You may have seen Wealthsimple’s slick ads featuring frank talk about finances from Hollywood actors such as Mark Duplass and Aubrey Plaza, or its highly relatable celebrity social media posts, like Queer Eye‘s Jonathan Van Ness declaring his First Financial Principle: “I’m a girl who has to stop herself from shopping.”
But, smart marketing aside, what exactly can you do with your money at Wealthsimple—and which, if any, of its products right for you? Here’s what you need to know if you’re thinking about joining the swelling ranks of Wealthsimple clients. This Wealthsimple review provides an in-depth analysis of the online investing platform, the various products it offers, and how it all works.
A Wealthsimple Review for 2020: Invest, Trade and Cash
Now in its seventh calendar year of operation, Wealthsimple has three main offerings. Here’s a look at each.
Wealthsimple’s robo-advisor service is ideal for novice investors or those who are uneasy choosing their own investments since it recommends a portfolio of low-fee investments for you.
Clients spend a few minutes answering questions online about their comfort level with risk, age and investment goals. Your answers determine what type of portfolio is recommended: conservative, balanced or growth. As mentioned above, there are also socially responsible investing (SRI) options, as well as Halal portfolios for those who adhere to Islamic law.
You can put your portfolio into many different types of accounts, including registered (such as Registered Retirement Savings Accounts (RRSPs), Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plan (RESPs) or non-registered accounts.
In terms of cost, Wealthsimple Invest has two types of fees:
- An overall management fee, which is a percentage of the total amount of money you have invested. For clients with balances less than $100,000, that fee is 0.5%; balances of $100,000 or more are charged 0.4%.
- Each individual ETF has its own fee, which you’ll see referred to as the “MER,” or management expense ratio. The MERs on Wealthsimple’s ETFs average about 0.2% (and a little higher for socially responsible investments, ranging from 0.25% to 0.4%).
So, depending on the size of your portfolio and the types of ETFs you have, the total fees could be around 0.6% to 0.7% (or 0.625% to 0.9% for SRIs). What does that look like in real terms? You’d pay about $350 in annual fees for a $50,000 portfolio (or $375 to $450 for a similar-sized SRI portfolio).
For those who want to lower the costs of investing even further—and who are also interested in building their own portfolios with select ETFs and stocks—Wealthsimple’s discount brokerage service is an appealing option. That’s because all its ETF and stock purchases, sales and trades come free of charge. (You still pay the management fees, or MERs, on ETF holdings, as explained above.)
Clients make their transactions over a mobile app (there is no Web version), and can currently hold their portfolios in just three account types: personal (non-registered), TFSA or RRSP.
Investors are restricted to ETFs and stocks that are listed on the NYSE, NASDAQ, TSX or TSX-V exchanges.
There are other limitations as well: Stocks must be priced at a minimum of $0.50 per share and trade an average of at least 50,000 shares daily; and if an asset is a dual-listed security, meaning it’s on both a U.S. and a Canadian exchange, only the Canadian-listed asset is available.
From a cost perspective, though, free trades are hard to beat, given that other discount brokerages charge up to $10 a trade. If you’re wondering how Wealthsimple Trade makes money without charging commissions, it says earnings come primarily from a 1.5% currency exchange fee charged on Canadian-to-U.S. dollar conversions (and vice-versa) that are necessary when trading U.S.-listed securities. In future, however, it plans to add premium services with additional fees.
In a move that is presumably intended to make Wealthsimple a one-stop-shop for financial services, the company launched a no-fee hybrid savings and chequing account earlier this year.
Like any good savings account, it offers a high-interest rate (relative to the marketplace) of 2.40%, with no minimum deposit. And while most bank accounts limit the number of transactions you can make—or charge you for that privilege with fees—Wealthsimple Cash allows unlimited transactions with no fees of any kind (that’s no monthly account fees, no exchange fees on foreign transactions and no transaction fees.)
You can funnel your earnings into a Wealthsimple Cash* account through direct deposit, and then access the account online to make no-fee bill payments, Interac e-transfers, or move your money to a TFSA, RRSP or other investment account.
The account’s spending features, which should be rolled out over the next few months, include a Wealthsimple Cash Card—a prepaid Visa card that will allow clients to make no-fee purchases using the cash in their accounts instantly, just like a debit card. Wealthsimple Cash will also reimburse clients for any ATM fees they are charged (to a set maximum) and will be compatible with Apple Pay and Google Pay.
While deposits in a Wealthsimple Cash account are not protected by the Canadian Insurance Deposit Corporation (CDIC), as is the case at most banks, they are protected (up to $1 million) by the Canadian Investor Protection Fund (CIPF).
