BMO SmartFolio Review

Overall Ranking

5/5

Overview

Stability and Credibility

5/5

Account Minimum

5/5

Fees

4/5

Customer Service

5/5

Excellent Sign Up Promotion

5/5

Investment Approach

4/5

Safety

5/5

Not Cheap, but solid, stable, and reliable – Plus a GREAT Promo BMO brings its hard-won reputation for safety and reliability to the world of fintech. If cost is the most important factor for you, I’d look elsewhere; however, as the first major Canadian Bank to launch a “robo advisor”, we think BMO SmartFolio has done an admirable job. Great platform, excellent goal-tracking system, superb customer service – all wrapped up in familiarity of a trusted financial services provider. Elite Low-Cost Investing Options, Excellent Usability, Market-Leading App

Kyle Prevost

Editor's Note

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Best for:

• A trusted, stable, user-friendly reputation that is synonymous with Canadian banking.
• SmartFolio will pay the transfer fees that your bank will charge you to switch over to them.

Why “Robos” and Online Portfolio Management Services?

Over the last couple of decades, the average Canadian investor has faced a choice of two primary options when it came to managing their investment portfolio.

1) Go with a “full-service model” that included in-person meetings with a representative from the banking/investing institution and invest mainly through mutual funds.

Or

2) Tackle their own investment decisions with a DIY discount brokerage account that allows investors to purchase their own stocks and funds – but that didn’t include any advice component at all. (Side note: BMO InvestorLine Self-Directed does have another hybrid option called BMO InvestorLine Self-Directed adviceDirect that combines a self-directed brokerage with online advice but you execute the trades yourself.)

Recently a new “ hybrid option” has been making a lot of noise in the Canadian investment world. That option has come to be known as “robo advisors”.

Before we get into the nitty-gritty of the subject of our review, it’s important to note that the term robo advisor – or “robo” – was developed as a way to describe services that did not meet face-to-face with clients, instead relying on online communication such as Skype or email. When “robo-advisors’ were also combined with algorithmic portfolio rebalancing features, the term has now come to describe a wide variety of products that are significantly different from one another.

So far, only one of Canada’s major banks has been willing to throw its hat in the ring with the brash young upstarts of the robo advisor scene – and that’s the Bank of Montreal. BMO Nesbitt Burns’ product, BMO SmartFolio, is the Bank’s answer to this market demand for a balance between the traditional 1-on-1 advisor model, and the DIY discount brokerage world.

SmartFolio is careful not to label themselves as a “robo advisor” due to the fact that the portfolio options presented to clients are not automated in the same way that several of Canada’s robo advisors are – they are instead actively managed by a team of BMO Nesbitt Burns Portfolio Managers. These Managers monitor the portfolios regularly and adjust them according to market conditions.

Because BMO Global Asset Management is a leading ETF provider, it makes sense they leverage their own ETF products across their different portfolios; you’ll also see BMO ETFs in many other robo advisor portfolios due to their performance. In many other ways, the BMO SmartFolio product is similar to the robo advisor model that we explain in-depth here with similar incentives for clients such as promo codes.

BMO SmartFolio Review: Past and Present

BMO is not only Canada’s oldest bank but has historically been a first-mover on many occasions when it comes to innovative new products. For example, BMO Global Asset Management was one of the first major banks to create its own suite of ETFs, and BMO Nesbitt Burns now uses these ETFs to build their SmartFolio investment portfolios. The SmartFolio online portfolio management service proved that once again, the BMO crew was way ahead of their Canadian big bank peers when it came to launching a product to compete in a new innovative market.

Because SmartFolio can establish instant stability and trust with the Canadian market due to their parent brand’s extensive history with Canadians, many people may find it easier to take the leap into this relatively new investing hybrid between choosing their own stocks and fully relying on a financial advisor to choose mutual funds on their behalf.

