We’ve spent considerable time recently looking at banks and bank-like financial institutions, including credit unions and online-only banks. These consumer-facing institutions are designed primarily to give customers a place to store their money in a place that is safer and more convenient than simply stashing it under the mattress.
Credit unions and banks (including online-only banks) provide services such as debit cards and online bill payments, access to a network of ATMs, personal and commercial lending, and deposit insurance on most account balances,.
Some banks also provide investment services, and at least a couple institutions that we’ve looked at offer a wealth management practice that is quite extensive. But still, retail banks’ purpose is ultimately to hold deposits and make loans to individual and business customers. For this reason, customers in search of an institution to help them invest their money must often look outside their local bank and instead turn to an institution that is dedicated to making and managing investments.
Today, we’re going to look at one such financial advisor: Wealthsimple. This investment firm, however, is quite different from the picture you may have in your mind when you think of an investment firm. So, keep reading to find out what Wealthsimple has to offer and what sets it apart from the myriad investment firms seeking to manage your assets.
What’s the first image that comes to mind when you think of an investment firm? Perhaps you picture towering skyscrapers, framed in glass and bustling with people in starched shirts, expensive suits, and slick haircuts. Perhaps you imagine hearing horns honking, sirens blaring, and other sounds of commerce as you pull up for a meeting at your financial advisor’s office. Well, Wealthsimple doesn’t quite fit this picture. Instead, Wealthsimple’s mission is to make investing accessible to everyone and to take the mystery and stress out of investing.
Founded in 2014 by millennial entrepreneur Michael Katchen, Wealthsimple seeks to provide smart yet simple investment services without charging high fees or serving only customers that can maintain a certain account minimum. True to the modern trend, Wealthsimple is an online-only, automated investment firm. But don’t let its ultra-modern character fool you. Wealthsimple offers a comprehensive suite of investment vehicles and utilizes all the portfolio management tools you’d expect a professional investor to utilize including automatic rebalancing, dividend reinvesting, and tax loss harvesting.
Wealthsimple was founded in Toronto, but, in another testament to its ability to successfully operate exclusively in cyberspace, it has expanded internationally and now maintains offices in both New York and London. Over 1 million people around the world so far have used Wealthsimple’s tools to invest, and Wealthsimple currently manages more than $5 billion in assets.
Wealthsimple is also a member of the Canadian Investment Protection Fund, or CIPF. The CIPF somewhat resembles the Canadian Deposit Insurance Corporation or other deposit insurers that we’ve looked at in the context of retail banks, but it differs in that the CIPF does not guarantee the value of an account. Instead, the CIPF seeks to guarantee the property heldin investment accounts. For example, say you purchased 500 shares of Company A for $10,000, and the investment firm that manages that investment for you fails. Without CIPF protection, you could risk losing your entire investment-both the value and the property that creates that value. But CIPF is designed to ensure that you at least get to retain the property-the 500 shares of stock in Company A-even if those shares are not worth what you first paid for them.
Wealthsimple’s motto is “Get rich slow.” We think this phrase accurately reflects both Wealthsimple’s mission to make effective investing accessible to everyone regardless of their net worth and its commitment to transparency. It’s no secret that the inverse of Wealthsimple’s motto-get rich quick-carries an exceedingly negative connotation, and it does so for good reason.
As a general rule, any firm offering you the opportunity to “get rich quick” at the very least probably doesn’t have your best interests in mind and, more likely than that, is an outright scam that’s trying to take advantage of you and never look back.
Wealthsimple, by contrast, has the legitimacy that $200 million worth of backing from major global financial institutions carries, and it uses these resources to help each one of its clients reach their goals while keeping expectations reasonable.
Wealthsimple does this by offering two main services: investing and saving. We’ll set out the basics of these services along with their key details below.
Wealthsimple’s automated investment tools make it easy for anyone to invest like a professional. Based on the Nobel Prize-winning passive investment theory, Wealthsimple strives to provide its clients a reliable and relatively safe way to grow their money over an extended period of time.
Customers begin by answering a few basic questions about their age, investment goals, and the level of risk they’re comfortable with. Wealthsimple’s algorithms will then recommend a portfolio that is either conservative, balanced, or tailored for growth. Placing most of its emphasis on stocks, growth portfolios carry the highest amount of risk, but they also of course carry the greatest opportunity for reward. Conversely, a conservative portfolio will have a much higher percentage of municipal and U.S. government bonds, those investments being some of the safest you can make.