What is Wealthsimple?
Wealthsimple is a Canadian financial services provider that offers a suite of online products. Wealthsimple Invest is a robo-advisor that offers beginners or investors who prefer to be hands-off a choice of investment portfolios to suit their risk tolerance and financial goals. Wealthsimple Trade is a discount online brokerage, geared towards people who want to be hands-on with their investments. And Wealthsimple Cash is the newest addition—it’s a no-fee hybrid chequing and savings account.
You can contribute to a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP) and a few other kinds of registered accounts through Wealthsimple, as well as investing in non-registered investment accounts, and stash some of your cash in savings.
Who’s behind Wealthsimple?
Millennial entrepreneur and self-described “boring investor” Michael Katchen launched Wealthsimple* in September 2014 as a low-cost, low-effort approach to investing. Now age 31, CEO Katchen has seen his company transform from a humble Toronto startup to the largest online-only financial services company in Canada, with more than 150,000 clients, in excess of $4 billion in assets under management and international offices in New York and London.
Who uses Wealthsimple?
Wealthsimple caters to the uninitiated millennial investor, with a reported 80% of its clients under the age of 45, and 40% of them being first-time investors. About a quarter of its clients are socially responsible investors, meaning they have money invested in Wealthsimple’s SRI portfolios, which support companies that prioritize environmental and social concerns and have a positive record on human rights and corruption.
What can I do with my money at Wealthsimple*?
Wealthsimple is best known for its robo-advisor service, Wealthsimple Invest, which is a “set-it-and-forget-it” portfolio of low-fee exchange-traded funds (ETFs). In a nutshell, ETFs allow you to invest your money across an entire market—such as Canadian stocks, high yield bonds, real estate, etc.—instead of trying to pick and choose the winning companies in each market. In this way, Wealthsimple provides an easy solution for clients to diversify their portfolios and earn decent returns on their investments over the long term, with minimal risk.
The company has also recently branched out with a couple of new offerings: Wealthsimple Trade, a mobile-only discount brokerage service that allows DIY investors to purchase stocks and ETFs; and Wealthsimple Cash, a hybrid savings and chequing account that pays 2.4% interest.
We’ll explain how each of these services works—and how much they cost—below.
So, what’s not to like?
Wealthsimple clearly makes it easy to invest, trade and manage your cash, with no required minimum amounts, no transaction fees, no trading fees, a user-friendly website and human experts available to help at any time.
There are, however, a few considerations to keep in mind:
- Investment options: Wealthsimple Invest clients are limited to the boilerplate portfolios that are chosen for them. If you want access to other ETFs, you’re out of luck. Similarly, Wealthsimple Trade clients are limited to certain stocks and ETFs, without access to bonds, international equities, precious metals and many other asset types offered by other discount brokers.
- Fees: While the $350 Wealthsimple Invest annual fee from our example above might not sound too bad, consider what happens once your portfolio is in six-figure territory. Even with the management fee drop to 0.4% for accounts over $100K, once you add in the ETF fees you’re looking at total fees of about 0.6% (or up to 0.8% for SRIs). That’s $600 to $800 in fees per $100,000 in investments per year. As for Wealthsimple Trade, the 1.5% currency conversion fee makes this brokerage service too costly for those who wish to invest in U.S. stocks and ETFs.
- Account types: While other discount brokerages offer a full range of accounts, including RESPs, LIRAs, RIFs, LIFs, and margin accounts, Wealthsimple Trade has only personal, TFSA and RRSP accounts.
Bottom line: should you use Wealthsimple*?
There’s no question that would-be investors who might otherwise endlessly procrastinate on setting up a portfolio will benefit big-time from Wealthsimple’s robo-advisor services. Investing in a broadly diversified portfolio of low-fee ETFs will always earn more than bank interest over the long term, and is a sure way to keep the purchasing power of your savings from being eroded by inflation.
Similarly, DIY investors who want to buy and trade ETFs and stocks will undoubtedly save money on fees with the commission-free Wealthsimple Trade service.
On the other hand, Wealthsimple Invest clients with larger portfolios may want to consider other robo-advisors* that may offer lower fees, and DIY investors who want more options in the types of investments and accounts available to them should check out other discount brokers*.
In terms of Wealthsimple Cash, the 2.4% interest rate is about as high as anyone is offering right now (as a permanent, not promotional rate) on a savings account—and the unlimited transactions and no fees sound good. Of course, until the Cash Card becomes available, this account will really only appeal to true savers, not those who also want to withdraw and shop with their money.
What does the * mean?
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