Robo-advisers are gaining momentum in Canada, with the digital investment managers now surpassing $5-billion in assets under management.
The largest, Wealthsimple, said last week it had $4.3-billion in assets under administration as of March 31, 2019, up from $3.4-billion at the end of 2018. The company – which is largely owned by financial behemoth Power Financial Corp. – first launched in 2014. It has more than 100,000 clients in Canada, the United States and Britain.
“Robo-advice asset growth had a very positive start to 2019 after experiencing a notable jump in account openings through RRSP season while also benefiting from the market rebound that occurred in the first quarter of the year,” says Brett McDonald, senior consultant with Strategic Insight. “Momentum is certainly building.”
In Canada, robo-advice assets under management was $4.1-billion as at December, 2018, spread among 15 firms, according to the Fintech Advisory Service Report by Strategic Insight. With the growth seen at Wealthsimple in the first quarter of this year, overall assets under management (AUM) in the industry has now well exceeded the $5-billion mark.
Wealthsimple chief executive Michael Katchen announced last year he aims to hit $1-trillion in AUM in 15 years. It’s a goal he admits is “ambitious” but one he believes his company has a “really good shot at achieving.”
“Our goal hasn’t changed and our momentum hasn’t slowed down,” Mr. Katchen said in an interview with The Globe and Mail.
Together with its subsidiaries Portag3 and IGM, Power Financial holds a combined voting interest in Wealthsimple of 88.9 per cent. During the first quarter, Power Financial and IGM both invested a further $12-million and $18-million, respectively, in Wealthsimple – bringing the total amount invested to $238-million.
“Wealthsimple is growing rapidly so it’s clear there is a demand in Canada for this product,” said Power’s co-chief executive Paul Desmarais Jr. during a news conference in Toronto last week. “It can’t be growing that fast without a real need for that client.”
While still only a fraction of the larger asset-management market in Canada, robo-advisers are offering alternative investment advice to digital-savvy customers. These web-based platforms offer clients an online risk-assessment tool that very quickly calculates an appropriate asset allocation based on age, financial goals and risk tolerance. Investors also have the option of speaking to a human portfolio manager throughout the process. The results provide clients with a recommended investment portfolio predominantly made up of exchange-traded funds – all for much lower fees than usually offered by advisers.
Once seen as a threat to traditional wealth-management companies, the technology is being implemented by many institutions in-house. CI Financial is the latest investment company to jump into the digital advice industry after acquiring a 75-per-cent equity interest in Wealthbar Financial Services Inc. in January. The Vancouver-based robo-adviser, which also launched in 2014, has seen much slower growth in the market. But following the CI acquisition its assets jumped to $350-million, up from $275-million at the end of 2018.
CI’s CEO, Peter Anderson, recently pointed to the acquisition as accelerating the company’s overall digital strategy during the company’s first-quarter results, and announced CI is already using Wealthbar’s technology elsewhere within the organization.
Over the years, several robo-advisers have launched business-to-business platforms – allowing financial advisers to access their portfolio-management tools for a discounted price.
Last week, online portfolio manager Nest Wealth boosted its B2B capabilities through the acquisition of Alberta-based Razor Logic Systems, the developer of financial-planning software Razorplan.
Razor Logic offers a digital financial planning tool that is currently used by several large wealth-management firms in Canada, including Raymond James, Hub Financial and IDC Worldsource.
Nest Wealth’s assets under management have not been disclosed, as well as the financial terms of the deal.
The tool will allow investors to link a comprehensive financial plan directly to their investment portfolio and monitor its progress online. In a recent user survey, Nest Wealth found that more than 53 per cent of its clients have never had a financial plan, and 42 per cent would be willing to pay additional fees to access one.
“Moving the planning component to the digital advice channel represents a significant opportunity for [robo-advisers] as the consumer can be engaged more specifically and beneficially with a digitally integrated financial plan and investment portfolio,” said Josh Book, CEO and founder of Parameter Insights Inc.