Global investment giant Vanguard Group is set to launch a Canadian robo-adviser service within the next 18 months in a move that will bring a formidable new competitor to the increasingly crowded field of digital portfolio management.
Vanguard Investments Canada Inc., the third largest provider of exchange-traded funds in the country by assets, will introduce a digital online advice platform for retail investors, according to three sources with knowledge of the plans.
The online platform would be the first digital advice service launched by a major independent asset manager in Canada, and the first in-house direct-to-consumer offering for Vanguard Canada. Currently, Vanguard mostly sells its products in Canada through financial advisers.
Robo-advisers – also referred to as online wealth managers or digital advisers – are web-based platforms that offer clients an online risk-assessment tool that quickly 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 – all for much lower fees than usually offered by traditional financial advisers.
A Vanguard spokesperson declined to comment on its plans.
While the number of robo-advisers has swelled to more than 15 players in Canada, industry observers suggest asset managers are keen on expanding into the space.
“There is no asset manager today who is not trying to build their own form of distribution. Whether they are collaborating with someone, or launching their own direct to consumer, expect this space to become a hot one," said Kendra Thompson, managing director, North American lead wealth management at consultancy Accenture.
In Canada, Vanguard is committed to the exchange-traded-fund business, and since entering the Canadian market in 2011, has grown to more than $17.5-billion in assets under management (AUM) in 37 ETFs and four mutual funds. The assets are only a fraction of the size of its U.S. parent, but account for almost 11 per cent of the overall ETF market share in Canada.
This isn’t the first time the firm has ventured into the digital advice industry. In the United States, Vanguard runs one of the country’s largest robo-adviser platforms with more than US$120-billion in AUM. The platform, Personal Adviser Services, was introduced in 2015 and manages retail accounts for a fee of only 0.30 per cent.
Vanguard is perhaps most widely known globally for its low-cost approach to investing, and its upcoming Canadian service is sure to put further pressure on robo-advisers to keep fees low. Last month, Questrade announced it was slashing its fees to 0.25 per cent – roughly half of what most robo-advisers typically charge in Canada.
In May, 2017, Vanguard expanded the robo-offering into its British market. In an interview with The Globe and Mail earlier this year, Vanguard Group president and chief executive Tim Buckley discussed the importance of the company’s global digital operations and its plans to continue to make big investments in online advice. When asked in February whether he was looking to launch a similar robo-adviser platform in Canada, Mr. Buckley was non-committal: “We love to take things that are successful in Canada and bring them to the U.S., and things that are successful in the U.S., we want to bring them to Canada," Mr. Buckley responded. "If we find there is a better way to invest, then we will bring it across markets. That, you can count on.”
In February, Vanguard launched ETFs that are “robo-like” in that they automatically rebalance asset allocation. The products resonated with Canadian investors and currently have more than $900-million under management. Like its U.S. counterpart, the Canadian digital platform would likely be made up of proprietary products – a strategy that the bank-owned platforms have implemented.
Earlier this month, Royal Bank of Canada launched its own robo-adviser platform for clients, RBC InvestEase Inc., while Bank of Montreal launched BMO Smartfolio in 2016. Both businesses use proprietary ETFs in their investment portfolios. In addition, Toronto-Dominion Bank signed a licensing agreement this year with Hydrogen Technology Corp., a New York-based fintech company, to enhance its current discount brokerage, TD WebBroker, and announced plans to launch a robo-adviser service in late 2019 – a platform that will also house its own ETF products.