Financial giant looks to robo-advisor

“[Power Financial is] a long-term strategic partner that can provide the capital to build out what we believe is a transformative value proposition for Canadian investors,” says Michael Katchen, founder and CEO of Wealthsimple, which launched in 2014.

As part of the deal, Power Financial will invest $10 million in Wealthsimple immediately, followed by up to $20 million over the next 12 months – along with the option to invest further in the robo-advisor over the following three years.

For Wealthsimple, the investment means the firm can beef up its staff and infrastructure. The company has a team of 12 and, Katchen says, his intention is to expand to 25 to 30 people by the end of the year. Wealthsimple has more than 1,000 clients and assets under management “in the tens of millions,” he adds.

Specifically, Power Financial’s investment gives Wealthsimple the resources to provide services in French to clients in Quebec. The robo-advisor operates in Ontario, Quebec, British Columbia, Alberta and Manitoba, but expects to be nationwide soon.

The deal also is an opportunity for Power Financial to reach a younger demographic in the Canadian marketplace, Katchen says: “[The partnership] creates a wonderful new opportunity for [Power Financial] to access a different segment of the population.”

That’s because 80% of Wealthsimple’s clients are younger than 45 years of age, he adds, a ratio that is the reverse of that found in the average financial advisor’s book of business.

Besides attracting a younger demographic, Wealthsimple is interested in working with advisors. The robo-advisor is creating a platform for advisors as part of the firm’s business model.

And, although nothing is decided yet, Katchen says, Wealthsimple would welcome the opportunity to work with any of Power Financial’s subsidiaries.

“This deal is with Power Financial,” he says. “But from Day 1, we said we were excited to work with advisors – and, certainly, we’re excited about what this could mean in terms of working with Power Financial’s businesses [and] supporting them with technology.”

Power Financial isn’t the only firm taking a closer look at these technology-driven advice platforms. Steve Donald, president of Assante Wealth Management (Canada) Ltd. in Toronto, believes there could be an opportunity for that full-service dealer’s advisors to utilize a robo-advisor platform. Thus, Assante is researching the marketplace in Canada and the U.S. to figure out what robo-advisors are all about.

“We think that there may be a place to provide a more automated service model that advisors can use with their clients,” Donald says.

More specifically, he believes a robo-advisor platform may provide Assante clients who don’t require a sophisticated level of planning to access a lower-fee service option.

The move toward such a platform makes sense for a company such as Assante, says Dan Hallett, vice president and principal with Oakville, Ont.-based HighView Financial Group, because this tool would offer more choice to its customers.

Assante has yet to set a timeline for developing such a platform, Donald says, as the company still is researching the idea and gathering input from its advisors.

However, should Assante decide to build a robo-advice offering, it is likely to do so through its proprietary financial planning or asset-allocation platform rather than try to partner with one of Canada’s existing robo-advisor firms.

Advisory firms are not the only financial services companies turning to technology. Direct brokerages also are investing in automated systems.

For example, Montreal-based National Bank of Canada launched InvestCube in 2014 through National Bank Direct Brokerage Inc. (NBDB), its wholly-owned direct brokerage subsidiary. This platform is not a robo-advisor, in that it’s designed for self-directed clients who can select investments from five portfolios of exchange-traded funds. But InvestCube is similar to a robo-advisor, in that a client’s portfolio is rebalanced automatically.

In moving toward a more technology-driven platform, National Bank hopes to capture a group of investors that the firm calls the “in-betweeners,” says Caroline Desrochers, a senior analyst with NBDB in Montreal. This moniker refers to clients who either don’t have the time or the knowledge to make the leap into fully autonomous investing but who aren’t working with an advisor.

Toronto-based BMO InvestorLine’s adviceDirect is a similar platform. While BMO’s offering is not a robo-advisor, it does use a computer algorithm to make investment recommendations to clients based on their investor profiles.

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