Given Wealthsimple’s focus on automation, Wealthsimple also places substantial emphasis on exchange traded funds, or ETFs. An ETF, like a mutual fund, is essentially a way to purchase a variety of stock at one time for a single price. But unlike a mutual fund, most ETFs are driven by an algorithm instead of a human fund manager. So instead of a human manager actively trading stocks into and out of the fund, an ETF is managed by an algorithm that does so by tracking the progress of a certain economic sector. For example, there are ETFs based on the communications sector, health services industry, and even the financial sector itself. Because ETFs do not require human managers, they often carry much lower management fees than traditional mutual funds.
Wealthsimple’s investment accounts come with a variety of features all designed to streamline your investment experience and therefore to make it that much easier to build a legacy.
Wealthsimple offers an auto-deposit feature, which allows clients to automatically transfer a certain amount into their investment account each month, which Wealthsimple then invests according to the client’s goals and prescribed risk tolerance. Relatedly, Wealthsimple’s Roundup feature allows clients to invest their spare change without having to lift a finger. By linking Roundup with their Wealthsimple investment account, Wealthsimple automatically rounds any purchase made with your credit or debit card to the nearest dollar and invests that sum in your Wealthsimple account.
Wealthsimple also offers dividend reinvesting. Recall that by owning stock in a company, you are technically a part owner of that company. As an owner, you are entitled to a share of the company’s profits based on your proportional ownership share. Paying dividends is how companies accomplish that profit sharing. A dividend is essentially a payout from a company that you own stock in as a reward for investing your money with that company. But instead of simply receiving a check from the company, Wealthsimple’s dividend reinvestment feature takes your dividend payment and reinvests it for you, further ensuring that your money is always working for you.
The last feature we’d like to point out is Wealthsimple’s automatic rebalancing feature. Wealthsimple of course uses its automated investment algorithms initially develop a portfolio based on the level of risk a client is willing to take. But Wealthsimple leverages its powerful algorithms to do much more than this. Instead, Wealthsimple’s programs constantly monitor the market and make changes to each client’s portfolio to adapt to shifts in the market.
Additionally, Wealthsimple offers Socially Responsible Investment accounts that invest your money only in companies dedicated to making a positive environmental and social impact, as well as Halal accounts for those clients who adhere to Islamic law.
Although Wealthsimple’s focus is on investing, it also offers a more traditional savings account as well. Wealthsimple’s savings account offers a 1.10% annual yield and a feature similar to its Roundup feature that we covered earlier. This feature allows Wealthsimple’s savings account customers to automatically round each purchase made with their linked debit or credit card up to the next dollar and place that amount in their savings account. The Wealthsimple Save account also offers unlimited monthly transactions, no account fees, and requires no minimum balance.
Wealthsimple offers three tiers of investment account. The first is the Basic account. This account is for deposits of $0 to $100,000 and takes full advantage of Wealthsimple’s automated investment algorithms and all the features we set out above including Roundup and dividend reinvesting. The Basic account carries a .5% annual fee.
The Wealthsimple Black account is for higher-net worth clients who wish to invest up to $500,000 with Wealthsimple. In exchange for their larger investment, Wealthsimple reduces the annual fee to .4% of the account’s value. The Wealthsimple Black account also comes with a free financial planning session and provides clients access to VIP airport lounges.
The most exclusive Wealthsimple account is the Generation account. This account is designed for clients who invest more than $500,000 with Wealthsimple. The Generation account comes with all the features of the Black account plus a dedicated team of financial advisors and in-depth financial planning with each client.
What sets Wealthsimple apart?
Wealthsimple offers a variety of modern features that any amateur investor can appreciate. Its automatic deposit and Roundup features make it easy to regularly contribute to your investment account. And its dividend reinvestment feature is an excellent way to keep your sights focused on long-term growth. What really sets Wealthsimple apart, however, is its Socially Responsible Investment accounts and its Halal accounts.
Wealthsimple has grown from a small Canadian start up into a global player in the financial industry. As such, it sees clients from all over the world and from all walks of life. These accounts allow Wealthsimple clients to invest their money while remaining true to their personal values. So whether the client is committed to investing in green companies, companies making a difference in the human rights sphere, or adhering to deeply personal religious beliefs, Wealthsimple offers an investment product that can help the client reach his or her goals in a way that is both personally and financially rewarding.
Wealthsimple offers a modern, convenient, and straightforward way for new investors to break into the world investing and to begin making their money work for them. Their streamlined app provides an accessible end-user interface to leverage Wealthsimple’s powerful algorithms to create and maintain an investment portfolio tailored to each client’s preferences. So if you’re interesting in beginning to invest but aren’t quite sure where to start, Wealthsimple could have a solution that’s right for you. As always, be sure to check out their website, send them a text, tweet, or email, or yes, even pick up the phone and give them a call to find out whether they’re the right fit for you.