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Robo-adviser offers average investors access to pooled funds

Chris Nicola, chief technology officer and co-founder of Wealthbar, an online financial adviser firm, poses for a picture in Toronto, Thursday October 16, 2014.

Mark Blinch/The Globe and Mail

Canadians using so-called robo-advisers can now have access to an investing vehicle that's traditionally been the domain of high-net-worth individuals.

Wealthbar Financial Services Inc., a West Coast robo-adviser, has partnered with Nicola Wealth Management Ltd. (NWM), a fee-based advisory firm, in offering investors access to a family of pooled funds.

Pooled funds have widely been used in the institutional world by large pension funds and high-net-worth clients. Investors are able to combine individual investor funds into one large "pool" of capital. By combining assets, investors are able to access lower trading costs, professional money management, and asset classes that otherwise might not be available to the average retail investor.

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Pooled funds tend to have lower administration costs than your typical mutual funds and offer automatic re-balancing and monthly monitoring. Any capital gains and losses are also split among the 'pooled' group of participants.

The majority of robo-advisers in Canada offer clients online access to a variety of exchange-traded fund portfolios. "The idea is to be able to round out a client's portfolio in the areas where ETFs are not going to be able to represent," says John Nicola, chairman and CEO of NWM. "Our pooled funds can help fill in gaps such as hard asset real estate, mortgages and private equity, areas that we believe investors need in their portfolios."

Wealthbar is among a handful of Canadian players who have entered the robo-adviser marketplace within the past year. These online investment managers are growing in popularity among Canadian investors with offerings that come at a much lower price tag than most financial advisers. Management fees for a robo-adviser platform can range from 0.25 per cent to 0.60 per cent.

Through robo-advisers, investors are able to access an online risk-assessment tool that will determine an appropriate asset allocation based on age, financial goals and risk tolerance. Individuals are then provided with a customized portfolio that is automatically rebalanced for the client. While the term "robo" suggests a technology-driven platform, the investor is assigned a 'human' adviser to discuss investment needs.

Investors will have direct access to NWM's 15 private investment pool funds. (NWM is a 20 per cent shareholder in Wealthbar). The pooled funds hold a variety of investment options. For example, the NWM Real Estate Pool invests in publicly traded Canadian, U.S. and global REITs. In addition, it holds the Manulife Canadian Property Portfolio, London Life Real Estate Fund, Spire LP and MEPT LP (a U.S. real estate limited partnership managed by Bentall Kennedy).

Fees for the pooled funds are slightly higher than an ETF but still below what a F-class mutual fund would cost, says Nicola. (F-class funds are funds sold through a fee-based adviser and do not include a trailer commission. Generally these are between 1.0-1.5 per cent). For example, the NWM Core Portfolio would charge a fee of approximately 1.0 per cent including underlying fees.

Lower fees are part of the allure of a robo-adviser, regardless of the product.

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"Ultimately it is about the investor getting access to the best product at the best price point," says Som Seif, president and CEO of Purpose Investments Inc. which offers ETFs and F-class funds with identical fees. "It shouldn't matter if it comes in the form of an ETF, a pooled fund, or mutual fund."

For investors it also comes down to what they are comfortable with and what they know, says Tea Nicola, co-founder and CEO of Wealthbar. "Right now there is a lot of information out there on ETFs but we want to educate the public about pooled funds as well. We want to bring that high net worth style of portfolio management to the mass market."

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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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