Michael Katchen, seen in April of 2016, is founder and chief executive of Wealthsimple, Canada’s biggest robo-adviser firm.Fred Lum/The Globe and Mail
Investment behemoth Power Financial Corp. is boosting its financial commitment in the fintech space with an additional $50-million investment in robo-adviser Wealthsimple Financial.
Power Financial's total investment in Wealthsimple now sits at $100-million to date, with this being the third round of financing the company has dished out.
The initial investment of $10-million was made in April, 2015, and included the option for Power Financial to contribute an additional $20-million in funding (which Power did add later that year).
Wealthsimple then received a second investment of $20-million in December, 2016, while announcing Paul Desmarais III, senior vice-president of Power Financial, as chairman of Wealthsimple.
Today, the online portfolio manager has hit $1-billion in assets under administration and has over 30,000 clients. In January, the company expanded its operations south of the border to include offerings for U.S. investors while also opening an office in London (although an online platform is not yet open to U.K. investors).
"Financial services are going through an exciting transformation all over the world and the players who are going to have a seat at the table writing what that looks like are going to be global in nature," Michael Katchen, CEO of Wealthsimple, said in an interview with The Globe and Mail. "Lucky for us we have a great partner in Power ... and that has enabled us to really think globally in what we want to do here."
Widely known on the Street for its empire of financial advisers and investment products, Power has invested a total of $250-million in the fintech arena – with money also funding startup companies such as mobile bank provider Koho Financial and online lender Borrowell.
But its largest chunk of money remains dedicated to the robo-advisory space.
Power Financial – which is itself a subsidiary of holding company Power Corp. of Canada – houses a number of major players in the money-management landscape, including Great-West Lifeco Inc. and IGM Financial Inc. (which includes financial advisers in both Investors Group Inc. and Investment Planning Counsel). It is yet to be seen whether the existing businesses under the Power Financial name will interact with, or benefit, from Wealthsimple.
"I think there are a lot of ways Wealthsimple can collaborate with our other platforms but we are committed to building Wealthsimple as an independent and strong business offering," Mr. Desmarais said in an interview with The Globe. "Power Financial, as a group, has a mission to deliver advice to as many Canadians as possible through a variety of different channels, whether it's an adviser channel or a group RRSP platform – and this is a great complement to that set of channels because it reaches a demographic that historically has not been reached by advice."
Mr. Katchen has always stood by the belief that there is a role for online portfolio managers and financial advisers to work together, and in addition to using the Power Financial funds to build out Wealthsimple's expansion in Canada and the United States, he is also dedicating some of the investment to grow the company's business-to-business platform for investment advisers – which it calls Wealthsimple for Advisors.
"We are building out that business quite aggressively and are actively trying to work with advisers," says Mr. Katchen. "To the extent we can partner with some of Power's subsidiaries – we are very excited to explore deeper integrations with those firms. For now we are treating them like any kind of commercial relationship and seeing how we can both work together."
The partnership between Power Financial and Wealthsimple was a first of its kind in Canada between a financial services company and a robo-adviser shop. Today, there are approximately 15 robo-adviser platforms in Canada. Wealthsimple has been the industry exception in publicizing financial information, but according to an industry report by Strategic Insights, the company accounts for more than 75 per cent of Canada's client share in the online advice space.
While growth has been slow for the overall robo-adviser industry in Canada, the appeal of what they provide for investors has piqued the interest of major financial institutions.
In 2016, Bank of Montreal became the first Canadian bank to enter the space with the launch of its own internal robo-adviser platform – BMO SmartFolio – and last month, online portfolio manager NestWealth announced its partnership with National Bank of Canada, making it the second Canadian bank to provide clients with a robo-adviser offering.
The entrance of these larger players could pose a significant challenge for those just entering the market, said Dave Nugent, chief investment officer of Wealthsimple.
"It seems like everyone is coming out with a new robo platform these days and the question every investor needs to ask is, will they be around in three to five years," says Mr. Nugent, during a panel discussion at the ETF Forum in Toronto. "The banks are all coming in – BMO and National are already here – and as we are going to see in the next 12 months, they are all going to launch. The window of capital is closing very, very quickly for the independent startups. If you don't have your capital partners in place, I'm not actually sure how you will be able to survive in this space."
Clare O’Hara