Evolution

Oh my.

On the weekend, when I paused this blog to mark Remembrance Day and mentioned a poppy-selling old soldier I’d encountered, several moisters were wounded in the crossfire. My sin was mentioning that the wrinkled warrior was standing amidst a swirl of people obsessed with their phones. They were, said I, Millennials. Which they were. But making such an observation today is like telling a female co-worker she looks beautiful this morning. Soon you’re sitting in HR accused of assault.

In this case I was labeled paleo.

Fortunately, I don’t care. So let’s continue. Just as Boomers won the birth lottery, had prosperity showered upon them, then squandered most of it, the moisters are on a different but equally misguided path. They’ve drunk the real estate Kool-Aid, embraced life-threatening levels of debt, are weirdly risk-averse and trust an algo with their money more than a person.

Rob-advisors are the latest manifestation. There are more of them all the time as the FinTech wave sweeps across the money business. The idea is simple – throw your savings into an account managed by code, which will pick a few ETFs based on a 30-second risk assessment quiz, then periodically rebalance and charge you peanuts – maybe half a per cent annually of what you invest.

The latest stats show about half the Mills are comfortable doing this, compared with 27% of GenXers and just one in five Boomers. Surveys also show, however, that three-quarters of these young investors actually have no idea what they’re buying, or the risks involved. The largest robo currently is WealthSimple, which looks like it’s turning into a bank. The outfit has now accepted $100 million in financing from giant financial conglomerate Power Corp., and handed over the chairman-of-the-board position to Power’s boss, Paul Demarais III. No moister there.

WS has also expanded its socially pure fund platform into the US, where its clients are (on average) about a decade older than in Canada, and where robos have a much longer and more checkered history than in Canada. There are 30,000 clients and the average amount invested is roughly $33,000. That compares with the average of about twenty times more per investor at a bank-owned wealth management firm like Nesbitt Burns (BMO).

So, are robos good or dangerous?

In a word, good. Better than doing nothing, spending all your money, not thinking about investing and putting everything you’ve got into a condo down payment. Robos are relatively cheap, and some of them even offer a kind of ‘concierge’ advisor service which means you can call and ask generic questions. Also a good thing.

For people with less than a hundred grand to invest, a robo-advisor’s a sound option – superior to being seduced into a scuzzy mutual fund portfolio by TNL@TB. And a fee-based advisor would be hard-pressed to serve you in a low-fee way with less than about $150,000 to work with. Above that amount, getting an actual human being to help with a tailored portfolio, tax avoidance advice and a long-term plan is well worth the extra half-percentage point.

But, of course, you can do it yourself and save the fee, however skinny it seems. (The same can be said of the ‘balanced’ funds the Fruit People offer at an expensive 1.07%.) Open a TFSA with an online gig like Scotia iTrade, Questrade, TD Direct, BMO InvestorLine or CIBC Investor’sEdge and build a balanced portfolio with four ETFs – Canadian and US large caps stocks, preferreds and short bonds. That should provide enough octane to keep moister net worth growing but with sufficient balance so you don’t freak and call it quits when markets correct.

The next step, when the portfolio climbs well over six figures, is finding a fee-based guy. Sure, you can stick with the DIY balanced approached and probably do just fine, but as your finances improve it makes great sense to seek out ways to minimize taxes. Income splitting. Tax-efficient capital gains and dividend income generation. Spousal contributions and loans. Incorporations and trusts. Registered plan meltdowns. You know, all that stuff you thought was rich-guy and grossly unfair when you didn’t have money.

Being young, frugal, socially responsible and morally superior is cool. But you’ll get over it.