Skip to main content

Robo-advisers – also known as online portfolio managers or digital advisers – have recently gained traction in the Canadian financial landscape.Feng Yu/Getty Images/iStockphoto

Once seen as a major disruptor to the industry, robo-adviser Nest Wealth Asset Management is now partnering with the wealth-management industry to license online technology to those investment firms who want to bring robo-adviser capabilities in-house for their financial advisers to use directly with clients.

Robo-advisers – also known as online portfolio managers or digital advisers – have recently gained traction in the Canadian financial landscape. Over the past five years, the total number of providers has jumped from only a handful in 2012 to more than 15 registered platforms today.

Nest Wealth, one of the top three robo-advisers in Canada, will continue to run its retail investor platform, which has hundreds of millions of dollars in assets under management. But it has also now launched a second platform: Nest Wealth Pro. Unlike its retail offering, the business platform allows firms to license an online portfolio platform without having to hand over assets to a third party, or limit their clients to only ETF portfolios.

Nest Wealth's move to become a technology provider is seen as a seismic shift for the robo-adviser industry. Many online platforms are realizing the ability to build scale is greater through direct partnership with financial firms, says Kendra Thompson, global lead, wealth management at research firm Accenture.

"In the U.S., very few of the original robo-advisers who launched are going to be profitable and sustainable on their own," Ms. Thompson says. "A lot of them are realizing there is more money to be had as a vendor to the industry than as a competitor or disruptor to the industry."

While the overall assets under management (AUM) in Canada remains a mystery (only one firm, Wealthsimple, has publicly announced it recently hit $1-billion in AUM), the service is booming in the United States. Online platforms held $103.3-billion (U.S) in AUM as of June, 2017, according to a report by Corporate Insight, a market research firm in New York.

Robo-advisers offer retail investors a quick route to building an investment portfolio through an online risk-assessment tool that calculates an appropriate asset allocation based on age, financial goals and risk tolerance. The results provide clients with a recommended investment portfolio predominantly made up of exchange-traded funds, which will automatically rebalance as markets move.

Traditionally, robo-adviser platforms – including Nest Wealth – launched business-to-business platforms early on, allowing financial advisers and investment firms to sign up clients at a discounted rate. Now, after five years, Nest Wealth's chief executive Randy Cass is leveraging his "secret sauce" and allowing financial companies to use his technology tools themselves.

"The way this industry is having to confront margin compression means that the only long-term viable solution is for us to partner with businesses where advisers are supplementing the services they provide with the best in technology," Mr. Cass says. "But that adviser is going to have to raise their level of service in light of the new competition. They will have to find a way to do it for less revenue and less margin than they use to do it for."

Nest Wealth Pro allows investment firms to offer clients direct access to an in-house online portfolio manager while maintaining their relationship with a human financial adviser. Investment firms are able to brand the online tool with their own name. Unlike other robo-adviser business platforms, Nest Wealth is not signing up clients to park in their own ETF portfolios, nor will it be managing any assets directly for the financial firms.

Wealth managers can either pay Nest Wealth a percentage of total assets that are loaded onto the platform, or pay a flat fee per account.

Rather than spend money to build in-house platforms, National Bank Financial, Credential Financial Inc., MD Financial and Aligned Capital Partners have all entered into partnership agreements with Nest Wealth to obtain the technology needed to launch a robo-adviser offering.

"When you look at the trends in both the U.S. and Canada, you are starting to see more robos partnering with humans and more humans partnering with robos," says Jonathan Durocher, president of National Bank Investments. "Initially, when we looked at whether we would build it internally, it was obvious that it would be a two- to three-year project so we decided to partner with a firm who could empower our financial advisers, beef up their proposition and allow National Bank to leapfrog ahead in the industry. It certainly is a platform that was once seen as a threat to now something that will empower us as a whole."

Wealth-management firms are able to roll out the Nest Wealth Pro platform to their investment advisers to use with their individual clients as an online tool. Unlike a typical robo-adviser platform, advisers can set up accounts to include a client's full portfolio, including mutual funds, ETFs, stocks and bonds – and continue to use the online technology to rebalance a client's account if it goes outside the risk tolerance indicated.

Clients will receive an e-mail alert – which automatically is sent from their financial adviser – when the account has been rebalanced.

As a result, many financial advisers will be able to hang on to lower-asset accounts, rather than make cuts to those who are not among the firm's top-percentile clients – an occurrence that has progressively started to plague the investment community.

"It was inevitable that firms were going to have to raise minimum-asset levels for clients who wanted to be serviced by a financial adviser, and that meant firms were going to have to ditch thousands of accounts because they weren't profitable to manage any more," Mr. Cass says. "Technology is going to allow that to halt in its tracks."

While some industry watchers say yes, there’s growing evidence that investors still want that human touch – even while adopting more digital tools.