Dear Finance Diary,
You probably get a lot of information from sponsored content, and you’re not really sure where to start. Everyone will have a different preference, so here is an analysis of some reviews I’ve conducted personally.
The first kind of platform I want to talk about is a bank-based platform (i.e. BMO InvestorLine, TD Direct Investing, RBC Direct Investing, CIBC Investor’s Edge, etc.). Bank-based platforms offer several advantages as well as disadvantages that you can consider before opening an account. For the purpose of this blog, I will specifically talk about my experience with BMO InvestorLine.
Next we have a look at app-based investment platforms, or “Online Brokerages”, which aren’t associated with any brick and mortar services such as Wealthsimple and Questrade. For the purpose of this article, I will address my experience with Wealthsimple Trade (self-directed investing) as well as Wealthsimple Invest and Cash (managed portfolio).
Advantages of Bank-Based Platforms
1. Large Diversity of Investments
A big advantage of bank-based platforms is the ability to choose the kinds of investments you can have. This can include stocks, bonds, index funds, ETFs, GICs, foreign markets, options, fixed income and precious metals.
This can be considered a big advantage because you are able to create a balanced and diversified portfolio for your investments, meaning you can have a mix of higher risk and lower risk investments.
2. You Can Trade Before The Money Reaches Your Account
To me, this is a massive advantage. I am able using a bank-based platform to trade money before the transition from my bank account actually occurs. In other words, you can trade without the money actually being in your investment account.
I see this as a huge advantage because if I quickly want to buy a stock that I hadn’t specifically planned ahead to buy, I am able to place a trade before the transfer of money is complete.
3. You Can Choose to Have a Self-Directed or Manager Portfolio Account
If you want to run your investment account on your own, you can do that. If you want someone to run your investment portfolio, you can also do that.
This option can provide a great advantage to someone who wants to take their own investments decisions, called a self-directed investment account.
Alternatively, if you are not willing or able to make your own investment decisions (hey, we’re all busy people!), you can have your portfolio managed, which includes having an investment mix, reviewing it and rebalancing it regularly by a specialised investment team of analysts.
4. There Are Many Account Types Available
Bank-based platforms typically offer two types of accounts: registered and non-registered. Registered accounts can be Retirement Accounts (RRSPs, RIFs, LIFs), Education Accounts (RESPs), Tax Free Savings Accounts (TFSAs), Disability Accounts (RDSPs).
Non-registered accounts are simply Personal accounts that are for both short and long-term goals without the restrictions and contribution limits of registered accounts.
Having the option of keeping all of your investments in the same place can help you manage your investments more easily. The integrated platforms will help simplify keeping track of your contributions, as well as simplifying your tax-filing process.
Disadvantages of Bank-Based Platforms
1. There Are Often Fees on Each Transaction
For each trade (buying and selling), there is usually a fee. These fees can range depending on the institution but are generally between $6.95 and $9.95 per trade.
This is a particularly big disadvantage as I see it for two different reasons:
The first reason is that since we are supposed to invest regularly and consistently, these trade fees can really add up to be a large amount. Since you pay the trade fee on each different stock you buy and sell, you can be paying multiple fees per day if you are placing multiple trades.
The second reason is that these trade fees come out of your trade account, which means that the trade fee comes out of the total you could otherwise be investing in your TFSA. If you look at trade fees as an annual cumulative, you’ll find that it’s taking up a big chunk of your contribution limit.
2. Harder to Talk to A Portfolio Manager
Since you are dealing with humans, there is usually human interaction involved. This involves going in-person during regular business hours to talk with a portfolio manager.
This can be considered a disadvantage as it decreases accessibility both physically and mentally. To me, it’s very inconvenient to have to go somewhere, especially to take time off during my workday. I think that it’ll take me fifteen minutes each way to my bank, an hour discussion, and that’ll be an hour and a half of time I would need to make up at work. Younger generations are used to having everything at our fingertips. We like to communicate through phones, tablets and computers. We like to communicate and get answers now, like right now. Not at an appointment two weeks away when someone can schedule you in.
