This May, Jacob Weinstein had an idea.
The Toronto Raptors had just made it to the NBA finals, and most of Canada was enthralled. Weinstein, the art director at Wealthsimple Inc., wondered if there was a way for the company to harness that enthusiasm. The idea struck him at home around 10 in the evening, and he worked long into the night assembling footage for a rough cut of a television ad. He showed it to his colleagues that morning. Everything happened quickly from there. The creative department found an animator in Moscow and a video editor in Los Angeles. The team spent hours scrutinizing more than 100 different edits, tweaking the copy, the music, and the timing for what was a deceptively simple 30-second ad.
The spot shipped six days after Weinstein conceived of it and first aired during game four of the finals. A basketball sails toward the hoop, bouncing on the rim four agonizing times before falling through, a recreation of Kawhi Leonard’s now-famous corner shot. Then the punchline appears: “Nice trade, Toronto.” The tag is a reference to both the controversial trade the Raptors made to secure Leonard, and to Wealthsimple’s zero-commission trading platform. The spot cost $37,000 to make (more than half was spent on editing; “we burned out our editor,” says executive creative director Mike Giepert), and the company says the ad is its fastest-produced, most cost-effective television spot, reaching about 4.5 million viewers that night.
That ad, and how it came about, says a lot about how Wealthsimple became the largest digital financial adviser in Canada and where it’s headed. Michael Katchen, the company’s 31-year-old CEO, co-founded Wealthsimple in 2014 as a so-called robo-adviser. The company uses algorithms to assemble and rebalance low-cost, ETF-based investment portfolios, largely for millennials ignored by the incumbents. These consumers don’t have much in the way of assets and may experience pangs of anxiety, confusion or boredom when they think about investing. Katchen and his team designed Wealthsimple’s website and app to be quick and painless to use, free of any financial jargon, excessive fees or service glitches that might detract from the experience. Clever marketing—uncommon in the staid world of financial services—was crucial to attracting more than 175,000 clients and $5 billion in assets under management. Wealthsimple does all of its own branding and advertising in-house. Because it employs a creative team in New York, it can move swiftly when an opportunity arises, such as the NBA finals.
Speed is just one of Wealthsimple’s strengths, but the ad itself showcases how the company is now moving beyond its investing roots. First, Wealthsimple introduced savings accounts in 2018, followed by the trading platform earlier this year. In September, Wealthsimple acquired Canadian firm SimpleTax, which makes tax preparation software. Katchen’s ambitions extend far beyond a digital investment service. “Our explicit goal is to replace a bank as our clients’ primary financial relationship,” he says. For that to happen, Wealthsimple has to become a much more diversified financial services provider.
Katchen doesn’t have much choice. Wealthsimple is still in the red, and robo-advisers around the world are struggling to turn a profit. Spending heavily on marketing to attract millennials with few assets, then charging a small management fee, has proven a sure-fire way to lose money. Katchen does have a sizable backer in this quest, though. Power Financial Corp. has invested $238 million and, through its subsidiaries, holds a voting interest of 88.9%. On top of that, Power teamed up with the digital investment arm of Germany’s Allianz Group to sink another $100 million into Wealthsimple in May.
Katchen will need all the support he can get from patient investors. Wealthsimple’s media coverage (yes, this article included) has outweighed its actual impact. It’s a minuscule player in the Canadian asset management industry, where the total value of all investment funds tops $1.8 trillion. It is even tinier on a global scale. In the U.S., Wealthsimple has just US$89 million in assets under management, according to research firm Backend Benchmarking, making it one of the smallest robo-advisers tracked by the firm.
Katchen is betting that what has worked for his company until now—using technology to create a better overall experience than its rivals—will continue to work as it adds new products. But its original investing platform was geared toward the overlooked millennial market. As the company diversifies, Katchen will be competing against financial incumbents on multiple fronts, fighting to keep existing customers while wooing others from the competition. If there's one thing giant banks are concerned about, it's maintaining a deep relationship with their customers. That's the bond that Katchen wants to break.
To visit the head office of Wealthsimple, which bills itself as the “most human” financial company, you have to climb three flights of stairs at a renovated warehouse in Toronto's west end. When I visited recently, the door opened to a reception area that was curiously unstaffed by a human being. I loitered for an uncomfortably long time, waiting for the receptionist to return. Just around the corner, a bunch of young people were toiling away on laptops, cocooned in headphones. Eventually, I noticed the tablet bolted to the reception desk. I punched in my name and the system notified my host, while a printer spat out a nametag.
