What Happens When a Robo-Advisor Shuts Down?

November 18th, 2019 by Potato

Back when robo-advisors were new — who are we kidding, for financial services they’re still new — people had lots of concerns about the new services. Chief amongst those concerns were whether investors’ money would be safe if/when one of the firms went under. We predicted that this would be a risk of inconvenience rather than a risk of losing real money: because of the custodian broker relationship, you would still have your assets somewhere (though those have their own risks), but the firm would no longer manage them. But if a firm went under, you wouldn’t lose your assets with them.

What happens if a firm goes out of business? Then the underlying investments — which are held at a “custodian” — can be transferred to another broker on your behalf. You can ask each firm about the details of their custodian arrangement, but as far as we were able to determine, every firm listed holds your investments at a custodian that is a member of IIROC.

So, aside from the usual risk of the investments themselves and completely unforseen events, investing with the relatively new robo-advisors should be no more risky than traditional means.

Well, we have our first robo-advisor failure! Planswell suddenly shut down operations this month, and we’re seeing those predictions play out in practice. Investors’ assets are still held at the custodian, and other than the inconvenience of having to move them and pay a transfer fee, nobody’s assets went up with the firm — the custodian brokerage relationship is working as predicted.

Planswell customers now have to figure out what to do with their assets. One choice is of course to learn to DIY and move to Questrade for ETFs or TD for TD e-series. Otherwise they can move to another robo-advisor if that’s what worked for them and still the right choice. Planswell is suggesting a few that use the same custodian (e.g. Justwealth and Wealthbar), which saves on transfer fees. Note though that if you ask and have enough assets to move, many firms will cover your transfer-out fees.

As for prognosticating, I’ve been surprised so firms have lasted as long as they have. I keep expecting a wave of consolidation — not necessarily abrupt closures like Planswell, but I’m surprised someone (the big banks and Wealthsimple are obvious acquirers) hasn’t been buying up the other firms. Dale has a post up on the slow growth of the robos which may add to the issues and stress in the future.

Taking Leave

November 2nd, 2019 by Potato

This is a surprisingly hard post to write (I’m also clearly out of practice on the blogging front), so let’s resort to the Q&A format:

Hey Potato, what’s up?

In The Big C 2: Revenge of the C I let you know that my dad’s cancer is back. Now I’m going to take some time off work (planning for 1 year) to spend time with him while I can, and also to take care of Blueberry and give her other grandparents a bit of a break. Today was my last day at work!

This is mostly a personal finance blog — how did you swing a year off work?

I have money saved, so I’m not worried about feeding myself or paying the rent during the year itself. It will mean pushing off retirement by a few years for one year being out of the workforce (lost compounding, spending more than saving, etc., will mean roughly pushing things back by ~3-4 years for taking a year now) but I actually haven’t done a huge, detailed projection. Indeed, I made the decision without really doing much of anything in the way of formal planning — it just felt right (after several weeks of hemming and hawing and sleeping on it), and I knew I could swing it, which I suppose is the point of all the previous planning and saving and investing. In the end, I wrote up a little one-page summary of the plan and implications, and that was that. My emergency fund will cover a year off, especially if I can pick up a few freelance gigs along the way.

So are you available for projects? Can I hire you?

Possibly! I know it’s not going to take 24-7 to take care of my family, so I will be looking to do some work, but only part-time (not being able to swing full-time with a commute is the reason I had to step back from the day job in the first place). However, I don’t know how cool the ol’ HR department will be cutting a cheque to an independent contractor who’s on leave, which means no grant-writing or other consulting for co-workers. Personal finance projects/writing/doing DIY investment workshops/lunch’n’learns, editing (it’s been a while since I’ve had a novel to edit, NaNoWriMo authors…), or science writing for others should be fine. Hit me up here if you’re interested.

What else will you do with your time?

Some have suggested using that time to learn something new or get a certification — pick up my CFP (which has a practical requirement, so it would require some commitment to switching jobs or picking up a more robust side gig), or get a MD or RN ’cause I spend so much of my time taking care of sick people anyway. I am getting dangerously close to having spent more time in the real world than grad school, so maybe it’s time to go back to learning and test-writing just to make sure I’ll never have a normal work-study balance in my lifetime.

I might also use my non-caregiving time to write another PF book — I’ve had an idea poking around for over a year now, but I’m getting more negative on the idea as I go along, and may have to just let it die. But hey, it is NaNoWriMo, so maybe some fiction…

However, other than a few random thoughts I absolutely have no plan. I figured all that could wait until I was actually off work to figure it out.

Isn’t it scary just leaving the workforce for a while with no plan of what you’ll do and no income stream coming in?