3. Inconsistent UX and UI
Have you tried to look at your investments through your phone, then on a computer? The platforms aren’t necessarily consistent. They also might have features available on your computer that aren’t on your phone. They aren’t always made to be pretty to look at, and they’re not designed with the user in mind. This relates to the UX (User Experience) and the (UI) User Interface, which are not typically a priority for bank-based platforms.
Inconsistency can be really irritating. We don’t always have a laptop hanging out in our back pocket, and like I mentioned in the previous point, we are the generation that wants everything readily available. We also want things to be simple enough and logical enough that we don’t need to use a tutorial to understand how to use them.
Advantages of App-Based Platforms
1. Generally Low Fees
The main advantage of online brokerages such as Wealthsimple or Questrade is that there are low or no fees on certain kinds of trades. That being said, it’s important to look at the details in each of these individual services, and which trades cost what amount exactly.
On Wealthsimple Trade, there are only fees associated to foreign investments, which is charged not as a trading fee nor commission, but as an exchange fee.
The appeal here is that there isn’t a standard fee associated to each transaction, and investing consistently in small increments tends to cost less than on a bank-based platform.
On Wealthsimple Invest and Cash, you have a portfolio that is managed based on a roboadvisor. This means that the fees are lower (they vary between 0.25% and 0.4%) than if your portfolio were managed by a human portfolio manager (usually around 2.5%).
2. Talk to Portfolio Manager on The Phone
With Wealthsimple Invest and Cash, you’re able to book time with an portfolio manager through their website, and there are appointments based on the time and day that work for you. From my experience, the appointments were available quite quickly (the next business day).
I believe that it is advantageous to be able to quickly get a portfolio manager on the phone and discuss with them as often as I want.
3. User-Friendly UI and UX
If you look at either one of the Wealthsimple apps in the app store, you’ll quickly see that the design is really nice. Once downloaded, you can easily see where to navigate to do which kind of transaction for your portfolio. Everything is simple and neat, and your overall portfolio size and growth is displayed front and centre.
This is advantageous as you don’t have to click on a million places looking for the right place to be. Everything has a purpose for being there, and the design is really made with the user in mind.
Disadvantages of App-Based Platforms
1. Lack of Diversity
A properly diversified portfolio should have a lot of different investments options. Both types of Wealthsimple accounts do not offer stocks and ETFs traded on non-North-American markets, mutual funds, preferred shares, options, bonds and many others. This greatly limits the amount of diversity that you can actually achieve in investing with diversity.
2. Lack of Integration
Since the Wealthsimples aren’t directly related to your bank, getting money in and out can be annoying. It takes at least 3 business days, which can slow down how fast you can trade or how fast you can get your money as cash.
In addition to a lack on integration with your bank, Wealthsimple Trade and Wealthsimple Invest and Cash don’t actually integrate with each other. They are essentially two standalone platforms, and you can’t easily switch money between the two platforms. So if you decide to transfer an account to the other Wealthsimple (like if you decided that you no longer want to manage your portfolio and want to put your Wealthsimple Trade TFSA to a Wealthsimple Invest and Cash TFSA) it can take many weeks for this transfer to go through.
3. Account Types
The Wealthsimple Trade and Wealthsimple Invest accounts can only be personal trade accounts, or Tax Free Savings Accounts (TFSAs) and RRSPs. There is no ability to integrate RESPs or other account types you might want to integrate.
To me this is a big disadvantage because it means that just a Wealthsimple account is not enough. You will need to have at least one other type of investment account to be able to manage all of your investments, which is rather inconvenient.
4. Delayed Quotes
You need to cross-reference the stock prices on a real-time application, as Wealthsimple Trade quotes are 15 minutes delayed. Timing can be quite important in investments, and having delayed quotes is not the best way to trade.
Typically what I will do in this situation is have a seperate application open with real-time quotes, which is quite annoying honestly.
All in all, both types of platforms have several advantages and disadvantages. You just need to figure out which of these matter the most to you, and what you can live with as drawbacks.
Don’t forget that it is possible to hold accounts on more than one platform!