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Can I trust my money to an Online Adviser?

In Canadian finance, a ‘robo-adviser’ is essentially an online investment broker. This is a registered financial adviser who will oversee and coordinate an individual investment portfolio with the support of proprietary software designed to assist in making financial decisions. Most of the contact an investor will have with this adviser will be online and via email. In other countries, including the U.S., a robo-adviser may be a trading platform operated almost entirely by algorithm, with very little human interaction or oversight. Robo-advisers tend to invest in Exchange Traded Funds (ETFs).

A Canadian robo-adviser is still required to meet all regulatory standards, but will use automated tools to improve efficiency. Online advisers are still subject to Know Your Client (KYC) regulation—meaning that before you invest, the adviser is required to have a good understanding of your investment goals, tolerance for risk, and other factors, and needs to know this information is fulsome enough to make suitable recommendations. Software will then determine the initial investor profile and calibrate trading decisions to one of many standard template portfolios. Online advisers also need to be available to answer any and all questions an investor may have, and before any money is invested, the human adviser must review the software’s recommendations, and may need to rebalance to maintain asset mix. An online adviser will also make investment decisions on your behalf without specific approval for each trade; this is also known as discretionary portfolio management.

The benefits of a ‘robo-adviser’ are lower overall fees, and a lower minimum account, making them appealing to first-time investors or those with less money to invest. However, there is much less direct contact with an online adviser.