BMO finds less is more in robo-wars

Demand spikes for its roboadviser after cutting account minimum to $1,000

When it comes to the Bank of Montreal’s online adviser service, it appears that less may be more.

Canada’s fourth-largest lender says it has seen an increase in demand for its two-year-old BMO SmartFolio roboadviser since cutting the account minimum to $1,000 from $5,000 in December.

Silvio Stroescu, head of digital investing at BMO Wealth Management, said in an interview with the Financial Post this week that the threshold was lowered after feedback suggested that a $5,000 minimum balance was low enough to lure existing investors to the online portfolio manager, but too high to attract newer ones.

“We decided to lower the threshold to $1,000 in order for us to capture this new category, which would be those new to investing altogether,” Stroescu said.

While Stroescu would not give specific user numbers, calling them proprietary, he said the service attracted a record number of new online applications in December, and that number doubled in January.

BMO characterizes the SmartFolio service as being similar to a roboadviser, but with the inclusion of human managers who oversee and can rebalance its portfolios of exchange-traded funds. Clients are sorted into ETF portfolios after answering a questionnaire.

The move to lower the bar for BMO SmartFolio brings it more in line with the likes of online robo-competitors such as Wealthsimple, which boasts a $0 account minimum. Royal Bank of Canada began piloting a roboadviser of its own last year dubbed InvestEase, which has a minimum account balance of $1,000 as well, according to its website.

BMO’s move also comes as roboadvising is gaining broader acceptance. Javier Paz, a senior analyst at consultancy Aite Group’s wealth management practice, said roboadvising has become “more of a mainstream product,” with large U.S. incumbents such as Wells Fargo and Morgan Stanley launching their own products.

“What is going in the U.S. is an overall acceptance of the concept, and it’s still very early stage in that broadening of the base of financial consumers,” Paz said.

The potential cannibalization of business from traditional advisory channels to lower-fee roboadvisers may have caused some hesitation for firms, Paz acknowledged. However, he said decisions by banks to get into roboadvising is due at least in part to increasing regulatory costs and limitations with their existing adviser workforce, forcing lenders to essentially conserve flesh-andblood advisers for higher-value clientele, and then deal with the remaining majority of customers using digital means.

We decided to lower the threshold to $1,000 in order for us to capture this new category, which would be those new to investing altogether.

“So it’s an opportunity and a necessity to move in that direction, not so much a nice-to-have kind of approach,” Paz said. “But the writing is on the wall.”

Stroescu said he thinks “the competitive landscape will expand.” He also said that about half of the new SmartFolio accounts are coming directly through the internet and the other half through BMO’s more traditional adviser network.

“The way we see it is, it’s actually a great compliment to a traditional adviser,” he said. For Stroescu, the term roboadviser “really diminishes the value proposition of what this solution has to offer.”

Amid the market turmoil earlier this week, Stroescu said there had been “no concerns” with SmartFolio.

Registered Retirement Income Funds were added to BMO SmartFolio’s account options last year as well, which the bank said in January was “in response to demand from clients over the age of 65.”

“I think Canadians have a tendency to dip their toes in and try to get a feel for what the experience looks like,” Stroescu said. “And then the adoption curve increases once they get a feel for what it is, how it works, and they build some comfort there.”