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Michael Katchen, founder and CEO of Wealthsimple, an online “robo-adviser” investor service.
Michael Katchen, founder and CEO of Wealthsimple, an online “robo-adviser” investor service.

Robo-adviser Wealthsimple to acquire ShareOwner Investments Add to ...

Online portfolio manager Wealthsimple is gaining ground among competitors as it acquires online brokerage Canadian ShareOwner Investments Inc.

It is the first acquisition in Canada between two online advice platforms, also known as robo-advisers, and the deal reveals that Wealthsimple will now manage 10,000 clients and $400-million in client assets – financial details that have been widely anticipated in the wealth-management industry.

Currently, there are 10 Canadian online portfolio manager platforms, including one in development with BMO Nesbitt Burns Inc., which is set to launch its offering in early 2016.

Wealthsimple entered the market in September, 2014, and quickly grabbed the attention of investment giant Power Financial Corp., which invested $10-million in the company this year and has an option to invest an additional $20-million. At the time, Wealthsimple had only 1,000 clients on its platform, with an unknown amount of assets under management (AUM), but founder and chief executive officer Michael Katchen has said he is aiming to reach AUM of $2-billion over the next two years.

“ShareOwner has a 28-year-old history of being a broker. Being able to match their ability to execute trades with our front-end client experience really creates the full package for an investor,” Mr. Katchen says. “We are both trying to build a new category in the investment space within Canada and it was very obvious to me – from Day 1 – that we could be stronger together.”

ShareOwner first entered the investment industry in 1987 as a traditional discount brokerage providing low-cost investing services to retail investors. Over time, the company introduced fractional shares and dividend reinvestment programs. In May, 2014, it launched its model portfolios product and became one of the first automated investment managers to enter the Canadian market.

“We have seen the landscape change significantly since we first launched our model portfolio tool back in 2014,” says Bruce Seago, CEO of ShareOwner. “There have been a number of new entrants enter the marketplace and we have followed what each of them have been doing over time. We always felt there was something we could be doing with Wealthsimple and it became clear when we realized we don’t just have a similar view of the industry today but also of what tomorrow should look like.”

Both Mr. Katchen and Mr. Seago say they were attracted to a deal because of similar values and long-term investment strategies. Both platforms offer portfolios made up entirely of exchange-traded funds that mainly consist of products from BMO, iShares and Vanguard. (Wealthsimple also uses ETFs from Purpose Investments) and investors on both platforms benefit from an automated rebalancing tool to maintain portfolio allocation.

But they do have their differences.

Wealthsimple tends to attract a younger investor averaging 29 years old while ShareOwner has users averaging 49 years old and is geared more toward a do-it-yourself investor, according to The Globe and Mail’s guide to online advisers.

Wealthsimple offers model portfolios while ShareOwner allows investors to build customized portfolios as well as model portfolios.

How the two platforms will work together has yet to be announced. “Stay tuned for what is in the pipeline,” Mr. Katchen says.

For now, the two businesses will continue to run as separate entities, with Mr. Seago staying on to operate the ShareOwner offering.

With this acquisition, Wealthsimple gains end-to-end control over the platform, which includes trade execution, custody, portfolio construction and advice – a comprehensive service that is currently done by only a handful of companies in Canada, such as the big banks.

The deal is expected to close by the end of year, and over the coming months, ShareOwner will start to support some back office operations for Wealthsimple. The changes will be invisible to clients, but the benefits will be apparent in speed and features still to be introduced, Mr. Katchen says.

“It means we can move faster to bring innovation to Canada’s financial industry, and we’re adding complementary technology, like fractional shares, that will help deliver a superior experience to our clients,” he says.

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