Your Complete Guide to Index Investing with Dan Bortolotti

An Interview With Wealthsimple: Part 1

2017-12-02T23:17:05+00:00October 14th, 2014|Categories: Financial Planning, New products|Tags: , |21 Comments

Wealthsimple is one of several online investment firms that have launched in Canada this year. They’ve often been referred to as robo-advisors, though they reject that name, and with good reason. While some parts of the process are automated, clients of these new firms do interact with humans, and all the trades are made by a flesh-and-blood portfolio manager.

At Weathsimple, that portfolio manager is David Nugent, and we recently sat down to discuss the firm’s advice model and investment strategy. Here’s the first part of our interview.

The first step in building a client’s portfolio is determining an appropriate asset allocation. How do you do that?

DN: The first step is a 10-question risk assessment clients do online when they sign up for an account. After that they book a call with me—or, as we grow, someone else on our team. We try to get an understanding of their past investing experience and any biases they might have, and then we talk about the asset mix. The real conversation happens over the phone.

Surprisingly, we’re more likely to see people increase their risk level after the phone call. The online risk assessment looks at two things: your ability to take risk, and your willingness. But there are some things that don’t get picked up in the risk questionnaire, like the way they understand fixed income and interest rates. So we have to really talk to these clients on the phone or through a videoconference to get an understanding of exactly what makes them tick, and how we should construct the portfolio for them. I give them a sense of what each asset allocation might provide over the long term in terms of volatility, and we try to match that with their comfort level.

What else do you discuss during that initial phone call?

DN: We spend a lot of time on the phone discussing which type of account they should use. A lot of people still have a difficult time determining whether they should use an RRSP or a TFSA, or a joint non-registered account. There’s obviously no right or wrong answer: it depends entirely on your personal situation. But we look at what account they’re trying to open, and what types of accounts they currently have set up elsewhere, and help them determine whether that’s right for them.

It’s amazing to see how many people default to a non-registered account when they don’t have an RRSP or a TFSA open. So the first question is often, why are you investing in a non-registered account when you have all of this contribution room? It’s really just a matter of educating them about the other types of accounts, and then we come to some conclusion about what is right for them given their goals.

For example, a lot of professionals are saving up to buy that first home, so we will educate them about the merits of the Home Buyers’ Plan, because a lot of people assume taking money out of an RRSP is always fully taxable. The account selection has actually proven to be the most important area in terms of what the clients are getting out of the call: how to use each vehicle to maximize tax efficiency.

What is the range of asset mixes you offer?

DN: Our most conservative portfolio is 70% fixed income and 30% equities, and our most aggressive portfolio is 90% equities and 10% fixed income. One of the things we’re big on is risk-adjusted returns, so having some amount of fixed income in the portfolio really does add a lot of value over the long term, even though some investors think we should offer a 100% equity portfolio.

On the other end of the spectrum are people who are very conservative and much more tilted toward fixed income. But once you get to a portfolio that is more than about 70% fixed income the question really becomes, is it better to just own some GICs as opposed to the fixed income ETFs we use? If someone says they want a portfolio that is fully fixed income, our response is that maybe giving us your whole portfolio is not the answer. Maybe it makes sense to buy some GICs with the fixed income part and just give us the equity part.

You describe your model as “light service.” Can you explain what that means?

DN: With my background as an advisor with RBC Dominion Securities, my role was giving advice to clients, so we are able to provide that same service. But it is an on-demand service, as opposed to a full-service model. Typically with a full-service model you speak to your advisor once a quarter, or semiannually, or annually depending on your relationship. At Wealthsimple, if you want to talk to me or someone on our team, you simply log into your account and schedule a call. Then we can review the portfolio, we can talk about buying your first house, we can talk about your retirement goals. But the onus is on the client to schedule the call, as opposed to the full-service model where the onus is supposed to be on the advisor.

One of the issues many people have with their advisors is they don’t understand the performance reporting. Our reporting is super simple: when you log into your dashboard you see how much money you put in, what the portfolio is worth today, the fees you have paid, and the return in both percentage and dollar terms. Those are often the questions people are asking, so we think we can use the technology to answer many of those questions. That will allow our advisors to actually spend time giving advice—trying to figure out the best accounts to use, trying to structure a savings plan, helping them save for a house or an engagement ring. Those are the things we think advisors should be spending time on, and we think everything else can be automated with technology.

In the next installment of our interview, David Nugent explains more about Wealthsimple’s investment strategy.


