Last week, BMO launched its new service SmartFolio. It’s “a digital portfolio management service”, the bank’s news announcement says. I tried its online registration process, read its online documents, examined its model portfolios, talked to a service representative over the phone. Here are some brief comments:
1, BMO’s spirit of innovation in the wealth management field is impressive and respectable. For example, in the discount brokerage battlefiled, it launched “AdiviceDirect” service several years ago. It provides stock/fund recommendations and portfolio construction/rebalencing suggestions to self-direct trading account holders, charges fees by 0.5-1.0% of the portfolio assets. In 2014, I tried this services for 6 months. No matter the successfulness of AdiviceDirect, the attempt itself is absolutely meaningful and respectable.
another good example is the ETF products. By the end of 2015, BMO accounts for 27.1% AUM in the ETF market (vs. BlackRock’s 52.4%), yet 3 years ago it had only 16.4% (vs. BlackRock’s 73.8%). Comparing the two charts below, we can see the Canadian ETF markets are getting more crowded, but BMO still gains market share substantially.
Canadian ETF Market by the end of 2015
Canaidian ETF Market by the end of 2012
Direct source: Canadian ETF Association Website, http://www.cetfa.ca
2, BMO SmartFolio can be regarded as a kind of compact/simplified discretionary portfolio management service. Many news reports linked SmartFolio to robo-advisors such as WealthFront, Betterman or WealthSimple. Actually, there are very different. Robo-advisor service are strictly rule based, while SmartFolio is “actively managed by a team of BMO professionals”. Collectively, the 12 expert team has over 165 years of experience (quoted from its website). We can regareded the SmartFolio as a fully discretionary account which use in-house ETFs as components (rather than pooled funds or individual securities). In the below I creat a simple chart to position SmartFolio in the spectrum of different services from totally DIY to fully discretionary:
3, Its fee policy is not competitive. But this service could be very good substitute to mutual fund portfolios. BMO SmartFolio is not cheap at all. It charges annual management fee of 0.7% for the first $100,000, on top of that, clients shall also pay the average 0.3% MER of the ETFs in their portfolio. In total it’s about 1%. This doesn’t make sense to high value clients, as most of them they need face-to-face interactions. This doesn’t make sense to fee-sensitive couch potato DIYers as they can build their portfolio with much lower cost and much more variety/flexibility. I don’t know BMO’s real stragety and expectation of SmartFolio, but considering the context of CRM II in Canada and consumers awareness of mutual fund fees, I think it is a very good strategy to convert current mutual fund customers into SmartFolio gradually, targeting the mass affluent market.
4, The portfolios are Canada focused. The SmartFolio has 5 model portfolios which covered the whole spectrum from very conservative to growth driven. I tried the online questionare and reviewed 3 of them and found they weighted relatively high in Canada. In the Capital Preservation portfolio (10% equity/90 bonds), Canada bonds account for 69.7%. In the balanced portfolio (50/50), 62.6% is invested in Canada equity and bonds. In the equity growth portfolio (90/10), 49.31% is Canadian equity.
5, SmartFolio still has a lot of potential to evolve. The SmartFolio is still in its preliminary stage so unavoidably it has some limitations. Here are some by my perception: (1) It consists of only 2 asset classes, equity and bonds. Currently there is now way if client wants to add REITs, commodity, or other alternative components into their portfolio. (2) It only uses BMO’s in house ETFs. (3) It doesn’t support U.S. funds.
Among the big 5 banks in Canada, only BMO and RBC has their own ETFs. BMO is the only one which provide this kind of ETF-only portfolio services up to now. But I belive all the other banks are paying close attention to the market trend closely. RBC is catching up in the ETF issues very quickly, yesterday it launched 4 more new ETFs which make its ETF lineup has 24 funds. The rest 3 banks may consider purchase a established robo-advisor in the market by my guess.