BMO SmartFolio Review 2024 - Pros, Cons & Fees (2024)

I’m a huge fan of robo advisors, and BMO’s robo advisor: SmartFolio is no exception to that.

If you’re not familiar with robo advisors the basic idea is that you will determine your overall risk tolerance, and that BMO will set you up with an automated portfolio using big broad index funds that spread your investment risk out over thousands of companies and bonds.

For example, the average Canadian 45-year old investor might fit pretty well into a portfolio that is 60% equities and 40% bonds.BMO SmartFolio would let his investor quickly and easily send a chunk of their paycheque each month, and have it efficiently split up between Canada’s 60 biggest companies (a TSX 60 index fund), the 500 biggest companies in the USA (S&P 500 index fund), as well as hundreds of companies throughout the rest of the world.

Then 40% of that monthly contribution would get split up into bonds generated by the world’s biggest companies and countries. As the value of these assets grows or shrinks, SmartFolio will automatically sell some of what is doing best, and buy some of what is doing worst. (aka: “Buy low, sell high”).

What is BMO SmartFolio?

BMO SmartFolio is a“hands-­free” digital portfolio managementservice. Youcan open an account with as little as $1,000and based on yourrisk tolerance, youare aligned to the model portfolio that best suits yourinvesting needs.

How it Works

First youcomplete an investor profile by answering a series of personal and investment questions (10 multiple choice questions) and then you will be presented with a recommended model ETF portfolio (this is free). Each model ETF portfolio has an asset allocation of equity and/or fixed income that aligns to yourinvestment objectives. There are 5 model ETF Portfolios (ranging from the least risky to the most risky, i.e. having the smallest percentage in equities to the largest).

• BMO SmartFolio Capital Preservation Portfolio;
• BMO SmartFolio Income Portfolio;
• BMO SmartFolio Balanced Portfolio;
• BMO SmartFolio Long Term Growth Portfolio; and,
• BMO SmartFolio Equity Growth Portfolio.

BMOexpert portfolio managers monitor the model ETF portfolios every day. Where and when required, they rebalance the model ETF portfolio to keep the client on track with their investment objectives.

My Personal Investment Profile

To provide a more comprehensive review, I signed up for BMO SmartFolio to get a sample portfolio for my risk profile. I completed the 10 questions which started with some questions about income, investment knowledge and investment timeline. The survey then finished with a few questions on the amount of volatility you can tolerate. Based on my information, SmartFolio determined that I should have an Equity Growth Portfolio consisting of 90% equities and 10% fixed income. When the actual portfolio came out, it was actually 95.99% equities and 4.01% fixed income. Here are the positions that they recommended for me:

Equities 95.99%

• BMO S&P/TSX Capped Composite Index ETF (ZCN) 29.82% (MER: 0.05%)
• BMO MSCI EAFE Index ETF (ZEA)10.25% (MER: 0.20%)
• BMO Emerging Markets Equity Index ETF (ZEM)8.11% (MER: 0.25%)
• BMO MSCI USA HIGH QUALITY INDEX CAD UNITS ETF (ZUQ)10.19%(MER: 0.30%)
• BMO LOW VOLATILITY CANADIAN EQUITY ETF (ZLB)19.49%(MER: 0.35%)
• BMO Global Infrastructure Index ETF (ZGI)7.87%(MER: 0.55%)
• BMO S&P 500 Index ETF (ZSP)10.26%(MER: 0.10%)

Fixed income 4.01%

• BMO Mid-Term US IG Corp Bond Hedged Index ETF (ZMU)4.01% (MER: 0.25%)

While I’m comfortable with the equity exposure and someof the chosen ETFs, it’s still a bit too complex. For my real indexed portfolios, I basically hold four positions, Canadian equity, US equity,International equity, and a bond index. So if I were to put together a portfolio of this nature, I would keep: ZCN, ZEA, ZEM, ZSP, ZMU and dump the rest. This would also reduce the overallMER as well.

