Questwealth Portfolios Have Arrived and Their Fees are Much Lower Than Anyone Expected
For the better part of twenty years, Questrade, the independent Toronto-based online brokerage, has been giving the rest of the Canadian financial industry traumatic fits about ongoing excessive investment fee charges.
Growing to become this country’s largest independent online brokerage, Questrade now manages $8 billion in assets and opens a staggering 30,000 new accounts each year. And does so under two fronts: self directed investing through their discount brokerage division, Questrade Inc., and through their relatively new, and ever expanding, managed investing division through Questrade Wealth Managed Inc. We’ll be focusing on the latter of these two divisions.
Questrade recently unveiled and reintroduced their robo-advisor managed investing service, Questwealth Portfolios, and, among other things, is now sporting even more ridiculously low fees. As a matter fact, they have driven fees so low that it is now tracking with the 0.22% fee that Vanguard Canada charges for its well-regarded asset allocation ETFs unveiled in early 2018.
Related: Questrade Review
Back in 2014, Questrade Wealth Management was only among a handful of entrants into the emerging Canadian robo advisor space. And as I mentioned briefly above, their robo service, formerly known as Portfolio IQ, was rebranded and relaunched under the new trademarked name, Questwealth Portfolios. This was done to better illustrate the significant improvements to their service.
To cut straight to the chase, their management fee is 0.25% for accounts between $1,000 and $99,999. It then drops to 0.20% when investing $100,000 or more. This is dramatically lower than the fees under their former Portfolio IQ moniker, which charged 0.7% under $100,000, 0.6% between $100,000 and $249,000, 0.5% up to $500,000, 0.4% up to $1 million, and 0.35% for account holders with $1+ million. Under their previous form, the average asset-weighted fee was 0.62%. For Questwealth Portfolios this drops to 0.23%. That’s a startling 63% decrease in fees.
Although Questwealth’s low fees give off a feeling of passive index investing, these portfolios, however, are actually actively managed by LA-based sub-advisor, One Capital Management LLC. In other words, they are managed by registered portfolio managers (with over 100 customer service agents) watching the markets and then adjusting the underlying holdings as needed.
Questwealth has five portfolios on hand; varying the degree of equity risk with return expectations. The range goes from Aggressive portfolios, consisting of 100% stocks, to Conservative portfolios, which is 100% fixed-income. The remaining portfolio types fall in-between. Those types are: Income, Balanced, and Growth. Their equity holdings climb in 20% increments at each level as risk tolerance rises, while their fixed holdings lower by 20% decrements.
The portfolios’ underlying ETFs are composed of products from iShares, SPDR, Wisdom Tree, and First Trust. Because some bank-managed robo services stingily compose products using their own proprietary ETF’s (e.g., TD, and BMO), Questrade relishes on the fact that their offerings, on the other hand, are more diversified, potentially improving your long-term returns.
Now, you’re likely wondering how much of a difference equity weightings can make to your long-term goals? Based on Questrade’s past performance, the compound annual returns for their Aggressive Portfolios were 7.35% over one year and 10.98% over three years; Conservative Portfolios produced 2.16% and 2.8% , respectively, over the same periods. Those were under their higher Portfolio IQ fees. With the new, much lower, fees under the Questwealth banner, and assuming no global financial downturn is on the horizon, one can potentially expect higher realized gains.
Interestingly, Questrade now offers SRI (Socially Responsible Investing) versions of their five portfolios. Canadians had been asking for alternate, more socially responsible, investment options and so they now have the ability to invest in portfolios that align with their personal values. These SRI portfolios invest in companies that focus on environmental, social, and governance (ESG) qualities. This can include companies that hold themselves to high ethical standards and have a good track record on labour management, health and safety, anti-competitive practices, small carbon footprints, or even reduce/optimize the use of natural resources. These SRI equivalents, however, have a marginally higher fee, ranging from 0.2% on Conservative SRI to 0.35% for Aggressive SRI portfolios.
Back in 2014 when Questrade became the first robo advisory service to get regulatory approval to provide an online questionnaire to evaluate risk tolerance, it required customers to work through twenty questions. This has now been streamlined down to only ten; simplifying evaluations while becoming more user-friendly.
Questrade notes that over a 30 year investment time frame a $20,000 investment in a global neutral balanced mutual fund at 2.17% MER will be worth $107,440. By contrast, a balanced Questwealth portfolio with an MER of 0.42% (0.25% plus 0.17% MER for underlying ETFs) would see the same $20,000 grow to $182,716 over 30 years — a difference of $75,276 (+70%). You’re reading that right. You can potentially earn 70% more when you invest through Questwealth compared to an equivalent mutual fund.
As cost continues to become one of the major driving factors when making investment decisions, it’s nice that Questrade has continued their reputation of being aggressive in pushing down fees, putting enormous pressure on other financial institutions to at least try to stay competitive, making investing become more about our personal long-term goals and less about their short-term balance sheet gains.