Referral arrangements announced in August create new ways for advisors to serve clients’ and prospects’ needs
Robo-advisors are turning to traditional financial services firms for referrals, and this trend presents an opportunity for financial advisors.
as robo-advisors strive to gain traction in Canada’s financial advisory market, they’re beginning to look to traditional financial services firms for referrals. That presents an opportunity for financial advisors to expand their scope of offerings and earn another source of income.
However, the extent to which advisors are willing to send business to their online counterparts is still a big question mark.
In early August, Vancouverbased robo-advisor WealthBar Financial Services Inc. and Calgary-based life insurance distribution firm PPI Financial Group Inc. announced a new partnership that will allow insurance advisors operating within PPI’s two managing general agencies (MGAs) — PPI Advisory and PPI Solutions Inc. — to refer clients to an investment platform powered by WealthBar.
The new initiative, called PPI Valet, allows advisors who are licensed to sell only insurance to offer their clients access to investments without the need for additional licensing. The advisor can continue to manage the relationship with the client while WealthBar looks after portfolio management and compliance.
“[The alliance] really is marrying direct, face-to-face advice with robo-advice,” says Jim Virtue, president and CEO of PPI Solutions Inc., another MGA under the PPI umbrella. “We’ve taken robo-advising, and turned it into advisorfriendly robo-advising.”
In another partnership announced in August, Burlington, Ont.-based Mandeville Private Client Inc. joined forces with Toronto-based robo-advisor Smart Money Capital Management Inc. to launch a new online portfolio-management platform called WealthPort.
Mandeville, the investment dealer subsidiary of Michael LeeChin’s Mandeville Holdings Inc., will be able to refer clients and prospects to the WealthPort platform in exchange for a referral fee.
The referral arrangement provides a new way for advisors to help clients or prospects who aren’t an appropriate fit for that advisor’s practice, or whose needs could be better served by an online platform.
“Clients have different needs at different life stages,” says Tuula Jalasjaa, a Smart Money advisory board member. “This [alliance] should be viewed as a tool to help advisors be more effective and embrace the efficiencies that come with leveraging technology.”
These referral arrangements are the latest examples of partnerships between financial technology (fintech) startups and traditional financial services firms, alliances that are becoming increasingly common as traditional firms strive to modernize their services.
This past spring, for example, Toronto-based Nest Wealth Asset Management Inc. announced partnership agreements with Vancouver-based Credential Financial Inc. and Montrealbased National Bank of Canada that enable advisors at the latter two firms to use Nest Wealth Pro, a digital platform for advisors.
“The innovation coming from the fintech organizations is exciting,” says Gregory Smith, partner and national wealth and asset management leader with Ernst & Young LLP’s (E&Y) Canadian division in Toronto. “So, rather than an independent or a smaller advisory firm needing to build [a robo-advisory platform] themselves, they can access some of that fintech innovation more readily and at a lower cost.”
For robo-advisors, referral arrangements can provide new clients. E&Y research found that Canadians are slow to adopt fintech, a challenge for fintech startups.
“The [typical] fintech company has accessed venture capital,” Smith says. “[That firm] needs to show its business case by getting people in the door, getting people online, getting people using its services, getting assets on the books.”
By partnering with traditional financial services firms, roboadvisors can tap into a market composed of people who are more comfortable dealing with a human advisor, but who may benefit from the services of an online wealth-management platform.
“Even though a lot of people see the appeal of the low-cost portfolio, they still prefer to deal [with an advisor] face to face,” says Tea Nicola, CEO and cofounder of WealthBar. “This is a perfect opportunity for us to deliver this to more people.”
For advisors, these referral arrangements can strengthen relationships with clients by address- ing more of their needs. In the case of the PPI Valet, for example, insurance advisors can provide their clients with access to investments, which means clients may be less inclined to seek out a different advisor for their investment needs.
“[This kind of referral arrangement] allows you to deliver more value to the client,” says Lorne Marr, director of new business development with Markham, Ont.based LSM Insurance Services Ltd., “[and] allows you to create a fence around your clients, so other competitors are going to be less likely to take that client from you.”
Some advisors, though, may be reluctant to send business to a channel that replaces the advisor’s role with an automated process, says Marr:“It’s a concern, [but] advisors have to step back and look at what they’re delivering as opposed to just selling products.”
However, advisors should consider the ways that technology can complement their services, says Frank Laferriere, senior vice president and chief operating officer with Mandeville.
“We believe tech should be an enabler that allows advisors to build deeper and more meaningful relationships with their clients,” he says. “So, we believe this is simply a complementary strategy to their other activities.”