  1. Prasanna Thani October 14, 2014 at 12:40 pm

    This service should be interesting, look forward to hearing feedback from people who have transitioned from CCP to this service.

  2. hmichaluk October 14, 2014 at 12:52 pm

    The most difficult issue is risk analysis. I’m not sure a questionnaire plus telephone call does it justice. There needs to be a better way to show the client what that looks like. If you build a portfolio that has a high probability of declining 20% in a bear market, but your client can tolerate only a 10% drop before panic sets in, the odds increase that the client will bail out near the bottom. That’s not useful to the firm or the client. I think a personal sit down is better especially with some good risk analysis software to look at different situations. Riskalze, for example, is a good software for doing that for the client to see on a screen different scenarios and there pitfalls but it requires a personal interview and some time.

  3. Canadian Couch Potato October 14, 2014 at 2:23 pm

    @hmichaluk: It’s probably true that you cannot get a full understanding of an investor’s risk tolerance from a questionnaire and a phone call, but it’s worth mentioning that many firms use only the questionnaire. Very few use software like Riskalyze, Finametrica or their competitors. And of course DIY investors don’t even get a questionnaire. So in that sense, Wealthsimple’s willingness to reach out with a personal phone call is positive step and is likely to head off the most serious problems.

  4. hmichaluk October 14, 2014 at 4:30 pm

    @CCP I hope PWL uses more than a questionnaire ;). It is buyer beware. The DIYer pays no advisor fees and his risk tolerance is measured by a market meltdown. But he expects no other metric. But, if you pay… certainly one expects reasonable fiduciary. What is a reasonable client expectation I don’t know given the range of advisor fees charged? For Wealthsimple, why not use something like Riskalyze? Reasonably cheap, marvelous tool for the client to run scenarios to see what to expect with corrections with his agreed upon asset mix, and has been shown to decrease the number of client panic phone calls like right now in this present market!

  5. françois October 15, 2014 at 10:22 am

    I find that one problem with all the question, is because they don’t know $$$ people start with, they use %. Interestingly enough when i talk to people who ask me advice their answer differs when expressed in % vs $. For example i was talking to someone with $50,000 in there RRSP. I asked them how comfortable they would be if their account drop 10%, and they were fine with it. When asked, OK your account drops to $47,000 are you ok? and the answer is not the same… (and yes i pick $ drop lower than %)

  6. Canadian Couch Potato October 15, 2014 at 10:31 am

    @hmichaluk: Yes, we certainly do more than the just a questionnaire. In fact, we put together detailed financial projections for clients based on their current income, spending, and savings rates before we even suggest a portfolio. That helps us determine how much risk the investor needs to take, which is distinct from how much they are willing or able to take. We are also in the process of setting up an online risk analysis using a third party.

    @françois: That’s a great point. When we discuss potential losses with clients we always use dollar amounts as well as percentages. As you say, losing 10% doesn’t sound like a lot, but losing $10,000 out of your $100,000 invokes a much different different response.

  7. Chris October 16, 2014 at 10:24 am

    It looks like this is worth it for me, from what they invest in, and how they manage. It was getting tedious to add money every month and re-balance accordingly. Plus since there’s no transaction fees and very low exchange rates, they can invest in more funds then I would manage myself. Trying to re-balance a portfolio with 10+ classes would be a nightmare.

    They also will probably micro manage it a bit better than me since it’s their focus 100% of the time, rather than trying to spend a few minutes a month doing it. At least that’s the hope. I probably wouldn’t tax loss harvest, which is something they do.

  8. Tyler October 16, 2014 at 3:31 pm

    Do they take care of placing assets in the right type of account? (Bonds in registered accounts, equities in taxable accounts?)

  9. Canadian Couch Potato October 16, 2014 at 3:36 pm

    @Tyler: No, not yet. Currently all accounts will have the same asset mix. They have explained to me that asset location services will come later, once they have built a little more scale.

  10. Sebastien Benoit October 16, 2014 at 5:48 pm

    They also have a referral program. I wish I knew about it before I signed up! It gives both parties an extra $5,000 managed for free. That’s worth $25/yr, very slick.

    Dan, if you have a referral link, you should post it for the benefit of your readers.

  11. Canadian Couch Potato October 16, 2014 at 6:06 pm

    @Sebastien: I didn’t even know about the referral program. In my case, I would consider a referral link to be a conflict of interest.

