Choosing between trading and managed accounts

Overview

Many investors have a common question: Should I pick my own stocks and ETFs, or should I put my money in a managed account? Or, should I do both? Each approach comes with different considerations.

Trading accounts

Managing an active stock and/or ETF portfolio can take up a lot of time. You should always research each security you'd like to add to your portfolio and make sure it's a good fit for your goals. For a well-diversified stock portfolio, this can take a lot of work.

In addition to selecting your investments by hand, you'll also need to monitor your account on an ongoing basis to make sure your portfolio meets the target allocation for your account. You should carve out time to regularly rebalance your holdings.

What are the benefits of choosing your own stocks or ETFs?

Aside from the control you have over your investments, the benefit of the self-directed approach is that the fees are typically very low.

For example, Wealthsimple trading accounts have no fees or commissions to buy or sell stocks and ETFs. There are, however, currency conversion fees on USD investments. Many investment platforms in Canada also offer low-fee options for self-directed investors.

Managed accounts

Since managed accounts involve someone else managing your money, they typically have a fee associated with them. When using a managed account, the first thing to check is the management fee. For example, Wealthsimple managed investing charges a management fee between 0.2% and 0.5%, depending on how much you have with Wealthsimple. Many traditional institutions charge around 2%.

How your management fee is calculated

Your management fee is based on your net deposits or your total assets across all Wealthsimple products, whichever is higher. Both include your trading and managed investing accounts. Net deposits are the total amount you've deposited or transferred into your Wealthsimple accounts, less any money you've taken out. Unlike total assets, net deposits don't go down when the market drops. If you're part of a Wealthsimple household, we combine your net deposits and assets with your household members'. We apply the lower fee automatically once you qualify.

Net deposits or total assets	Management fee	Estimated annual fees
$0–$99,999	0.5%	$0–$500
$100,000–$999,999	0.4%	$400–$4,000
$1,000,000–$2,999,999	0.35%	$3,500–$10,500
$3,000,000–$4,999,999	0.3%	$9,000–$15,000
$5,000,000–$9,999,999	0.25%	$12,500–$25,000
$10,000,000 or more	0.2%	$20,000 or more

You only pay the management fee on assets in your managed accounts. The estimated annual fees in the table above assume all your assets are in managed accounts.

For example, if you have $500,000 in trading accounts and $500,000 in managed investing accounts, your total assets are $1,000,000, so your management fee is 0.35%. Similarly, if you and your spouse each have $500,000 with Wealthsimple and you're in the same household, you'll both qualify for a 0.35% management fee.

What are some of the benefits of a managed account?

Although managed accounts may cost more than investing on your own, there are many benefits to working with an advisory platform:

• Financial planning and advice: Managed accounts often provide access to advisors who can help you think through your entire financial situation and identify and manage risk. Having access to an advisor during times of market stress can offer comfort and prevent costly mistakes.
• Discipline: Managed accounts follow a disciplined investment approach. Automated investment decisions generally lead to better results and help investors avoid emotional decisions caused by market volatility that can hurt portfolio performance. Managed accounts use automated rebalancing with thresholds that maximize diversification and risk management benefits while keeping transaction costs low.
• Tax and ETF fee optimization: At Wealthsimple, managed stock accounts use certain low-cost ETFs traded on US exchanges for RRSPs, but use an equivalent Canadian-listed ETF for TFSAs, to minimize non-resident withholding tax charged to Canadians on US assets. We also negotiate on your behalf with ETF providers to reduce your MER.
• Time: For investors who may not have the time to build and maintain a sophisticated portfolio, a managed account can provide a great solution for long-term investments.

Frequently asked questions

Can I switch investing account types after I open an account?

You can't switch from one investing type to another once the account is open. If you change your mind about your investing strategy, you have two options:

1. You can close the account and open a new one if you haven't made any transactions and don't have any activity.
2. You can open a new account and initiate a transfer between accounts if you have funded the account or made other transactions. When the transfer is complete, you can close the original account.

Does my household count toward a lower management fee?

Yes. If you're part of a Wealthsimple household, we combine the net deposits and assets of everyone in your household to set your management fee. Learn how to create a Wealthsimple household.

What if I qualify for a lower management fee but I'm still being charged a higher one?

We apply lower management fees automatically. If you think you or your household qualify for a lower fee but you're not seeing it, please contact our support team and we'll help you.