Sometimes having a human around isn't such a bad thing. Wealthsimple, despite its focus on technology, recognizes that, employing a team of financial advisors and customer service reps to answer questions and provide personalized investing advice. “The team has grown quite considerably,” Katchen says. He's feeling under the weather today, nursing a tea in a meeting room. Casually dressed and unassuming, he's still young for a CEO, easily blending in with his millennial coworkers. He's not quite the sprightly newcomer he was five years ago, though. The hair is a little thinner, the beard fuller. He's a married dad with a mortgage these days.
His own experience getting a mortgage left him somewhat dumbfounded. “They hand you a stack of paperwork where the first question is, ‘What is your name?’” he says. “And then they offer you a rate, which is the sh--est—excuse my language—rate that they can offer you.” Katchen paused, his eyes wide. “Is that a way to treat, like, your lifetime customer?” The ordeal was everything that Wealthsimple stands against: an inefficient, impersonal paper-pushing exchange.
That Katchen was in a bank saddling himself to a mortgage at all is surprising, given he once viewed home ownership as an unnecessary expense. (That was before he got married to his wife, Nikki, a doctor, and had a kid.) Katchen has long held a nerdy fascination with personal finance, and he comes from a high-achieving family. His dad is a stockbroker turned tax lawyer, and his mom is a psychologist turned executive coach. One of his sisters, Jodi Kovitz, now runs #movethedial, an organization dedicated to advancing women in tech, while the other, Amy Baryshnik, paid her way through a Harvard MBA, with the help of a few scholarships, and later became a partner at an alternative investment manager.
Katchen's interest in investing was partly sparked by a charity stock-picking contest organized by Kovitz. Under his dad's tutelage, Katchen bet everything on a single stock and handily won. He read books by index-investing legend and Vanguard founder John Bogle in high school (though he also dabbled in piano and guitar) and went on to study business at the Ivey Business School at Western University.
After graduation, he did a stint at management consultancy McKinsey & Co., moved to Silicon Valley, and joined a startup for scanning and sharing family photos called 1000memories (operated by his Wealthsimple cofounders). The firm sold to Ancestry.com in 2012, and Katchen later returned to Toronto. His colleagues wondered what to do with their cash, so Katchen built a basic investing spreadsheet for them. That was still too much work for his friends, who asked why Katchen couldn’t just handle their money. The situation got him thinking about automating the whole process.
It was not a new concept. In the U.S., the first robo-advisers launched just after the financial crisis. But Katchen and his cofounders, friends Rudy Adler and Brett Huneycutt, did a few key things very well. Signing up for an account is fast and simple, and the company’s written materials are free of jargon. Katchen proved adept at snaring high-profile investors too, such as Som Seif, who founded Claymore Investments, and Joe Canavan, the former CEO of Assante Wealth Management.
His biggest whale came through an introduction by Seif—Paul Desmarais III, a senior vice-president of Power Financial Corp. A member of one of Montreal's wealthiest families, Desmarais estimates he spoke with Katchen several times a week for three or four months about the vision for Wealthsimple and how they could work together. Desmarais was impressed by Katchen's leadership qualities: humble, intelligent and amenable to suggestions. “Often when you meet founders, they have very entrenched views on the path forward,” he says. “Michael was open-minded while being very focused on his mission.” Plus, he and his equally talented co-founders had already operated a startup.
This experienced team knew from the beginning that branding would be essential to gain any customers, particularly for a financial company nobody had ever heard of. Adler, who had previously worked at the advertising agency Wieden+Kennedy, spearheaded marketing and product, and along with chief operating officer Huneycutt, soon set up in New York. Both are American, but there's also a business reason for basing the creative team in Brooklyn. “Talent,” Katchen says. “In Canada, we have some awesome talent, but we don't have the depth that we need in all the roles.”
Wealthsimple hired creative director Giepert, another Wieden+Kennedy alum. The goal of the company’s brand advertising, Giepert says, is to spur “open and honest conversations about money.” The sentiment is perhaps best exemplified by a series of videos originally commissioned by Wealthsimple from Oscar-winning filmmaker in 2017. Called “Investing for Humans,” the shorts feature individuals having unscripted conversations about money, set against colourful backdrops. Anubha, a young professional, recognizes how “bourgie” it is to say the size of her portfolio affords her special privileges. Haley, who inherited money from family members at a young age, seems burdened by the responsibility, pausing to wipe away tears.
