and Cons
- Wealthsimple Fees, Minimums, & Features
- Wealthsimple Accounts
- Wealthsimple Tax & Rebalancing Strategy
- Wealthsimple Summary
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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.
|Service||Description||Wealthsimple Basic||Wealthsimple Black|
|Personalized Portfolio||Low-fee, diversified portfolio aligned with your risk profile.||✅||✅|
|Automatic Rebalancing||Automatically keeps your portfolio balanced when investments drifts from target allocation.||✅||✅|
|Dividend Reinvesting||Dividends are automatically reinvested.||✅||✅|
|Auto-depositing||Automatically deposit funds according to a set schedule.||✅||✅|
|Expert Financial Advice||Email, text, or call anytime you need financial advice.||✅||✅|
|First $5,000 Managed Free||For 1 year, get your first $5,000 managed at no cost.||✅||✅|
|Tax-efficiency||Get free tax-loss harvesting.||✅||✅|
|Lower Fees||Annual 0.40% management fee.||✅|
|Financial Planning||Expert advisers sit down with you to create financial plans.||✅|
|VIP Airline Lounge Access||Global 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.
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.
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.
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.
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 Symbol||ETF Name||ETF Description|
|CRBN||iShares MSCI ACWI Low Carbon Target ETF||Stocks with lower carbon exposure than average|
|PZD||PowerShares Cleantech Portfolio||Cleantech innovators|
|DSI||iShares MSCI KLD 400 Social ETF||Socially responsible U.S. companies|
|SHE||SPDR Gender Diversity Index ETF||Greater diversity in senior leadership|
|BAB||PowerShares Build America Bond Portfolio||Bonds issued by municipalities|
|GNMA||iShares GNMA Bond ETF||Mortgage-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 Pros||Wealthsimple 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.
(up to first $100,000)0.40%
($100,000+)1st $5,000 free for 1st year
|Investment Expense Ratio||0.10%|
(weighted average)0.23% → 0.26%
(weighted average SRI portfolio)
|Annual, Transfer, Closing Fees||0|
Alongside standard accounts, Wealthsimple supports retirement accounts, including Roth IRAs, SEP IRAs and traditional IRAs as well as Trusts.
Wealthsimple Tax & Rebalancing Strategy
Automatic tax loss harvesting and portfolio rebalancing is included in basic service.
|Tax Loss Harvesting||YES|
|Automatic Portfolio Rebalancing||YES|
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.