Wealthsimple Inc., Canada’s largest robo-adviser, is infiltrating the discount brokerage business with the launch of a new trading platform that will allow investors to buy, sell and track stocks and exchange-traded funds with zero trading commissions.
The online portfolio manager – which manages more than $2.5-billion in assets and is predominately owned by investment giant Power Financial Corp. – is naming the platform Wealthsimple Trade. It’s a mobile app that will provide users access to unlimited zero-commission trades of more than 8,000 publicly traded stocks and ETFs listed on major Canadian and U.S exchanges.
At launch, securities can be bought and sold that are traded on the Toronto Stock Exchange, TSX Venture Exchange, Canadian Securities Exchange, New York Stock Exchange and the Nasdaq Stock Market.
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“The options for stock trading in Canada aren’t great – traditional brokerages have high fees, the technology is dated and clunky, and the experience isn’t exactly user-friendly,” Mike Katchen, chief executive and co-founder of Wealthsimple, said in a statement. “We saw an opportunity to take the simple, human approach we’re known for and apply it to the trading experience.”
The platform is currently in a beta version and will soon be rolled out to users by invitation this month, followed by a wider, public launch later this year. The platform is available on iOS and Android systems and will include market and limit orders and a stock-watch list to monitor stocks without buying.
In 2017, 59.9 million trades were executed in the online brokerage channel in Canada and the average commission revenue earned per trade over that time frame was $10.07, according to the Retail Brokerage and Distribution Report by Strategic Insight.
Wealthsimple’s zero price tag for stock trading is a first in Canada and comes at a time when investor advocates have been pushing regulators for heightened fee transparency. The majority of Canada’s existing 15 discount brokerages charges between $6.95 to $9.99 a trade depending on the number of transactions an investor makes a month, while a handful of them offer zero-fee trades for exchange-traded funds. Prior to Wealthsimple Trade, Questrade offered one of the lowest fees on the Street at $4.95 a trade.
Similar to other discount brokerages, there is no minimum account size. Opening an account takes minutes – compared with some traditional platforms that can take over two weeks to process. Once they receive an invitation, current Wealthsimple clients – who now number more than 100,000 – can sign into the new app using their existing log-in.
In addition to letting users execute commission-free trades, the app will educate clients about investing and the risks associated with picking stocks, and encourage responsible investment behaviour.
Robo-advisers – also known as online portfolio managers or digital advisers – provide clients with a recommended investment portfolio predominantly made up of ETFs – all for much lower fees than usually offered by traditional financial advisers. The introduction of a trading platform that shifts away from predetermined portfolios of ETFs doesn’t mean Mr. Katchen believes there is more money to be made in buying and selling of stocks.
“Our approach to investing hasn’t changed: The smartest way to grow your money long-term is to have a diversified, low-cost portfolio that tracks the market, contribute regularly, and stay the course,” he said. “But that doesn’t mean there’s no place for buying and selling individual stocks – as long as it’s done responsibly as part of a holistic financial plan.”
Mr. Katchen said he is able to offer free trades because Wealthsimple runs its own back-office operations, a service they acquired when they purchased online brokerage Canadian ShareOwner Investments Inc. in 2015. The acquisition allowed Wealthsimple to gain end-to-end control over the platform, including trade execution, custody services, portfolio construction and advice – a comprehensive service that is currently done by only a handful of other companies in Canada, such as the big banks.
The platform will also generate earnings through foreign exchange transactions, a fee that will be communicated upfront with clients.
The addition of a discount brokerage platform, along with the launch of the Wealthsimple savings account earlier this year, is shifting the company from only offering automated online portfolios toward a more full financial services provider, Mr. Katchen said.