Canada’s big six banks are not well known for the rapid pace at which they embrace change, but the recent proliferation of new technology-driven disrupters in the marketplace has grabbed the attention of the corporate behemoths included in this year’s this year’s Report Card on Banks and their financial advisors.
Since digital asset-allocation services – also known as robo-advisors – were first launched in Canada two years ago, their ranks have grown to nine firms from four, including one bank-owned service, which launched earlier this year. The growth of these robo-advisors has led to debate about how disruptive they will be to the financial services sector – particularly in light of their focus on low fees and relatively small account minimums.
To find out what advisors think of these new, fledgling digital asset-allocation services, Investment Executive added a supplementary question to this year’s Report Card to ask advisors if they consider robo-advisors to be a threat to their businesses. The overwhelming majority (75.1%) of advisors said they aren’t worried about these startups – at least, not yet.
At Toronto-based Bank of Montreal (BMO), the idea of traditional advice channels working alongside new digital platforms is being put to the test. The bank launched SmartFolio, its own robo-advisor, earlier this year. BMO advisors have mixed feelings about this new platform, but, on the whole, they remain confident that clients will continue to value the services that advisors provide.
“You have SmartFolio, but the experience clients want is face to face,” says a BMO advisor in Ontario. “For me, personally, I don’t see it as an issue.”
Advisors with the other five banks feel the same and believe that many clients – particularly those with larger accounts and more complex financial needs – will continue to choose to work with an advisor rather than through a digital platform.
“I find that when people are dealing with larger dollar amounts, there’s nothing like a handshake and face-to-face interaction,” says an advisor in Ontario with Toronto-based Canadian Imperial Bank of Commerce (CIBC).
CIBC, for its part, agrees with this advisor’s point of view and plans to focus on providing customized advice through its Imperial Service advisor force.
“When we look at robo- advisors’ value proposition, we look at it as being, more or less, a generic offering – almost a ‘one size fits all’ offering –and we’re trying to differentiate Imperial Service as not ‘one size fits all’,” says Scott Wambolt, senior vice president, national sales and service, with CIBC.
However, advisors’ nonchalance about robo-advisors may be only temporary. A closer look at advisors’ responses to this supplementary question reveal that although survey participants weren’t concerned about robo-advisors right now, advisors do foresee a potential threat – both for their businesses and the financial services sector at large. Changing attitudes toward technology, particularly as software improves, is one reason advisors are wary about robo-advisors.
“The bulk of what we do is planning. That’s still important [and] that’s where robo- advisors don’t do such a good job right now,” says an advisor in Alberta with Toronto-based Royal Bank of Canada (RBC). “But I foresee the software getting smarter. I see that [robo-advisors] are getting better at what they do. They’re going to be able to do more and more, and not every client is going to need the specialty we provide.”
Clients will be looking for different levels of service and communication – and those are reasons why technology can’t be ignored, say banking executives such as Michael Walker, vice president and head of branch investments with RBC. And those differing levels also are why there will always be a need for financial advisors.
For example, Walker believes RBC will create more options for clients regarding how they manage their money in future, whether that’s through a digital advice platform or a traditional client/advisor relationship. Says Walker: “There always needs to be choice.”
Annamaria Testani, vice president, national sales, with Montreal-based National Bank of Canada, also foresees technology becoming a bigger part of the financial services business, but she doubts that the advisor relationship will be eliminated completely anytime soon. “Our business model will evolve as technology allows us to do things,” she says, “but you cannot ever remove the human interaction.”
Despite these assurances, approximately one-quarter (24.9%) of advisors surveyed for this year’s Report Card said they do view robo-advisors as a threat to their businesses right now. For these advisors, the concern is that tech-savvy millennials are very comfortable in managing their investments through a smartphone application rather than having to come into a bricks-and-mortar office for a meeting.
“[Robo-advisors] are convenient,” says a National Bank advisor in Quebec. “If you look at who is coming into bank branches, the population is generally older. We aren’t getting millennials coming in. [Online] service is really strong for them.”
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