BMO customers can sync their investment accounts with their BMO Online Banking summary so they can see all accounts and balances on one screen. Everything from basic chequing and saving accounts, to loans, credit, and your new SmartFolio online investment portfolio. If you like to track your money, the BMO “Manage My Finances tool” allows you to track and budget with ease across your BMO and external holdings, you can even anonymously compare your habits to other BMO customers.

Don’t forget, that your money management doesn’t need to be one size fits all. If you also want to manage some of your own money in a self-directed account, set up an RDSP with mutual funds, talk to an investment advisor, or set up an automatic savings plan, BMO Financial Group offers all these services and more. When you think of the millions of Canadians that can now enjoy seamless integration between their SmartFolio and BMO Online Banking Accounts, there is obviously a ready market for this service.

The People Behind the Portfolios

SmartFolio portfolios are managed by a team of 5 Portfolio Managers and 8 Credited Financial Analysts with over 300 years of collective experience. They focus on ETFs that provide exposure to different geographies and industries and consider trends in market performance and macroeconomic data to position each portfolio. Before they include a new ETF, it goes through rigorous reviews to see if it and its impact on the overall portfolio will match the portfolio’s objectives. They use algorithms to weigh the risk, return, and cost of the overall portfolio, with the goal of achieving the greatest return for the intended level of risk. These experts verify every position to ensure they are philosophically consistent with the portfolio’s investment objectives. The team then monitors each portfolio on a daily basis.

How It Works

If you want a super quick and easy way to get a piece of your paycheque from your chequing/savings account to a diversified investment portfolio – then look no further than SmartFolio. Here are the basic steps to opening up a SmartFolio account, and enjoying the benefits of hands-off, low-fee investing.

1. Go to the SmartFolio homepage and choose the “Open an Account " option
2. You will be asked a few straightforward questions about what your financial goals are, when you hope to meet them, and how you feel about risk. This is simply to establish what sort of investment portfolio will fit you best. If you’re a few years away from needing to withdraw funds in retirement, and the idea of the stock market makes you lose sleep at night, then you obviously want your portfolio’s asset allocation to reflect that right?
3. Determine if you want to set up recurring contributions or would rather decide to make one-off contributions to your overall portfolio.
4. Keep saving and investing on a consistent basis as you enjoy the simplicity of not having to do stock research, while at the same time loving the low fees relative to traditional Canadian investment strategies.

Safe and Free to Try

While platforms like SmartFolio and robo advisors are relatively new in Canada, it is important to understand that they are a proven model in several other markets. Many Americans have been enjoying the benefits of easy, hands-off, low-fee, investing for a decade now. Many Canadian investors will also take comfort from the fact that BMO Nesbitt Burns is a safe and well-known brand and that their SmartFolio account will be held at BMO Nesbitt Burns – a member of the Canada Investor Protection Fund (CIPF).

Creating Your Portfolio

SmartFolio seeks to easily and efficiently diversify investors’ money according to their assessed risk tolerance. They do this using exchange-transferred traded funds (ETFs). By using a portfolio of ETFs, investors can invest relatively small contributions and have that money spread out to purchase equity in thousands of companies from around the world. You can also get instant exposure to various types of bonds and other less volatile investment options.

This affordable method of diversifying your investment holdings is a massive benefit when you consider the high trading costs that small investors can incur when trying to build a portfolio on their own. Imagine trying to rebalance a portfolio of over 10 holdings every few months; with a trading fee of $5 to $10, it could cost you $200 to $400 or more each year and hours of your time.

