Bank of Montreal (BMO) Launches SmartFolio and Enters Robo-Advisory

Bank of Montreal (BMO) is the latest major financial firm to launch robo-advisory, joining Charles Schwab, Vanguard and Fidelity.

After testing the service last month, the Bank of Montreal (BMO) has launched SmartFolio as they enter the robo-advisory industry in Canada. The SmartFolio solution is part of BMO Nesbitt Burns, the bank’s wealth management and financial advisory unit.

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Entering the market, BMO becomes the first major bank in Canada to launch robo-advisory. After being limited to financial startups around the world such as Betterment and Wealthfront in the US, Nutmeg in the UK and Wealthsimple in Canada, robo-advisory has caught the attention of more established asset management firms. Among them include asset management giants, Charles Schwab, Fidelity and Vanguard that have creating robo products for their customers.

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Using automated services for creating investment portfolios and charging lower fees than human based advisors, robo-advisory has gained popularity among younger investors. In addition, with many firms having roots in the technology sector and Silicon Valley, it has appealed to a growing group of technology firms that offer robo-advisory investments as part of their retirement funds.

Although there is an element of cannibalization by launching SmartFolio as fees collected are expected to be well below those of actively managed portfolios, the product provides certain benefits to BMO. First, as awareness for robo-advisory products grows, BMO is planning to be well positioned to take advantage of this trend, and to take advantage of having a large customer base already in place to market to.

Secondly, to lower total expenses, robo-advisors invest customer funds in portfolios composed by low cost ETFs. Unlike other robo-advisors that invest in third-party products, BMO operates its own ETF business. As such, BMO would able to earn on robo-advisory funds that flow into their ETFs. Using this structure, Charles Schwab was able to launch their robo product, Schwab Intelligent Portfolios, with no portfolio fees being charged. How SmartFolio invests is yet to be disclosed, but using their own ETFs is an option for BMO.

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