Robo-ad­vi­sors and tra­di­tional firms are cre­at­ing new part­ner­ships

Investment Executive - - CONTENTS - BY FIONA COL­LIE

New ways to ac­cess ETFs us­ing robo-ad­vi­sors are pro­lif­er­at­ing.

Har­ness­ing the in­vest­ing power of low-cost ETFs while also pro­vid­ing ad­vice can be an is­sue for fi­nan­cial ad­vi­sors. Those chal­lenges can be even more trou­ble­some when ad­vi­sors, es­pe­cially those li­censed by the Mu­tual Fund Deal­ers As­so­ci­a­tion of Canada (MFDA), run into tech­ni­cal dif­fi­cul­ties in ac­cess­ing ETFs. For ad­vi­sors in this group, so­lu­tions may seem elu­sive.

But new ways to ad­dress these prob­lems are emerg­ing, cour­tesy of the evolv­ing dig­i­tal wealth-man­age­ment plat­forms that use ETFs (a.k.a. robo-ad­vi­sors). The lat­est evo­lu­tion among these plat­forms is the rise of hy­brid ser­vices, in which robo-ad­vi­sors part­ner with tra­di­tional ad­vi­sors, in­clud­ing those li­censed by the MFDA who have had lim­ited ac­cess to ETFs. Some robo-ad­vi­sors are en­ter­ing into for­mal part­ner­ships with mu­tual fund deal­ers to pair ETFs with the ad­vice al­ready avail­able from these firms.

These types of ar­range­ments make sense to Atul Ti­wari, manag­ing di­rec­tor of Toronto-based Van­guard In­vest­ments Canada Inc., which sup­plies its ETFs to many robo-ad­vi­sors. “To us, [this] is a nat­u­ral part­ner­ship,” he says, “and I think we’re go­ing to see it grow.”

Ti­wari and oth­ers point to the rise of fee-based prac­tice mod­els as an­other key fac­tor driv­ing these new, hy­brid dig­i­tal plat­form/hu­man ad­vice mod­els. As more ad­vi­sors pre­pare for what ap­pears to be the con­tin­u­ing re­duc­tion — or even elim­i­na­tion — of em­bed­ded com­mis­sions, they’re con­vert­ing their prac­tices to fee-based com­pen­sa­tion.

These ad­vi­sors are look­ing for ways to charge their an­nual ad­vi­sory fee in ad­di­tion to prod­uct-man­age­ment fees and still of­fer a rea­son­able deal to clients. They also want to re­tain con­trol of the client re­la­tion­ship.

“What’s hap­pen­ing out there is that ad­vi­sors are in a co­nun­drum,” says Mark Ya­mada, pres­i­dent and CEO of Toronto-based PUR In­vest­ing Inc. “If they’re [li­censed by the] MFDA, they have to look very hard at their busi­ness prac­tices. They’re try­ing to re­place the main part of their in­come, which has been em­bed­ded com­mis­sions, and they’re look­ing for [eas­ier] ways of ac­cess­ing ETFs.”

Ad­vi­sors in­ter­ested in part­ner­ing with a robo-ad­vi­sor don’t have far to look. For ex­am­ple, Toronto-based roboad­vi­sor Wealth­sim­ple Inc. cre­ated its Wealth­sim­ple for Ad­vi­sors busi­ness-to-busi­ness plat­form and Van­cou­ver­based WealthBar Fi­nan­cial Ser­vices Inc. de­vel­oped a part­ner­ship with Toronto-based PPI Fi­nan­cial Group to roll out PPI Valet. (This tool al­lows in­sur­ance ad­vi­sors who work through one of PPI’s two manag­ing gen­eral agen­cies — PPI Ad­vi­sory and PPI So­lu­tions Inc. — to pro­vide clients with pro­fes­sion­ally man­aged in­vest­ment port­fo­lios).

Then, there are robo-ad­vi­sor of­fer­ings that aim to pro­vide MFDA-li­censed ad­vi­sors ac­cess to their ETFs. For ex­am­ple, robo-ad­vi­sor Just­wealth Fi­nan­cial Inc. has part­nered with Vexo Tech­nol­ogy So­lu­tions Corp., both of Toronto, to pro­vide MFDA-li­censed ad­vi­sors with ac­cess to Just­wealth’s five fam­i­lies of ETF port­fo­lios.

There also are dig­i­tal mod­els that pro­vide ac­cess to ETFs through a mu­tual fund. Toronto-based In­vesco Canada Ltd.’s new dig­i­tal plat­form, ad­vi­sorDUO, pro­vides MFDA-li­censed ad­vi­sors with ac­cess to five ETF port­fo­lios that are “wrapped” in mu­tual funds.

Canada’s Big Six banks see the al­lure of robo-ad­vi­sor plat­forms and are in­vest­ing in them to pro­vide ac­cess for ad­vi­sors or con­sumers. Mon­treal-based Na­tional Bank of Canada, for ex­am­ple, holds a mi­nor­ity stake in Toronto-based robo-ad­vi­sor Nest Wealth As­set Man­age­ment Inc. and is run­ning a pi­lot pro­gram with Nest Wealth Pro, the robo-ad­vi­sor’s white-la­bel plat­form for ad­vi­sors.

Mean­while, Bank of Mon­treal (BMO) and Royal Bank of Canada (RBC), both based in Toronto, are in­vest­ing in their own client-fac­ing robo-ad­vi­sor plat­forms. BMO launched BMO SmartFo­lio in De­cem­ber 2015 through the bank’s bro­ker­age di­vi­sion, BMO Nes­bitt Burns Inc. And RBC is test­ing its own robo-ad­vi­sor plat­form, RBC In­vestEase, in a pi­lot project in On­tario. This plat­form, still in de­vel­op­ment, of­fers port­fo­lios con­sist­ing solely of RBC ETFs.

More news re­lated to robo-ad­vi­sors is likely to come from the banks. Says Chris Pitts, part­ner and leader of the Cana­dian as­set- and wealth-man­age­ment prac­tice at Price­wa­ter­house­Coop­ers LLP in Toronto: “It’s al­ways dif­fi­cult to pre­dict, but our sense is that most of the large banks, and the in­sur­ance com­pa­nies as well, will be launch­ing some form of robo-ad­vi­sor within the next 12 to 24 months.”

Large as­set-man­age­ment firms also are con­sid­er­ing ways to fa­cil­i­tate dis­tri­bu­tion of their ETFs. Van­guard’s ETFs, for ex­am­ple, ap­pear in the port­fo­lios of al­most all in­de­pen­dent robo-ad­vi­sors. “We feel good about our re­la­tion­ship with the robo-ad­vi­sors,” Ti­wari says.

Whether firms such as Van­guard will pro­vide their own robo-ad­vi­sor plat­forms in Canada is un­clear. But one trend is cer­tain: the rise of robo-ad­vi­sors, and their part­ner­ships, will con­tinue to re­make the re­tail in­vest­ing land­scape.

“What’s hap­pen­ing out there is that ad­vi­sors are in a co­nun­drum. If they’re MFDAli­censed, they have to look very hard at their busi­ness prac­tices”

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