Well it is now. But that’s also why I managed to actually make a decision with no real analysis/spreadsheets/pro-con lists/waffling blog posts — I was just too burned out to go through my usual over-thinking routine. So at the moment I’m too tired to be scared.

Never Weight — Q3-19 Update

October 1st, 2019 by Potato

Another quarter where I put back on ~3 lbs. The actual experience was even more up-and-down: I spent a lot of time visiting hospitals and stressed so even holding the line was hard. I went on to vacation to PEI, and decided not to worry or track, and managed to pack on almost 4 lbs in 2 weeks on my ice cream diet. Then started getting back on track for a week or two, only to be hit with a big deadline and a week of late nights and a few all-nighters, and put 2 lbs back on again, then started losing again. So crept up a tiny bit slowly, shot up 6 lbs, then lost ~4. So I did the opposite of my goal from last quarter.

I also discovered a really dumb source of the creep part of that phase: I was aiming for balance rather than a deficit. I was sticking to my habit of chewing gum as a replacement for my habit of snacking, but not paying attention to the gum. There was a big sale on Juicy Fruit, so I stocked up. Like, 80 packs over 4 trips to the store stocked up. Aaaand as it turns out, Juicy Fruit is not a sugar-free gum. I was getting ~150-200 calories/day from my gum chewing, which works out to be about the unexplained creep I was finding.

Just a few weeks ago, FitBit decided they didn’t want my business and blew up their app. It started crashing, and taking minutes to log food, if it even would. I had to reset my phone multiple times per day, and they were releasing a new bugfix version every day that just wouldn’t solve the issue — and added a big battery drain and a lost connection to my tracker to boot. Despite many direct bug reports, and many people in various forums complaining about how the latest version was just plain broken, FitBit never seemed to think to just roll the app back until they could fix whatever they were trying to do in the new version. I found instructions online for how to roll back to a previous version (IIRC 5.3 seemed stable if you’re having the same issues), but rather than mess around with that, I ended up switching to Samsung Health.

It has the same core functionality, with a few pros and cons over FitBit. It’s fast and responsive — FitBit was never that fast to search, and often had a bug where it would revert whatever you put in for servings 3 or 4 times before finally taking it. However, Samsung is very inflexible about how you tell it how much you’re eating: servings or bust. FitBit made it really easy to measure your intake: cups or grams, servings or slices or fractions of a whole cake/pizza with a little drop-down. Samsung also puts your calories burned in a separate screen from your calories consumed, making it a bit hard to see how you’re doing on your budget — I really liked how FitBit had them on one screen, with your desired deficit goal included so you could see right away if you on track for the day or not (and with the past week’s data right there too, not another screen away).

My Dad got me an early birthday present in the form of a Samsung smart watch (Active 2 40mm if you’re curious) to replace my FitBit for activity tracking. I like it, though for such a fancy piece of kit it’s kind of ridiculous to me that you can’t customize some things (or they’re too hard for me to figure out). There’s a huge variety of watch faces, and you can choose a variety of data points to display (from heart rate and steps to weather, other time zones, or alerts from apps) in various places in the watch face. You can fine-tune the colours and the background. But I can’t choose 12 or 24-hour clocks, or whether to hide the leading 0 for single-digit hours. The 12/24hr thing might be secretly linked to how the host phone displays time, but the leading 0 definitely isn’t. And I can’t choose to make the font size of the seconds smaller than the hours:minutes unless that happens to be designed into a particular clock face.

Anyway, fall is here, which will bring with it leaf-raking, curling, and only two more weeks of grant season, so I know this next quarter is going to go better!

Of course, fall also brings Thanksgiving. And Birthday. Hamerican Thanskgiving. Potatomas.

Halloween.

November Halloween candy sales.

And I have a house full of Girl Guide cookies that I really hope my little marketing whiz will sell to someone who is not me. But until then, there they are…

Gulp. I should probably up the motivation with some kind of commitment mechanism. Let me sleep on that.

Investing is Not the Biggest GHG in Your Life

September 13th, 2019 by Potato

In the most recent Rational Reminder podcast, Tim Nash mentioned an infogrpahic on CoPower’s page that makes the bold claim that your investment portfolio could be releasing much more greenhouse gas (GHG) emissions than any of your daily life activities, trying to make the case that sustainable investing is an important step.

The little factoid on investing being more carbon intensive than consumption choices didn’t sound right to me, so I followed the link to the CoPower infographic. And while I don’t have a hard mathematical proof, the thing doesn’t pass the sniff test for me.

They say that relatively modest investments (~$200k) lead to releasing more GHG every year than the activities of daily life. But many of those companies provide goods or services that consumers use, so my first skeptical thought was that they’re double-counting (if you count the total emissions of your investment in Maple Leaf foods and Suncor right up through the goods they deliver, then you shouldn’t also count your consumption of meat and gasoline personally), which isn’t a fair way to look at it. Who is more responsible for causing the emission to be generated, the investor or the consumer? There is a tiny bit of chicken-and-egg to it, but really, the investors do not stick around long after the consumers leave!

