Asset-allocation ETFs have seen significant uptake from investors since 2018.Nuthawut Somsuk/iStockPhoto / Getty Images
The booming popularity of asset-allocation exchange-traded funds (ETFs) is prompting an evolution among robo-advisors, and may also be having implications for financial advisors themselves.
Since Vanguard Investments Canada Inc. launched its first suite of low-cost, passively managed asset-allocation ETFs in Canada in 2018, the asset class has seen significant uptake from investors.
As of March 31, more than $42-billion was invested in asset-allocation ETFs, according to Toronto-based Investor Economics, an ISS Market Intelligence business. Net flows over the previous year totalled $15-billion, with $5-billion of that coming in the first quarter of 2025.
“The segment is growing tremendously fast,” says Carlos Cardone, managing director, Canada, with Investor Economics. “Substantial amounts of money are going in that direction, and more companies are offering these products.”
Self-directed investors make up the lion’s share of asset-allocation ETF holders, with 70 per cent of assets under management in these ETFs from the online discount brokerage channel, according to Investor Economics.
With investors able to solve many of their investment decisions with a single product, what effect have all-in-one portfolio funds had on robo-advice – and on financial advisors?
Portfolio rebalancing used to be the domain of advisors and portfolio managers, but robo-advisors and now asset-allocation ETFs have proven them “very easy to replicate,” says Kendra Thompson, founder and principal of Epok Advice, a boutique consulting firm focused on the future of advice.
Facing price compression on the product front, she says many robo-advisors have responded by “taking the running start they had on democratizing access to asset allocation” and broadening their value proposition to remain viable.
Some robo-advisors have added advice and investor support, introduced “sub-segment strategies” that speak to specific lifestyles and stages, added banking products, workplace savings and benefits, and offered access to alternative investments.
“It’s more about how do you make sure that core to your channel or business is something that’s not easy to replicate,” Ms. Thompson says.
Mr. Cardone says he doesn’t see balanced funds as direct competition to robo-advisors platforms.
“I would think about it from the perspective of the user, and what the person is actually doing,” he says.
With a robo-advisor, the investor fills out a questionnaire and is assigned a risk profile; with an online discount brokerage, the investor chooses the investments.
“It’s very pure do-it-yourself versus more of a hand-holding type of process,” he says.
Silvio Stroescu, president of BMO InvestorLine and head of BMO wealth management digital first at BMO Financial Group, says asset-allocation funds attract a different type of investor from those who use a robo-advisor platform.
BMO has multiple options for DIY investors: InvestorLine, a pure DIY experience; SmartFolio, its robo-advisor investing platform; and adviceDirect, a hybrid platform in which investors can buy securities on their own and receive feedback from the platform if a purchase would put them beyond their stated risk threshold or have other impacts on their portfolio. AdviceDirect clients also have access to financial planners.
Mr. Stroescu says adviceDirect is leading the growth in digital investing solutions, with a 30-per-cent annual growth rate. The bank’s asset-allocation funds are “just below that,” although he wasn’t able to share exact growth rates.
He says there’s a desire among investors for some amount of “validation” through professional portfolio management, whether through a robo-advisor platform or embedded within an ETF itself.
For the past several years, he says, there’s been a “transformation” in online investing so that it no longer means investing alone.
What it means for advisors
Vince Linsley, associate director at Investor Economics, says asset-allocation funds may be on advisors’ product shelves, but aren’t often used, although one use case is for small accounts within a larger household they’re serving, such as the child of a client.
However, he notes fund companies, including Vanguard Investments Canada Inc. and BMO Global Asset Management, have created mutual fund versions of their asset-allocation ETFs with the ETFs as the underlying assets. These mutual funds are designed to appeal to advisors with mutual fund licences.
As advisors in the U.S. and the U.K. (and to some extent, in Canada) moved their practices toward fee-based accounts, there’s been a corresponding shift of client assets into more passive and lower-cost investments such as asset-allocation mutual funds, Mr. Cardone says. “They usually look for ways to lower the cost of managing the assets.”
Aravind Sithamparapillai, financial planner with Ironwood Wealth Management Group in Fonthill, Ont., says asset-allocation ETFs have forced advisors to up their game with holistic financial and tax planning, education, and engagement with clients.
“It’s not just the entrance of asset allocation funds: the environment is competitive,” he says.
Mr. Sithamparapillai joined the industry around the time all-in-one portfolio funds were being rolled out, and other advisors he looked up to were saying the value proposition was shifting toward goals-based planning and away from just buying investments and keeping clients invested.
He says the value proposition for advisors and portfolio managers who manage client portfolios actively hasn’t changed as much as they’re aiming to outperform the market. But he says even advisors who aren’t trying to beat the market can provide value with investment advice.
“Just because asset-allocation funds exist or robo-advisors exist, it doesn’t mean everyone automatically knows what to buy,” he says.
Asset-allocation ETFs themselves come in a range of risk profiles, can be managed actively or passively, and may contain sleeves of some riskier assets, such as bitcoin.
“There’s a big role for an advisor to play in terms of evaluating what’s under the hood,” Mr. Sithamparapillai says.