BMO SmartFolio Fees

This is the big question that always comes to mind when evaluating services like BMO SmartFolio. Let’s take a look at what they charge for their service.

• Minimum account size: $1,000;
• First $100,000: 0.70%;
• Next $150,000: 0.60%
• Next $250,000: 0.50%
• $500,000 and greater: $0.40%

So what does this all mean in dollars and cents? Let’s look at some portfolio size examples:

Note that the annual advisory fee does not include the management expense ratio that ETFs charge. Although most BMO ETFs are reasonably priced, their website states that the anticipated weighted average MER of a portfolio will be between 0.20% and 0.35%.

BMO SmartFolio Performance

So, how does the BMO SmartFolio perform? This is a valid question many ask when deciding whether or not to invest.

When it comes to passive investing, which is the type of investment you are making with a financial product like SmartFolio, past performance is not the best indicator of what your future returns might be.

When you take the passive investment route, which usually means you are investing in ETFs or mutual funds, looking at past performance can be misleading. The market can be volatile, and just because a fund did well in the past when the market was performing at its peak, does not mean we can count on it staying the same in the future.

In fact, research has found that stock pickers for some funds are quite often wrong when choosing what they believe may be star performers. This is another reason to carefully consider the type of ETF you invest in.

If you take the active investing route, which is where you commit to buying and selling securities on a regular basis, then past performance could be a bit more important for you to consider.

However, keep in mind that the same rule applies, past performance does not guarantee future outcomes.

That being said, you still might be curious about how SmartFolio’s ETFs have performed over the years.

SmartFolio’s Equity Growth Portfolio, since inception, has performed fairly well since its inception in 2016. This portfolio allocates 93% of its assets to equities and 5.5% to fixed income securities.

If you are an investor with a long time horizon, this might be a good option as it’s a riskier option considering that it’s heavily comprised of stocks.

However, if you have a shorter time horizon for your investments, then you will likely consider a portfolio like BMO SmartFolio’s Balanced Portfolio option. This option has an asset allocation of 46.5% equities and 51.9% fixed-income assets.

While both portfolios have given investors a decent return since their inception, again, it does not mean this performance will continue to increase indefinitely in this way. It just might give you peace of mind to know that at least it has been going up and not down!

The Benefits

Here are some of the benefits of BMO SmartFolio:

• Youhave access to ­constructed portfolios comprised of BMO’s reasonably priced ETFs based on your own risk profile;
• Portfolios managed by BMO experts and effortless investing on your part;
• Relatively affordable compared to mainstreamactive management;
• Active monitoring and rebalancing; and,
• Full transparency into holdings, performance and transaction history;

Downsides

• Clients are forced to use BMO ETFs.I’m not saying that it’s a deal breaker as most have reasonable MERs, but it would be nice to have some choice.
• Costs overall are higher than Wealthsimple’s.
• User interface is not as advanced as Wealthsimple’s.
• Doesn’t offer the equivalent basket of perks for high-net-worth investors that Wealthsimple does.

Final Thoughts

While BMO SmartFolio certainly fares well when compared to some of the other Canadian Big Bank’s robo advisor services, it’s not enough to call it the best robo advisor in Canada.

Sure, if you are a current BMO customer and feel safer with a big bank, the higher management fee might be worth it to you. However, a robo advisor service like Wealthsimple will save you .20% on management fees, but is still regulated like the Big Banks and partners with other banks to offer CDIC insurance.

Another thing to consider is how much you value being able to choose your robo advisor portfolio’s ETFs. If you do end up with SmartFolio, you will also end up with BMO only ETFs. For those that want extra choice in this area, you may find yourself disappointed.

BMO SmartFolio is a decent robo advisor service, but it is not the best. Wealthsimple outshines BMO’s robo advisor services in a number of ways, not only in cost and flexibility. Check out the full Wealthsimple review to find out more about why it’s my top pick for best robo advisor in Canada.