The approach carries over into Wealthsimple’s “Money Diaries,” an ongoing series where famous and not-so-famous people discuss their lives and bank accounts. (Katchen sat for one earlier this year. Desmarais has not. “I think my life is too boring,” deadpans the man born into one of the wealthiest families in Canada.)
There is no more honest truth about money than admitting we all have hangups about it—and make mistakes with it. Bank marketing traditionally leans heavily on happy young couples buying houses or happy old couples relaxing at the cottage. “You gain trust when you don’t hide the details or present this perfectly varnished vision of life,” Giepert says. Recognizing that money brings guilt, anxiety, fear, hubris, jealousy and countless other emotions is, apparently, a good way to build trust with Canadians.
Wealthsimple’s marketing does not come cheap. The majority of the money raised by the company goes toward two things, Katchen says: people and advertising. Combined with low fees and the small asset sizes that robo-advisers typically manage, the business model is strained. Researchers at Morningstar estimate robo-advisers in the U.S. need between US$16 billion and $40 billion in assets to break even. Wealthsimple charges a higher fee than its U.S. counterparts (for accounts with less than $100,000 in assets, the levy is 0.5%) but it’s still not profitable.
Incumbents have moved into the space, though without much success in Canada, says Michael King, a professor at the Peter B. Gustavson School of Business at the University of Victoria. Bank of Montreal introduced a robo-adviser in 2016, and Royal Bank of Canada followed suit last year. Others have opted to partner; National Bank invested $6 million for a minority stake in Nest Wealth in 2017 while licensing the startup's technology for its own advisors.
After five years in business, Wealthsimple is building an investing track record too. The company says its balanced and growth funds have returned 24.5% and 36.3%, respectively, since inception. That’s impressive, though not as good as the 50% return from the Canadian Growth Balanced mutual fund at Power-owned Mackenzie Investments. With roughly a dozen robo-advisers in Canada, the space has become crowded, as so many firms fight for the same low-margin customers. Whenever the next recession arrives, not every robo-adviser will make it through. “I’m skeptical about a number of smaller players. They’re going to be acquired by incumbents or go bankrupt,” King says. “What Wealthsimple has realized is that they have to be at the top in order to survive the coming shakeout.”
Scaling is still Wealthsimple’s focus, not profitability. “If we decided we really wanted to ramp down our marketing spend and really focus on profits, that would not be a hard thing to achieve.” Pressed on when that might happen, Katchen brings up Amazon, a company notorious for ignoring profits to pursue growth. “I think we have a once-in-a-generation opportunity to reshape this industry,” he says.
One question underlying Wealthsimple's future is how long Power Financial is willing to back a money-losing company. Desmarais, son of Power Corp. chairman and co-CEO Paul Desmarais Jr., bears a good deal of responsibility for ensuring the continued longevity of the family empire, which includes insurance and traditional asset managers IGM Financial and Mackenzie. These are businesses that are vulnerable to disruption by technology. So Desmarais is investing in fintech startups to ensure that doesn't happen.
“It's kind of a career-betting move,” says Andrew D'Souza, an advisor and investor in Wealthsimple, who is CEO and co-founder of alternative finance company Clearbanc. “He's really backing Mike and the team to deliver on this, and putting a lot of his personal legacy behind the success.”
For Desmarais, Wealthsimple is a generational play, a way to capture new younger customers that his other companies cannot reach and to keep them over time. The average client of Mackenzie, for example, is older, wealthier and has more complex financial planning needs. Millennials aren’t likely to be considering life insurance, either. But they will, some day. “Wealthsimple customers tend to be very loyal to the platform because the service provided is highly differentiated,” Desmarais says, “and that leads to a very sticky long-term relationship that can grow over time.” That also makes Wealthsimple a valuable platform for cross-selling other financial products and services within the Power fintech ecosystem. Desmarais also cites IGM and insurance firm Canada Life as two possibilities, provided whatever product is being sold fits with Wealthsimple.
Meanwhile, Katchen's firm is broadening its offerings. The company has a division catering to financial advisors, automating back-office functions to rid them of paperwork and providing access to portfolios for their clients. Wealthsimple added two tiers to its retail investment advisory service, called Black and Generation, for clients with more than $100,000 and $500,000, in assets respectively. Those clients pay slightly lower fees and receive access to airport lounges around the world through a Priority Pass membership.
