Toronto-based robo-advisor Wealthsimple Inc. is seeking regulatory approval to accept new clients without having to speak with each of them. Michael Katchen, CEO, says the proposed change to a “no-call” model would not apply to all new clients, nor would it in any way restrict ongoing client access to the firm’s registered advisory representatives.
Firms like Wealthsimple use online platforms to obtain know-your-client (KYC) information that is used to determine what investment portfolios are suitable. But Canadian securities regulators also require personal contact with an individual registered advisor — usually via a phone call — to confirm and/or clarify the responses to online questionnaires and seek additional information if necessary.
Changing the requirement to speak to everyone, says Katchen, would better serve clients who prefer to do business online and “may not make time to have a suitability phone call.” Wealthsimple would then be able to focus on clients who need or want personal calls. These clients are those with larger accounts, or with more complicated personal circumstances.
The cost savings resulting from a “no-call” model would help Wealthsimple keep its services affordable and accessible to small investors, Katchen says. Online advisors such as Wealthsimple, which build portfolios of low-fee funds, generally charge much lower fees than is the norm for traditional advisors. As for accessibility, the ultra-populist Wealthsimple has no minimum account size.
The process of changing its client-contact requirements is anything but simple for Wealthsimple, which initiated discussions with the Ontario Securities Commission several months ago. With the help of an independent consultant hired late last year, the company is working on a “much more robust” online suitability questionnaire, Katchen told Morningstar.
The hiring of a consultant was one of the provisions that Wealthsimple and the OSC agreed to in registration terms and conditions that took effect on Oct. 20. Wealthsimple will prepare and implement a plan, subject to OSC oversight, to strengthen its compliance system and enable it to make a transition to the new “no-call” model.
As part of this process, Wealthsimple will be required to arrange for its existing clients to have a “meaningful discussion” with one of the firm’s advisors, or complete a new KYC questionnaire in a format approved by OSC staff. Katchen said there is no specific deadline for implementing the plan.
The terms and conditions on Wealthsimple’s registration, which are intended to be temporary, are posted on the online registration-checking search tool AreTheyRegistered.ca, maintained by Canadian securities regulators. Wealthsimple is registered in all 10 provinces and three territories, but its transition to the “no-call” business model is being overseen by OSC staff.
The process that Wealthsimple is undergoing with the OSC is consistent with Canadian Securities Administrators guidelines for online advice, published in September 2015.
Online brokers that want to be exempted from having personal contact with every prospective client must have a satisfactory system for identifying circumstances when personal contact will be required, the guidelines state.
In addition, online brokers may be restricted to offering what the regulators describe as “relatively simple investment products” such as unleveraged exchange-traded funds, low-cost mutual funds and other redeemable investment funds. For Wealthsimple, such restrictions are perfectly aligned with its investment strategies and offerings.
The largest Canadian firm of its kind, Wealthsimple currently has an estimated 15,000 clients and $750 million in managed ETF portfolios. These totals include the portfolios managed by the online brokerage Canadian ShareOwner, which Wealthsimple acquired in 2015.
When contacted by Morningstar, the OSC wouldn’t confirm whether other online advisory firms are seeking similar changes in their client-contact requirements. Wealthsimple appears to be the first.