The stock market drama of 2020 may prove to be the making of robo-advisers.
New account openings surged as the markets crashed in March and April, negating the argument from advisers that a bear market would expose the lack of hand-holding from the app- and web-based service provided by robos.
Investors seem open to the idea of paying a small fee for management of an exchange-traded-fund portfolio tailored to their investing objectives and risk tolerance.
But robos still have some work to do, as shown by a recent e-mail from a reader. “How safe is investing with Wealthsimple?” he wrote. “Are they reputable? Any chance of collapse and taking my money with them? Where can I find how stable and reputable they are?”
All robo-advisers should be anticipating this question from prospective clients, particular in current market conditions. All robos should have something within a click of their homepage to definitively answer the question.
The big banks own the trust franchise in Canadian investing and personal finance. If you go up against them, you need to establish your reliability. The importance of this requirement in a business sense can be seen in the particulars of the reader who asked about Wealthsimple.
He said he has a seven-figure portfolio and is paying $17,000 a year in fees. “To be honest, I don’t think I’m getting value for money.” According to his own calculations, Wealthsimple’s fees would amount to roughly one-third of that amount.
What does Wealthsimple say in response to this reader’s questions? I asked and got a helpful response that our reader should have been able to find for himself while researching Wealthsimple.
Basically, Wealthsimple Inc. has an affiliate called Canadian ShareOwner Investments Inc., which is where money managed in a Wealthsimple account is kept. ShareOwner is a member of the Canadian Investor Protection Fund (CIPF), which protects up to $1-million in eligible account assets from investment dealer insolvency.
As well, ShareOwner is registered as an investment dealer in each jurisdiction of Canada and is a member of the Investment Industry Regulatory Organization of Canada (IIROC), a self-regulatory body that oversees investment dealers and their trading activity. Wealthsimple also mentioned its strong financial backing through majority shareholders Power Corp. of Canada and Allianz Group.
All robos need to be pro-active in telling current and prospective investors about the safety net available to them in case of an insolvency, and they need to do it in a transparent fashion where the legalese is kept at bay. Not addressing insolvency fears head on may be costing them customers big and small, especially in a trying year like 2020.
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