BRIDGING THE GAP
New breed of online portfolio managers fill void for those who want investment advice without having to commit to a financial adviser.
Michael Katchen was 26 when he started WealthSimple, an online service that manages money at low cost.
He set an ambitious goal of signing up 1,000 clients in the first year. His firm has 2,000 clients — 80 per cent under 45 years old — after one year in business. He employs 20 people, half of them working as software engineers.
Now 27, the CEO recruited a team of well-known Bay Street veterans to act as advisers.
He also attracted an influential investor: Power Financial Corp., the Montreal-based holding company behind Great-West Life, London Life, Investors Group and Mackenzie Investments.
WealthSimple is one of a dozen virtual or “robo-advisers” that have sprung up across Canada. They aim at a market of young people who have jobs, earn money, want to save for the future and don’t have the time or inclination to deal with a traditional financial adviser.
Robo-advisers make sense for tech-savvy types who want to open accounts on their computers and smartphones, arrange for online transfers from banks and check their progress at all hours.
But do clients flee from automated advisers in a stock-market downturn? That hasn’t happened at WealthSimple during the last two months of declines, according to its CEO.
“We’ve seen an elevated amount of inquiries, about 15 per cent higher. But we’ve had more calls from people who want to put money in rather than take it out,” Katchen says.
I’ve had a keen interest in roboadvisers since they started in Canada last year. (The business is more established in the United States.) I think they fill a market niche that was not served before.
Most Canadians deal with banks or investment dealers. They buy actively managed mutual funds, which have advice bundled into the cost.
Those who have the time, energy and skills use online brokers to do their own investing and put together a portfolio that suits their age and stage of life.
The new breed of online portfolio managers, such as WealthSimple, WealthBar and Nest Wealth, bridge the gap between full advice and no advice. Clients answer questions about their ability to handle risk and their investment knowledge.
Then, they get one of several standard portfolios that suits their needs.
Robo-advisers charge fees for their services, which include rebalancing. If you want only 30 per cent of your money in stocks, for example, you could end up with 50 per cent in stocks during a bull market. Rebalancing involves selling stock funds to get you back to your 30-per-cent goal.
You can sign up for a WealthSimple account in 20 to 30 minutes using a mobile app on your phone, Katchen said. This is faster than going through an application with a full-service adviser.
I decided to open a tax-free savings account and found I needed 45 minutes to sign up, struggling to read the contractual fine print on a small screen. But I enjoyed taking a photo of my driver’s licence as identification, instead of using mail or fax.
Robo-advisers may be small for now, but Canada’s banks and investment dealers are watching closely. You can expect to see a few giant firms launch their own versions in the next few years. Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca or ellenroseman.com.