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HSBC is joining the Canadian banks' robo-adviser revolution.

HSBC Bank Canada, a subsidiary of HSBC Holdings PLC and the seventh-largest bank in Canada, announced on Thursday the launch of HSBC Wealth Compass, an online digital portfolio manager for mutual fund investors looking to access exchange-traded funds.

Clients must have an existing HSBC mutual fund account and a minimum of $500 to invest in order to access an online portfolio manager that offers five investment portfolios.

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HSBC is the fourth Canadian bank to enter the digital advice space, next to Bank of Montreal’s BMO Smartfolio and Royal Bank of Canada’s RBC InvestEase. TD Canada Trust announced it will be adding a platform in late 2019. Banks have been using the digital advice arena as way to target smaller investment accounts, as well as to maintain a steady stream of fee income on proprietary products.

"It [is our] goal to offer a growing range of digital solutions for clients,” says Marc Cevey, head of HSBC Global Asset Management in Canada. “Obviously being a bank, most of our clients are banking clients first and foremost, so as they are getting more online solutions for their banking, it is our responsibility to provide more online capabilities for wealth and investment solutions in the same context.”

Robo-advisers allow clients to access an online risk-assessment tool that calculates an appropriate asset allocation based on investors' age, financial goals and risk tolerance. The results provide clients with a recommended investment portfolio that is commonly made up of low-cost exchange-traded funds.

But in the case of HSBC Wealth Compass, investors will be offered a “fund of funds” portfolio, which consists of a mutual fund wrapper that holds third-party ETFs and HSBC money market funds. There will be five globally diversified portfolios, depending on a client’s risk level and investment goals. Management-expense ratios will cost between 0.90 per cent to 1 per cent (which includes underlying costs). For now, all portfolios mainly consist of iShares ETFs by BlackRock Inc.

The launch of a robo-adviser platform using a mutual fund wrapper is a slight departure from the norm, as the majority of robo-advisers in this country deal with securities licensed under the Investment Industry Regulatory Organization of Canada. Unlike the Big Six banks, HSBC Canada doesn’t house its own investment brokerage business. Six years ago, HSBC sold its broker division – HSBC Securities – to National Bank of Canada for $206-million.

Since then, the bank has focused on wealth management from its retail bank branches, which are serviced by licensed mutual fund advisers. As a result, HSBC is the first robo-adviser platform for retail investors to be licensed under the Mutual Funds Dealer Association (MFDA), allowing online portfolios to be sold as mutual fund products.

While the HSBC platform is the bank’s foray into a new digital space, there is a lot of work to be done in order to attract customers, says Josh Book, founder and chief executive of ParameterInsights Inc., a financial-services research and consulting firm.

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What are commonly referred to as “robo-advice” upstarts such as Wealthsimple, Nest Wealth and WealthBar have raised customer expectations, Mr. Book adds. “Offerings such as automated portfolio management and goals-based planning are the new ‘low-cost’ option, and only those providers that find unique ways to create financial literacy and good investing discipline among the masses can win.”

Coincidentally, Wealthsimple – Canada’s largest robo-adviser with more than $3-billion in assets under management – also received its MFDA registration this week for its Wealthsimple for advisers platform. While the online portfolio manager will not be adding mutual fund products to its retail portfolios, it will be looking to provide mutual fund advisers the ability to hold ETF assets, as well as mutual fund products in adviser portfolios for clients.

Editor’s note: An earlier version of this story said HSBC Bank Canada is the eighth-largest bank in Canada. In fact, it is the seventh-largest.
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