BMO Financial Group has an in-house advantage when it comes to its portfolio creation because it can exclusively use its own award-winning ETFs created by BMO Global Asset Management. The following ETFs could be used in various weightings when creating your portfolio:

• ZAG BMO Aggregate Bond Index ETF
• ZCM BMO Mid Corporate Bond Index ETF
• ZCN BMO S&P/TSX Capped Composite Index ETF
• ZCS BMO Short Corporate Bond Index ETF
• ZEA BMO MSCI EAFE Index ETF
• ZEM BMO MSCI Emerging Markets Equity Index ETF
• ZFL BMO Long Federal Bond Index ETF
• ZGI BMO Global Infrastructure Index ETF
• ZHY BMO High Yield US Corporate Bond Hedged to CAD Index ETF
• ZLB BMO Low Volatility Canadian Equity ETF
• ZLU BMO Low Volatility US Equity ETF
• ZMP BMO Mid Provincial Bond Index ETF
• ZMU BMO Mid-Term US IG Corporate Bond Hedged to CAD Index ETF
• ZSP BMO S&P 500 INDEX ETF
• ZUE BMO S&P 500 Hedged to CAD Index ETF
• ZUQ BMO MSCI USA High Quality Index ETF HIGH QUALITY INDEX CAD UNITS ETF

BMO SmartFolio Review: How much does it cost?

BMO SmartFolio charges an advisory fee on each account opened (see below for account options). There is a $1,000 minimum threshold when opening a SmartFolio account and the .70% of the advisory fee described below will apply.

The advisory fees are charged as a tiered average of the overall size of your portfolio. In other words, the more you invest with SmartFolio, the cheaper it gets. On the chart below, you will see that investors will pay an advisory fee of .70% annually on their first $100,000 invested, .60% annually on their next $150,000, and so on.

A few quick notes about the SmartFolio fee structure:

• Accounts can be grouped by household to benefit from lower pricing at higher asset balances.
• Fees are subject to change (60 days’ notice for any new or amended fee).
• There are absolutely no commissions on the trades made by portfolio managers.

It is also important to note that these advisory fees do not take into account the Management Expense Ratio (MER) of the underlying ETFs that you will be invested in. BMO SmartFolio reports that, “The MER of the ETFs held within your portfolio are anticipated to be a weighted average of 0.20% to 0.35% of the value of your SmartFolio account.”

Types of SmartFolio Accounts Available

BMO SmartFolio currently offers investors the choice of the following account types:

• Tax-Free Savings Account (TFSA)
• Registered Retirement Savings Plans (RRSP)
• Spousal Registered Retirement Savings Plans (RRSP)
• Registered Retirement Income Fund (RRIF)
• Spousal Registered Retirement Income Fund (RRIF)
• Registered Education Savings Plans (RESP)
• Investment Accounts (Non-registered investment account)
• Joint Investment Accounts

How Does SmartFolio look?

As part of my BMO SmartFolio review, I’ve gotten to see a beta of their revamped online application, which is launching soon. You can see below that BMO Nesbitt Burns has brought the expertise of a large Canadian bank to the aesthetics and usability of the SmartFolio platform. The screenshots below illustrate what you will see when you log in to your SmartFolio account. Note the ease with which you can quickly go from a broader overall look of your portfolio, to a more detailed view of your specific holdings and transactions on any device.

You can have multiple SmartFolio accounts (like your TFSA, RESP and RRSP) and set each one up with a different goal in mind such as saving for a house, an education fund, or your retirement. As you open your account with a specific goal in mind, it’ll influence your objectives (like how much risk you want to take on) and you could wind up with a different Model Portfolio for each account.

My favourite SmartFolio feature is the intuitive goal-tracking system that allows you to instantly track your progress on your goal, you can also play with the assumptions behind your goal like your return rate or frequency of contributions and see how that impacts your progress.

Opening Your BMO SmartFolio Account

BMO SmartFolio’s platform offers much of the same value proposition that Canada’s robo advisors are based on, along with the non-robo feature of actively-managed portfolios.

By combining the familiarity of a major Canadian bank with the cost-conscious nature typical of robo advisor options, BMO Nesbitt Burns has produced a very competitive final product. While not the cheapest of the online investing options that have recently entered the Canadian marketplace, the folks behind SmartFolio believe that their slightly higher fees are justified by the value provided by the active management strategies and elite customer service.

