Robo-adviser investment firms seek rule changes from OSC on know-your-client conversations

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Robo-adviser investment firms are seeking approval from regulators to register new clients entirely online without having to speak with an adviser, arguing long-standing regulations need to be adjusted to accommodate new business models.

The firms want to build online registration systems that give new clients the option to forego a personal conversation with an adviser to complete know-your-client forms in order to open an investment account. The know-your-client conversations typically take up to 30 minutes, and require clients to answer a series of questions about their investment expertise, goals and risk tolerance.

Randy Cass, chief executive officer of Toronto-based Nest Wealth Asset Management Inc., said his firm and others are working with the Ontario Securities Commission to develop an online process that would meet all of the goals of the know-your-client process without requiring a phone call. He said the plan is to give new customers the option to speak to an adviser if they prefer, but not require it.

"For those who desire it, there should be a process that allows them to move through in a relatively simple and uncomplicated fashion to have their assets invested," Mr. Cass said. "But we always believe that if anyone wants a conversation, we're here for it and we consider it an important part of the process."

Wealthsimple Inc. chief executive officer Michael Katchen said the requirement for a personal conversation can drive away some customers who are seeking an easy way to set up an online investment account, especially young millennial clients who are accustomed to online transactions and don't like phone calls.

"We've found by forcing the phone call, you push some people away – it's too much work and they don't want to invest," he said.

Nest Wealth and Wealthsimple would not be the first firms to receive approval to open client accounts without a phone call. Brokerage firm Questrade Inc., for example, has had a no-call policy approved since 2014 for online accounts after satisfying regulators about their registration processes.

Mr. Katchen said Wealthsimple is also working with the OSC to develop an online platform, but he doesn't know how long it will take to get approval to eliminate phone conversations.

Wealthsimple, which is Canada's biggest robo-adviser firm with 15,000 client accounts, has previously faced OSC scrutiny over the issue of client registration.

The regulator imposed operating conditions on the Toronto-based firm's registration in October, requiring it to hire a consultant to strengthen compliance systems and ensure existing clients have completed a new know-your-client form or have had a "meaningful discussion" with a Wealthsimple representative. A spokeswoman for the firm said Wealthsimple is prohibited by the OSC from discussing the conditions or the events surrounding them.

The OSC would not comment on Wealthsimple or discuss the broader issue of permitting online registrations, a spokeswoman said.

OSC chair Maureen Jensen has spoken publicly about her intention to make regulations more flexible to accommodate an array of new fintech firms operating primarily online. The OSC set up its LaunchPad program late last year, which has a team of staff dedicated to working with nascent technology companies to help them develop their business models.

When the program was announced in October, LaunchPad head Pat Chaukos said many fintech companies want "frictionless" platforms where clients can complete applications or transactions entirely online. She said the OSC would to try to be flexible about its regulations, allowing time-limited registrations or exemptions to allow companies to test new models.

Mr. Cass at Nest Wealth said he believes a fully online registration process could be even better for some people than a phone conversation because it can be more thorough and careful.

"A digital onboarding process in many cases is a better way of making sure that all the boxes have been checked and all the questions have been asked and all the answers have been provided and understood," he argues. "The phone call can be a valuable tool, but it's not going to be valuable to everybody … This is all about optionality."

Mr. Katchen of Wealthsimple said the need for a conversation to set up a new account can also be cost-prohibitive for his firm, which has no minimum account size. If a client sets up an account with a $100 balance, the requirement to conduct a lengthy initial phone conversation becomes a steep expense, he said.

However, he said personal contact with an adviser can be critical for people who want advice about investments and strategy, and that service will remain a key part of the business model.

"We are considered a robo adviser, but we think of ourselves as the most human robo adviser there is," he said.