Two years after its growth stalled, bank challenger Wealthsimple Technologies Inc. has rebounded sharply, delivering a surge in assets under management that one of its largest investors describes as ballistic.
Wealthsimple has booked back-to-back record quarterly growth in assets, expanding by $6.1-billion in the fourth quarter of 2023, and $7.7-billion in the first quarter of 2024, as investors deposited funds across its savings and investing accounts.
The billions of net new money has been flooding into multiple products, says Wealthsimple’s chief executive Mike Katchen in an interview. That includes the company opening more than a third of the country’s 750,000 new tax-free first home savings accounts.
Assets under management (AUM) stood at $38.7-billion on March 31, up from $18.3-billion at the end of 2022, a year in which the value of investor deposits had sagged by 5.4 per cent. The millennial and Gen Z-focused online financial services company had 2.36 million investment and banking clients on March 31, up 12 per cent year over year.
“It was a ballistic quarter for Wealthsimple” with growth “across the field,” IGM Financial Inc. IGM-T chief executive James O’Sullivan, whose company owns 27.1 per cent of Toronto-based Wealthsimple, told analysts Friday. “It was crypto. It was equities. It was options. It was well balanced overall.”
Wealthsimple’s surge coincides with the exit of early shareholder Allianz Group, which co-led a $100-million financing round in 2019. Both Allianz and Mr. Katchen declined to comment on the sale of the German insurer’s stake to other shareholders, including Power Corp. of Canada. POW-T
Power and its subsidiaries, including IGM and Portage Ventures, bought a combined $25-million of Allianz shares in the fourth quarter, increasing the conglomerate’s consolidated undiluted equity stake in Wealthsimple to 56.6 per cent from 54.3.
Power and IGM also wrote up the book value of their Wealthsimple stakes by 20 per cent in the fourth quarter, reflecting the increasing value of its public-market peers as well as Wealthsimple’s business performance and revised revenue expectations.
On Thursday, IGM said it again boosted the book value of its stake by a further 19 per cent in the first quarter. If Power follows suit when it reports earnings next week, its consolidated stake will be revalued to $1.31-billion, up from $900-million last fall.
“On the self-directed investing side, there’s no one in this country that’s growing faster than Wealthsimple. No one,” Mr. O’Sullivan said.
Wealthsimple’s resurgence mirrors a similar rebound for its peer Robinhood Markets, Inc. Robinhood, has had strong net deposit growth as major U.S. indices and the price of bitcoin hit record levels this spring, driving up trading volumes.
In Canada, Wealthsimple accounted for more than half of all online brokerage accounts opened in the fourth quarter and it is the second-largest online brokerage in the country after TD Waterhouse.
“The banks are much bigger than we are, but we’re capturing an enormous share of the growth of the industry,” said Mr. Katchen. “We’ve emerged from the recent downturn stronger than ever.”
Neither Mr. Katchen nor executives within Power would comment on when Wealthsimple would become profitable. But the Wealthsimple CEO said his company is in strong financial shape and has no need to raise financing any time soon.
Power’s involvement with Wealthsimple dates to when its Power Financial Corp. subsidiary invested $30-million in 2015. It has been a lucrative investment but added volatility to the staid asset manager best known for controlling IGM, the parent of Investors Group, and insurer Great-West Life.
The Montreal-based conglomerate, controlled by the billionaire Desmarais family, and its subsidiaries have invested $340-million in Wealthsimple, receiving $500-million back when it sold part of its holdings as part of a $750-million financing in 2021. That left Power and its entities holding Wealthsimple shares worth $2.1-billion at the end of 2021.
However, markets swooned and growth stopped in 2022, and Robinhood shares plummeted in value. IGM and Power slashed the value of their Wealthsimple holdings that year as the company laid off 13 per cent of staff and slowed marketing spending, a key driver of new business. The company pays new customers up to $2,000 to set up accounts.
By that year’s end, Power had cut the value of its stake to $900-million. Its new, higher valuation reflecting Wealthsimple’s resurgence will still be well below the peak, when tech valuations reached overinflated levels.
Josh Book, chief executive of wealth-management market-research company Parameter Insights Inc., said that while there has been a dip in the overall number of online trading customers in Canada, there has been a slight increase this year among 35 to 54 years users – an age group that Weathsimple has increasingly targeted.
“Wealthsimple has done a good job bringing underserved Canadians into the saving and investing fray – notwithstanding seeming to move off their original mission of simplifying wealth management for consumers in order to take advantage of the rush in self-directed investing we saw in 2020,” Mr. Book said.
Wealthsimple launched nearly a decade ago as one of Canada’s first digital online portfolio managers. Commonly referred to as a “robo-adviser,” it set out to make investing simple for clients by providing automated wealth-management services that quickly design an investor’s portfolio based on age, financial goals and risk tolerance.
Competition quickly arrived as 15 robo-advisers launched to chase retail assets. Many targeted younger, more inexperienced investors than traditional financial advisers serve.
Now, many standalone robo-advisers have since been swallowed by larger wealth managers. But some, such as Wealthsimple, have expanded their financial offerings.
While Wealthsimple continues to grow its wealth-management business, it also offers access to online digital stock-trading, a high-interest savings account, cryptocurrency trading and tax filing services. The company is planning to launch its first mortgage product – which is now being tested in partnership with Pine Financial – in the second quarter.
The expansion has led to a boom in assets but also an increase in the average age of Weathsimple clients to the mid-30s. “People with larger accounts and who are further along in their financial journey are moving over faster than they were in the early days when we had no brand and no trust,” said Mr. Katchen.
But Mr. Katchen still has a long journey ahead, and it won’t be simple. The 36-year-old entrepreneur once said he thought Wealthsimple could reach $1-trillion in AUM in 15 years. The new goal is $100-billion by 2028, when the company turns 14.
“We’re nowhere near where I want us to be,” he said. The goal is still to beat the banks, but “it’s going to take us decades to displace an RBC or a TD in terms of their size and scale.”
However, he adds, “I can get to number one on flows of new assets much sooner. You’ve got to be number one in flows to make that happen, and I think that’s within sight, but we’ve got a lot of work to do.”
Sean Silcoff
Clare O’Hara