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Canadian robo-advisers plug into socially responsible investing

Wealthsimple CEO Michael Katchen poses for a portrait in Toronto, Wednesday December 9, 2015.

Mark Blinch/The Globe and Mail

Canadian robo-advisers are offering clients access to socially responsible investing – a niche offering that could tack on higher underlying fees for investors.

Online portfolio managers Wealthsimple, as well as newcomer ModernAdvisor, have both recently launched SRI portfolios that offer clients access to a select group of exchange-traded funds in the Canadian market.

Socially responsible investments – also known as responsible investments funds – typically refer to strategies that consider aspects of environmental, social and corporate governance criteria in the selection and management of investments.

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In Canada, SRI accounts for 31 per cent of all financial assets under management, according to a 2014 report from the Responsible Investment Association of Canada. The use of SRI funds by investors – including institutional – has been on the rise with SRI assets under management reaching more than $1-trillion at the end of 2013, a 68-per-cent increase from two years prior.

Wealthsimple launched its SRI offering on Thursday – after its current client base has been repeatedly asking for access to such funds, says Mallory Green, community manager with Wealthsimple.

"Initially, we expect to see 5 per cent of our current clients move their portfolios over to the SRI platform," Ms. Green said.

David Nugent, a portfolio manager with Wealthsimple, wrote in a blog post that the SRI portfolio is meant to serve as a potential substitute for a conventional Wealthsimple portfolio.

"We designed an SRI portfolio using ETFs that prioritize low carbon emissions, advance cleantech innovation, and promote sustainable growth in emerging markets," he wrote.

The Wealthsimple portfolio includes the following funds: iShares MSCI ACWI Low Carbon Target ETF; iShares Jantzi Social Index ETF; Vident International Equity Fund; PowerShares Cleantech Portfolio; and BMO Mid Federal Bond Index ETF. The portfolio can be modified for investor risk levels, from conservative to aggressive.

But investors should be aware that many SRI funds can come with a higher price tag. In addition to the core management fee from Wealthsimple – which ranges from 0.30 per cent to 0.50 per cent – there are underlying fees attached to the ETFs themselves. Wealthsimple says its SRI portfolio's management-expense ratio (MER) is slightly higher, ranging from 0.25 per cent to 0.40 per cent, compared with 0.15 per cent to 0.30 per cent for its non-SRI portfolios.

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ModernAdvisor, the latest robo-adviser to join the Canadian marketplace, opened its doors in January. The online provider launched with a marketing campaign promoting the niche offering of socially responsible portfolios. The platform also provides investors the option of selecting core ETF portfolios, but felt SRI funds could be a big draw for millennial investors – a target audience for many robo-adviser firms.

"Millennials tend to be much more concerned about environmental issues than their parents, as many younger Canadians are seeking options that look beyond the profit line," said Navid Boostani, chief executive officer of ModernAdvisor.

Since January, 22 per cent of the accounts opened have selected the SRI option. The SRI portfolios provide investors exposure to five ETF funds, which include: iShares Jantzi Social Index ETF; iShares MSCI KLD 400 Social ETF; iShares 1-5 Year Laddered Government Bond Index ETF; Vanguard FTSE Canadian Capped REIT Index ETF; and BMO Emerging Markets Bond Hedged to CAD Index ETF.

Investors should ask about underlying ETF fees. ModernAdvisor itself charges a management fee of 0.35 per cent to 0.50 per cent. In addition, the underlying MERs for the SRI ETFs range from 0.21 per cent to 0.49 per cent. This compares with the non-SRI ETF portfolios, which have underlying MERs that range from 0.12 per cent to 0.22 per cent.

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About the Author
Globe Investor Reporter

Clare O’Hara is a reporter at The Globe and Mail. Prior to that, Clare spent eight years as a staff writer at Investment Executive, a national newspaper for financial service industry professionals. More

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