SmartFolio is an excellent alternative to relatively expensive mutual fund-based options, and the sometimes intimidating DIY discount brokerage route. It is a great offering to compare against Canada’s robo advisor platforms and offers you the safety and confidence in your investments that only a big brand in the Canadian market can provide.

Remember, before investing any of your money, BMO Nesbitt Burns will have you fill out an online questionnaire to identify your risk tolerance and investment objectives.

SmartFolio Advisors will be available to answer questions at any step in the process via email at Smart.Folio@bmo.com or by phone at 1-844-895-3721. Finally, you can take advantage of the online chat option by going to www.bmo.com/SmartFolio.

Pros & Cons

Interview With SmartFolio

1) Can you explain in layperson terms what the difference is between the BMO SmartFolio platform and that of a robo advisor?

Well to start, robo-advisor is a term that was popularized first in the United States to reflect a new category of Investment solution providers that emerged to provide online or digital financial advice with moderate to minimal human intervention.

The first US robo-advisors relied heavily upon mathematical rules or algorithms to manage their Clients’ portfolios, hence the perception that their investments were managed by “robots”.

In the 10 or so years since the launch of the first robo-advisors, the landscape has evolved considerably. Here in Canada, it’s less about “robots” and more about offering investors an online or digital investment option to reflect shifting investor preferences towards digital experiences.

SmartFolio is designed for people in all stages of life that want to invest online, without feeling they’re investing alone.

SmartFolio Investment decisions are made by real people who are experts in portfolio management. We also have real advisors that connect with our investors by phone, so there’s actually a very heavy “human” element to SmartFolio which is why we prefer the term “digital-advice” rather than robo-advice when we talk about SmartFolio.

2) How do you determine which model ETF portfolio is the right fit for me?

We ask you a few questions that shed light on your investment philosophy – everyone has one even if they don’t consciously realize it. We ask questions that appeal to your emotions as they relate to your finances to get a representation of your risk tolerance and objectives. Combining this information with your time horizon gives us enough information to recommend a suitable portfolio for you. If at any point you think a different portfolio is more suitable or you change your investment goal, a SmartFolio Advisor is available to assist.

3) Run me through how money would get from my paycheque to my investment portfolio. Is it a lot of work?

Assuming you bank with BMO, with a few simple clicks in your SmartFolio account you can choose the amount, frequency, and which account you would like to transfer from and you’re all set for a one-time or a recurring money transfer.

If you bank elsewhere, it’s as easy as making a one-time or recurring bill payment. Simply find BMO Nesbitt Burns under payees, input your amount and you’re all set. If you prefer the old-fashioned way, we have a pdf form you can fill out, print and drop off at any BMO branch (or mail to us) with a void cheque, and we’ll take care of the rest.

4) What is an ETF, and why does BMO SmartFolio use these investment vehicles?

An ETF is an “Exchange Traded Fund”. It’s called a ‘fund” because it contains many investments inside, (can be stocks, bonds etc.). And it is ‘exchange-traded” because it can be bought on a stock exchange.

Imagine a basket with hundreds of stocks inside. Buying the basket would be a lot cheaper, and easier to manage versus buying and managing all of those individual stocks.

Some of the more traditional forms of investing involve buying and managing hundreds, if not thousands of individual securities. This drives high trading costs and the need for teams of experts to manage all those investments – which adds even more costs that ultimately flow down to investors to pay.

SmartFolio uses ETFs within its portfolios to get broad diversification, (hundreds of securities can be acquired by purchasing a single ETF), and this reduces the complexity and costs associated with investing. As a result, we’re able to pass those cost savings on to investors in the form of lower overall fees.

Sponsored by BMO Nesbitt Burns. BMO SmartFolio is a product of BMO Nesbitt Burns. This interview was conducted in March 2018.