Bank of Montreal plans to start up its own robo-advisory service by the end of this year, becoming the first Canadian bank to offer the automated online portfolio management tool.
The product is being launched by BMO Nesbitt Burns Inc., the bank's brokerage division, and will leverage its already existing adviceDirect platform, according to multiple sources within the wealth management business.
Robo-advisers are gaining popularity with investors – particularly millennials who are looking for lower-cost offerings. Clients of these services can access an online risk-assessment tool that calculates an appropriate asset allocation based on age, financial goals and risk tolerance.
The results recommend an investment portfolio predominantly made up of exchange-traded funds.
The rapidly growing robo-adviser industry had been bracing for the emergence of a large Canadian bank. Many had speculated BMO could be the first to take the plunge, as it not only has a family of ETFs but also the large technology and marketing resources critical to the success of online advice models.
"We're working on an exciting new service for Canadian investors and look forward to sharing more details in the near future," a BMO spokesman told The Globe and Mail in an e-mail.
He refused to provide any details on what the service will be. But many industry players have been briefed on BMO's plans and are already preparing for the increased competition.
Michael Katchen, CEO of robo-adviser Wealthsimple, expressed concerns about the type of offering a bank will put forth to clients. It is not known, for instance, whether BMO will only sell its own lineup of ETFs.
"I challenge the big banks to join us in creating a new kind of platform that puts clients first, and avoids the high costs, low transparency and basic technology of their current offerings," said Mr. Katchen.
Wealthsimple became the first online advice firm to join ties with a major financial institution earlier this year when Power Financial Corp. made a $30-million investment in the company.
The robo-adviser space in Canada has grown rapidly over the past two years and now consists of 10 independent platforms. Another new emergent – Vancouver-based Modern Advisor – will enter the market later this month.
"We don't see the entrance of a bank as a competitive threat but as a validation of our industry," says Edward Kholodenko, chief executive officer of Questrade – the parent company to Questrade's robo-adviser platform Portfolio IQ.
Randy Cass, chief executive officer of Nest Wealth, an online portfolio manager which recently received a $1.5-million cash investment from Metroland Media Group Ltd., said he welcomed the new entrant.
"The more that banks and other large players start to educate consumers about how much better off they could be, the greater the number of people that will start actively looking for alternatives," said Mr. Cass.
BMO has commonly been confused as already having a robo-adviser offering, given the existence of its online discount brokerage platform BMO adviceDirect. However, that platform does not automatically re-balance investments and is only available to those with at least $50,000 to invest. It is not known if the new robo-advisory platform will require a minimal investment.
Until now, the big five Canadian banks have taken a back-seat approach to the movement, even while admitting to watching the robo-adviser platforms closely.
"We've definitely taken note of the growth in digitally savvy investors," said Tony Ierullo, associate vice-president of direct investing at TD Wealth. "Given our strong online presence, we think we are well positioned to provide these capabilities to our clients – but we have no immediate plans."
David Scandiffio, chief executive officer at CIBC Asset management, said the bank will be looking at online portfolio management technology closely to determine how they could use it across CIBC networks.
"We are seeing in the U.S. that these robo-advice platforms are evolving and they are being used in advice models as well as being used with mutual funds," said Mr. Scandiffio. "There is no doubt in my mind that the use of robo-advice tools will work their way into each of the different client channels [at all the banks] because it is an efficient way for those clients who have a tendency to want to use digital means."
Mr. Scandiffo believes the tools will evolve to include more robo-financial-planning tools that will identify other financial needs such as tax and estate planning and insurance needs.