Robo-advisor ModernAdvisor on SRI: Ethiquette Q&A with CEO Navid Boostani

Robo-advisor ModernAdvisor on SRI: Ethiquette Q&A with CEO Navid Boostani

ModernAdvisor is an online investment platform that aims to democratize investment management in Canada. Ethiquette spoke with CEO Navid Boostani about the Socially Responsible Investment (SRI) portfolio options they launched in February of this year.

Ethiquette (E): First off, for those who don’t know: what exactly is a ‘robo-advisor’?

ModernAdvisor (MA): The term ‘robo-advisor’ is used to describe an online investing service that uses technology to automate some of the mundane tasks that traditional advisors perform manually. We weren’t crazy about the name to begin with, as it’s not entirely accurate. But we’ve come to embrace it, as it’s an easy shorthand for people to understand and remember what we offer, which is:

  • Professionally-designed investment portfolios, made up of low-cost ETFs
  • Ongoing monitoring and rebalancing
  • An intuitive dashboard where people can see detailed information about their holdings and how they’re performing
  • Completely transparent, ultra-low fees
  • An easy, online signup process

E: You were the first robo-advisor in Canada to offer SRI portfolio options to your clients. Was it part of your initial business plan?

MA: To be honest, it wasn’t something that was on our radar in the initial stages of building the company. Our primary focus was building a user-friendly investment tool for building ETF portfolios. The idea of offering the socially responsible investment option came later.

E: So what was the impetus behind creating the option and making it available?

MA: First off, we wanted it for ourselves! And of course we did some research around it – we expected that the majority of interest in online investing would be from Millennials, who are especially socially minded. So it made sense to prioritize the SRI option in our product roadmap. We were pleasantly surprised to see that interest wasn’t limited to that age group.

E: You mentioned that it’s not just millennials interested in SRI – where else is demand coming from?

MA: We are seeing demand from all age groups.  Parents, grandparents, and young people, really anyone who is interested in investing in a more socially conscious way.

E: And how popular is the SRI option among your new clients? What proportion of them choose SRI over a traditional portfolio?

MA: Currently about 30% of our new clients choose the SRI option.

E: How does someone go about actually choosing a responsible portfolio?

MA: There is an option in our signup process. Users can select a responsible portfolio or our regular, low-cost portfolio option.

E: Is there much of a difference in cost between the two account types?

MA: Not really. Our management fees are the same regardless of the account type, but socially responsible funds are slightly more expensive. The difference is somewhere between 0.09% and 0.25%, depending on other factors like how aggressive or conservative it is. Both are significantly less than the typical Canadian investor pays in investment fees.

E: For clients who do choose the SRI option, how much of their money can be put toward responsible investments?

MA: Depending on each client’s selected risk level, 75-95% percent of their portfolio is eligible for responsible investing.

E: At Ethiquette, our mandate is to educate and inform Canadians as they venture into the realm of responsible investing. The real question is: exactly how responsible are your ‘responsible portfolios’?

MA: Because we build our portfolios using ETFs, we’re somewhat limited in terms of the specific investments we can offer.  We’ve tried to be very transparent about the fact that the SRI portfolios are not yet perfect. The funds we choose are evaluated based on Environmental, Social and Governance (ESG) criteria. However, because the evaluation is a composite of those three factors, it’s possible for companies to score highly in two categories and not so highly in the other. This means that – for now – companies in oil and gas, for example, can end up in the portfolios.

E: You say ‘for now’… how do you expect your product offering to evolve going forward?

MA: Now that we’ve proven there’s a market for it, we’re looking continuously improve the offering. For example, some investors would prefer to completely exclude fossil fuels from their portfolios – so we’re planning to offer socially responsible portfolios of funds that are more stringent in their ESG requirements.

E: Robo-advisors are a relatively new concept to Canadians. Where do you see the industry headed in the next few years?

MA: We’ve been keeping a close eye on the progress of robo-advisors in the US, as we’re a bit behind them in terms of public awareness and total assets under management. But we expect to see a similar trajectory as more Canadians get comfortable with the idea of investing online.

E: How would you recommend investors go about choosing from the different robo-advisor services in the market? What should they look for in an automated investing platform?

MA: Good question! We’ve actually got a helpful post about that on our blog, written by Robb Engen from Boomer and Echo. You can read about it here.

E: Is there anything you would like to add?

MA: Yes! We’ve got a free trial program, so you can try us out for a month using $1,000 of our money (and keep any gains accumulated by the end of the trial). So give it a go and let us know what you think.

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