  12. Sebastien Benoit October 16, 2014 at 6:29 pm

    Here are videos of an interview the CEO Michael Katchen had with BNN last week:

    Part 1:
    Part 2:

    You can see pretty clearly in part 2 that the interviewer is not exactly a big promoter of index investing, haha… Michael seems to hold his own by just repeating the mantras: Index funds perform better than active funds, and investors perform better when they aren’t messing with their portfolios.

  13. Kate October 17, 2014 at 8:54 am

    Thanks for the referral link.

    Are you happy with your Wealthsimple investment portfolio?

    This kind of investing is such a new concept here in Canada ….
    It would be good to get more feedback from current Wealthsimple clients.

  14. Sebastien Benoit October 17, 2014 at 9:16 am

    Hi Kate,

    I actually haven’t seen the investor portfolio yet. I’m on the very last step of the sign-on process, where I’m waiting for the micro-deposit to be returned to Wealthsimple. Once that happens, I’ll likely transfer out of my TD eSeries RRSP account completely, as it has a decent balance to trial this service.

    I’ll post an update once I get a better feel for their interface/portfolio. So far though, I’ve been very impressed with the experience. They’ve definitely taken the time to dot their Is and cross their Ts.

  15. Weekend Reading - packing edition - Tawcan October 17, 2014 at 11:45 pm

    […] Potato had a 2 part interview with Wealthsimple on a new type of financial advisor. Here’s part 1 and part 2 of the interview. I think it’s very neat to see more competitive financial […]

  16. Kidam November 28, 2014 at 1:51 pm

    Yet again, If there is one thing I have learned from here is that the consumer adding bias (Specific allocation based on XYZ) is more often than anything shooting himself in the foot in the long run.

    It strikes me that one of the selling point that makes wealthsimple is that they conduct interviews in order to adress specific biaises a client might have in order to offer a ”custom experience”.

    Client: – Yeah I have a really bad thing going on with banks so can we remove anything finance related in my portfolio
    WS: -No problem one of the key feature here at WS is that we offer you a custom experience so off goes all the stock finance related.

    instead of addressing and educating a bad behavior aren’t we adding more fuel to the fire?

    I’m also really wondering why someone like @sebatien Benoit who was already formatted into the CCP mentality (e-series from TD) makes the jump into wealthsimple right off the bat.

    Could it be the fees? I don’t think so since they are alike
    Could it be the investor portfolio? ”I actually haven’t seen the investor portfolio yet”

    To me its another way of taking something wonderfully easy, effective and turning it into something more complex in hopes of finding more value.

  17. […] consultant from Moncton, N.B., didn’t know that robo-advisors existed in Canada until he stumbled on a blog post written by Canadian Couch Potato Dan Bortolotti. From there he found the Canadian online investment […]

  18. Bev February 17, 2016 at 9:44 am

    I’m looking for a way to decide between a couch potato portfolio or Robo advisor for non registered investment to be held for very long term. We currently use full service advisor through a bank and are looking for alternative to try with some additional money.

  19. Kay June 5, 2016 at 2:27 pm

    Dan, would appreciate your advice regarding repayment of the First Time Home Buyers plan.

    I filled all my RRSP contribution room, and am looking for the best place to invest additional funds. The two tax-sheltered options that I have now are: (1) contribution to TFSA, where there is still lots of room remaining, or (2) repaying my First Time Home Buyers plan earlier (i.e. more than the minimum yearly repayment amount).

    Is there an advantage to one or the other? Thank you on any advice you can provide!

  20. Canadian Couch Potato June 6, 2016 at 3:01 pm

    @Kay: I’m afraid there’s no way to properly advise you on this question without knowing all of the details. But in general, while both would provide you with tax-free growth, future withdrawals from the TFSA would be tax-free while HBP repayments would be taxable. (Of course, the original RRSP contribution got you a tax refund, but the HBP repayment would not.) Hard to go too far wrong here, but TFSA + minimum HBP repayment is probably the better choice in most situations.

  21. Tegan June 23, 2016 at 2:46 pm

    Hi Dan,

    First, thanks for your detailed posts. Your writing is such an important resource for Canadians. I’ve been scouring your blog for some time trying to figure out the best investment strategy for me, so thank you!

    About me: 25 yrs, no kids, renting, 60k salary + government pension. I want to fill up my TFSA contribution room. I’ve saved 25k and I’m willing to part with about half of that for an initial lump sum investment. This is also kind of arbitrary, but I’ll probably start with $600/month regular payments and just see how it goes.

    The question: I’m having a hard time figuring out if I would be better off with Wealthsimple or Tangerine Investment Funds. The MER is obviously lower with a robo-advisor, but am I missing something? Thanks!

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