BMO is first of Canada's big banks in 'robo-adviser' business with 'SmartFolio'

The Bank of Montreal Financial Group building in downtown Toronto is shown on Tuesday, January 28, 2014. (THE CANADIAN PRESS/Nathan Denette)

TORONTO -- The Bank of Montreal has launched an online portfolio manager, making it the first of the big five Canadian banks to wade into the "robo-adviser" business.

After a trial run that started on Dec. 7, the service -- dubbed SmartFolio -- is available to all investors starting Monday.

While other large Canadian banks have hinted they're considering a foray into online investment advice, BMO is the first of the big five banks to launch such a service, despite electing to build the product in-house rather than partnering with a financial technology firm as some of the other banks are expected to do.

The launch of SmartFolio responds to concerns that banks risk losing market share if young, tech-savvy millennials ditch traditional banking in favour of fintech startups that offer low-cost, online investment management services.

Joanna Rotenberg, head of personal wealth management at BMO, says the bank's brand gives it an advantage over upstarts providing similar services.

"We've got the reliability associated with a 200-year-old banking institution, and at the same time we've got a lot of the things that some other players in the market are offering, which is simple and digital tools," Rotenberg said.

"So we're really bringing together the best of both worlds."

Typically, clients without enough assets to warrant hiring a full-service investment adviser have had few options besides mutual funds. Robo-advisers such as WealthSimple, NestWealth and WealthBar aim to fill that gap in the marketplace by providing a cost-effective investment option for such clients.

Although anyone can use SmartFolio, BMO says it designed the service with millennials in mind given they prefer to do things online and may have limited investment knowledge.

"We felt it was an opportunity to really be able to tap into that segment that's on the move and wants to be able to do whatever they want to do from wherever they are," Rotenberg said.

In order to appeal to its target demographic, the bank says it used clear, jargon-free language and responsive website design that provides the same experience for users regardless of whether it's accessed through a computer, a tablet or a smartphone.

Clients looking to sign up for the service start by filling out an online questionnaire that gathers information about their investment goals, their time horizon and their tolerance for risk.

After answering a series of questions about their net worth, annual income and how much loss in their portfolio they can bear -- including graphs that help illustrate volatility and the relationship between risk and reward -- the client is enrolled in one of five model portfolios made up of BMO's own exchange-traded funds, or ETFs.

Customer support is provided via live chat, email and telephone, so a visit to the branch is not required.

The minimum account size for SmartFolio is $5,000 and fees are charged as a percentage of assets under management, starting at 0.7 per cent for the first $100,000 and gradually moving lower for amounts above that.

For a $5,000 account, the annual fee comes out to $60, according to an online calculator featured on the SmartFolio site.

Although BMO is touting the service as low cost, its fees are somewhat higher than those offered by some of the upstarts.

For example, Wealth Simple and WealthBar both offer free accounts for those with less than $5,000 to invest. At WealthSimple, clients whose accounts are between $5,000 and $250,000 pay 0.5 per cent, while WealthBar charges 0.6 per cent of assets under management for accounts between $5,000 and $150,000.

The fees charged by online portfolio managers typically don't include the charges levied by ETF providers.

Although "robo-adviser" has caught on as a catchy phrase to describe online portfolio management, most providers of the service -- including BMO -- note that it's a bit of a misnomer.

Clients may be able to access the service without a face-to-face meeting with another human being, but the portfolios are still managed by professional money managers.

"We're very much human-managed," Rotenberg says. "You think of Hal from 2001 Space Odyssey, but really there is no Hal."