Targeting well-heeled Canadians is a departure from where the company began, but there is demand in that demographic. About 38% of robo-advice clients in Canada are over the age of 35 and account for 73% of the assets under management, according to research firm Investor Economics. “We get bogged down sometimes into categorizing people into big buckets or around generational lines,” says Brett McDonald, a senior consultant with the firm. “The preferences within those buckets are not homogenous by any means.”
Savings accounts and Wealthsimple’s trading platform mark the company’s first forays beyond investing portfolios. Katchen says the uptake has been encouraging, but declines to share any specifics. Here, too, the strategy is to scale. Wealthsimple isn’t likely making much money by offering a free trading platform, but it can attract a different kind of customer who might use its other products.
When Katchen talks about the future of Wealthsimple, he breaks it into three broad areas. He wants to expand the company’s investment and savings offerings, of course; one area he’s been thinking about is a cash-flow management tool to help clients with their spending. Second, he talks about “responsible credit,” such as mortgages. “One of the biggest reasons for churn is not client unhappiness,” Katchen says. “It’s people buying houses and needing to pull out their investments to make a down payment.” The opportunity, he says, is to compile data on a client’s spending and saving behaviour, and automatically offer a personalized rate with the click of a button. Finally, Katchen wants to add life insurance. “How we’ll execute any of these products,” he says, “we don’t know yet.”
All of that would make Wealthsimple a more diversified financial services provider. But enough to replace a bank? “The idea that any of the robos or even the bigger ETF companies can truly be a replacement in a significant manner to a bank, that's going to take a long time in Canada, given the presence and the distribution the banks have,” says James Loewen, a partner at KPMG Canada.
One need only look at the asset management business itself to see how hard it is to rival the deeply entrenched banking oligopoly in Canada. Independent firms are undergoing a wave of consolidation. Last year, the Bank of Nova Scotia snapped up Jarislowsky Fraser Ltd., and Toronto-Dominion Bank bought Greystone Capital Management Inc.
But even as they consolidate, banks face new, unconventional competition. Technology giants have amassed reams of information about consumers, the kind of detailed profiles that were once the realm of financial institutions. Some of those players are making forays into finance. Facebook allows for money transfers. Apple has a payment and digital wallet service. In China, WeChat allows people to send money, book flights or hail a ride from their phones.
Wealthsimple is really one more entity chipping away at the lock the banks have on Canadians. Katchen is realistic about his place in the industry. “It would be naive of us to say that we are disrupting the banks today. We are tiny,” he says. Getting to $5 billion in assets is no small achievement, but even the wealth management division of National Bank, the smallest of the Big Six, oversees $104 billion.
Katchen has sought to avoid the label of “disruptor,” positioning Wealthsimple as a provider of technology to spur change in the financial services industry. It’s hard to square that benign goal with the notion of replacing the banks for its clients. So which is it—friend or foe? After circling around an explanation, Katchen puts his head between his hands to gather his thoughts. “We don’t really think about ourselves as trying to steal clients from banks,” he says eventually. “If a bank wanted to partner with us tomorrow because they love the way Wealthsimple does business with clients, we would be like, ‘Let’s do it.’"
As the company grows, it may have to work with other financial players. It doesn’t have the massive balance sheet of a bank to offer mortgages, so it may need a partner of some kind. The reality is boasting and trash-talking the incumbents, which is generally not Katchen’s affable style, may also not be good for business.
His firm has to interact with its competitors already. I told Katchen about my experience with Wealthsimple, which involved transferring funds from another institution. The firm required someone from Wealthsimple to sign a form before releasing the funds, but it would only accept the original sheet of paper—not a digital version. When I explained the situation to one of his customer service reps over the phone, she was mystified. “Paper?” she asked. It took two days to sort out.
Katchen nods along. “We depend on this industry, and sometimes it breaks the experience,” he says. Wealthsimple has even developed software to automatically send faxes to certain financial institutions, which still use them when processing account transfers. Sometimes the faxes are ignored, so the software follows up. Katchen shakes his head. “You know, I never thought we'd be building software for faxing,” he says. Technology can make things easier, but everyone, even Wealthsimple, has to play by the banks' rules.
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