I tried following the links back to MSCI’s methodology to check, but that basically just says they take the direct and indirect emissions and weight it to the index. It does not state in the methods one way or the other whether they would be double-counting the GHG that would be attributed to the consumer in personal life choice calculators (or since they’re including indirect emissions for each company, if they’re double-counting emissions across companies — e.g. counting the indirect emissions of one company from power use, then also counting those emissions as direct emissions from the power company).

But you can get the fact sheets of indexes from S&P and do a bit of spot checking, as they report the carbon intensity, e.g. 208 T per $1M invested in the TSX Composite. With a market cap of ~$2.5T, that means Canada’s publicly traded companies are responsible for 524 MT of the country’s total 716 MT of emissions. That would be a “smoking gun” of double-counting if it were more than the national total, but 73% is still high enough that I’m confident this is not saying what CoPower is making it out to say. After all, that figure is not counting government emissions, foreign owned company activities, not-for-profits, private companies, or personal consumption. Yes, some of those TSX-owned emissions would be in other countries and not be a part of the Canadian total, but just looking at that I think it’s pretty clear that this is not an apples-to-apples comparison.

The figures on carbon intensity of investing are likely useful to compare investments relative to one another (e.g. if you want to invest in a low-carbon way), but I think CoPower is making a mistake directly comparing those figures to personal consumption choices — the figure of ~19 T of GHG per capita (or the 23 T for a couple that has already taken steps to reduce their emissions used as an example in the article) is already including much of the emissions of the companies you would invest in (otherwise, there’s only ~5.2 T/capita left to allocate after the corporate sector).

So no, investing $500k is not causing you to emit more than twice as many GHG as the rest of your life’s activities combined. By all means, make sustainability and environmentalism a part of your portfolio selection criteria if it turns your crank, but changing your consumption patterns will then change that of your investments.

A good point from the show to reiterate though is that collective effort is needed — but I think personal consumption choices still have more of an effect than investment decisions.

That said, it is possible to drive top-down change through companies you invest in in ways if your collective ownership can get control of boards. That can help create change that isn’t easily driven by market forces or where carbon intensity isn’t a big factor in purchase decisions. For example, investing in Toyota over Daimler/Mercedes may not help push toward reducing vehicle fuel consumption, at least not as much as choosing a Prius for your next car (esp. when that consumer preference shift is done collectively). However, you likely aren’t picking your healthcare products and services or electronics and software based on their carbon footprint — but you can pressure boards of those companies to make moves in that direction.

At the end of the day, while I can see why people would choose to try to use their investments as a tool (and for people who feel strongly about it, they can check out Tim’s stuff), my opinion is to keep it simple, invest broadly, keep fees (and effort) low, and then use your time and dollar savings to make direct changes that you want to see in the world.

TD E-Series Changes

August 28th, 2019 by Potato

You may have received a proxy form in the mail if you’re a TD e-series holder, asking you to for a change in the investment objective of the funds. In case you haven’t seen it, the information circular is on SEDAR.

The main points are that the e-series funds will change the index provider to Solactive, and instead of holding the underlying stocks/bonds themselves (and derivatives), will be able to hold the corresponding ETF. This will come with a 5 bp reduction in management fees.

To break that down a bit, fund companies have to pay a licensing fee to the index creators when they have a fund that tracks that index — they can’t just free-load like I would if I wanted to re-create the S&P500 with an insane number of trades myself. Solactive is an index provider that’s reportedly cheaper to use than S&P/MSCI/FTSE, so the move helps TD save some money. Moreover, it’s the index provider that TD’s ETFs use, which lets the e-series funds start to use those to share some of the work of fund management.

I don’t believe their indexes are different enough from the ones we’re familiar with to worry about it or to have substantially different expected returns. Unfortunately, their site isn’t quite as handy as the other index providers (or Vanguard/iShares) for figuring out what’s in there. Fortunately, TD’s ETF pages list that, for example here’s the Canadian equity index page. It has slightly more holdings (270 vs 239 in the S&P TSX Composite), and some minor differences in sector weightings (e.g. 5.9% vs 7.6% in Technology, though most are closer than that). The US one looks very similar to the S&P500 (even having 500 holdings), as does the new international one to the MSCI EAFE.

The changes are subject to a vote by unitholders, but I don’t foresee that failing.

Remember that MER is backward-looking, so it will take a full year before the new lower management fee is reflected in the MER listed in the fund facts (a year after this is implemented, which may be a few months yet — the vote is late September).