Robo-advisors are getting plenty of attention for shaking up traditional investing models. Some financial firms have come up with their own robo platforms, but others have chosen to partner with companies that have their own system, even though many in the financial industry still see robo-advisors as a threat to their business.
Sterling Mutuals Inc. is one of Canada’s largest independent dealers, with more than 300 advisors and support staff, in all 10 provinces. Nelson Cheng is Sterling’s founder and CEO. In an interview, he discussed his firm’s experience with robo-advisors so far – and how Sterling is about to switch gears and launch its own robo platform.
How did your firm come to be involved with so-called robo-advisors?
I consider the use of technology to be our firm’s forte. We developed our own back office system and we spun that off as a separate company called OneBoss. That happened earlier this year. Sterling uses it and we’ve sold it to a couple other people as well. But basically being a leader in technology is what has kept us around for 21 years. So, the robo-advisor product we’ve been using is Invesco’s advisorDUO. They approached me last year and said they wanted to do something with us. We were already working on our own platform but realized this was a good way to get started.
Tell me more about Sterling’s robo-advisor product.
In November we’re launching our own platform – it’s called Ensemble. In some ways it is similar to advisorDUO, but there are some differences. Obviously because it’s our platform I think it’s better [laughs.] But the way Sterling works is we are product-agnostic. We don’t tell our advisors what to do, what products they should use. So, the advisorDUO platform will still be available to them; those who are currently using it won’t have to change. But our product does have more flexibility.
So, if you want to compare Ensemble with advisorDUO and, say, Wealthsimple – Wealthsimple is very powerful, but you’re giving up a lot of control; advisorDuo is basically an onboarding solution that puts your client in one of five investable portfolios – basically suites of ETFs. Very good products, ETFs from people like BlackRock and Vanguard and so on.
But what we’ve heard from advisors is they like the platform, but they might not want to use just the products selected by Invesco. So, the Ensemble platform allows the advisor to use a wide range of products. They can use a similar range of ETFs and also mutual funds from other firms like Mackenzie and CI, or they can mix and match.
So, you can create a balanced portfolio for your client in the way you prefer. The other advantage with Ensemble is it also leaves control of that portfolio in the advisor’s hands. As well, you can create custom portfolios – for instance if your client is interested in socially responsible investing, you can set up the portfolio to do that. Secondly, it stays as part of your book – you’re not ‘giving it away’ to someone like Wealthsimple, or any robo platform where a referral arrangement is used. And the dealer maintains control over the portfolio from a compliance standpoint. …
I think most advisors will like it. I think most advisors want to have a say in what their clients are holding. It’s a standalone system similar to advisorDUO, and we plan to make it available to other firms free of charge. So, a dealer with a different back office system, let’s say they’re not using OneBoss, they can still use Ensemble, but they will be given the option of converting if they want.
So, setting aside the product you are going to launch, what kind of feedback are you getting from your clients and advisors about the robo-advisor product you’re currently using?
We do have some positive feedback from our advisors on this. We have quite a few advisors currently using advisorDUO and they’re pretty happy with it – especially the fact that it’s an automated/guided process. That’s the nice thing about computers – you can set up systems that are easy to follow and track, and so people don’t forget or overlook something. … I hear some people say robo-advisors are mainly good for managing the smaller investor. I actually disagree with that. Does it lower the threshold as far as the cost of doing business? Absolutely. But what it really does is make sure the client is in the portfolio they should be in – particularly through the automated onboarding process. I think it can be a good tool for any client.
And how many of your advisors have been using the robo platform?
The uptake on it maybe hasn’t been quite as robust as we would like, but like a lot of new technology sometimes it takes a while. But I would say the response has been good. I’m not sure what the success has been at other firms, but its been okay here.
What would you say to advisors who might see robo-advisors as competition, a threat to their livelihood?
I think that’s short-sighted. I think they need to look at the robo platform as a tool that prolongs and enhances their business. They also have to look at the differences between the robo platforms. With Wealthsimple, I might say they’re right – don’t go there, because you’re giving your client away. But it’s a different story if you use a robo tool that lets you have a combo approach, where the assets stay with your dealer and that client stays on your book. It’s understandable that some advisors see it as a threat, but they really need to look at how they can harness it.
What do you see as the future for robo-advisors?
As the regulatory environment gets more complicated, I think advisors will use more technology to manage their book in a way that helps them stay out of trouble. It’s getting more complex all the time, and a robo platform can help insure that you dot all the i’s and cross all the t’s. Because that’s the main way most advisors get into regulatory difficulty. Not because they’re trying to be dishonest, but usually it’s a technicality like not signing something on time. The automation and consistency of a robo system protects the advisor against that.
This interview has been edited and condensed.