Wealthsimple says it feels young Canadians’ pain

Michael Katchen has mixed feelings about the future.

On the one hand the co-founder and CEO of Wealthsimple is bullish on AI, the future of his online investment management services platform, and the financial prospects of its young userbase. At the same time Katchen can’t contain his concerns about Canada’s increasingly unaffordable housing market, growing innovation gap and declining productivity.

Wealthsimple, which managed $30 billion in assets as of late 2023, was developed after the sale of Katchen’s first startup, 1000memories, to Ancestry.com in 2012. At the time Katchen says his co-founders were looking to maximize the modest sum they earned from the sale, prompting the lifelong investing enthusiast to slap together some financial models in a spreadsheet and attempt to teach his friends how to invest.

“They all came back to me and said, ‘Mike, we love your approach, but can’t you just do this for us?’ And that was the inspiration for Wealthsimple,” Katchen said. “Even the people that know you’ve got to be smart about money, that want to be smart about money, found the tools for doing it overwhelming, scary, complicated, and so we started to hack on that.”

Nearly a decade later Wealthsimple is one of the country’s most successful software startups. As it approaches its 10th anniversary this September, the platform boasts three million Canadian users; nearly one-fifth are younger than 40 and half are first-time investors.

The Star sat down with Katchen to discuss artificial intelligence, meme stocks, the potential of a Wealthsimple mortgage, whether the company can be called a “bank” and a frank evaluation of the Canadian economy.

IN FIRST PERSON FROM B1 Prior to founding Wealthsimple you were living in San Francisco, at a time when the Canadian tech ecosystem was comparatively tiny. Why did you move back to Toronto?

There are several reasons. One is that I am deeply proud to be Canadian. I really benefited from my time in San Francisco, I learned a tremendous amount, but I always wanted to come back to Canada. The other honest answer is I was dating someone, we had been long distance for years, and it made sense to move back for that.

From the beginning Wealthsimple has been banking on the financial success of Canada’s youth, but a lot of people would say that’s a bad bet, given where the wealth is concentrated in this country. Why go all in on younger Canadians?

The idea for Wealthsimple was trying to help friends invest their money; it was a very personal problem, which is a formula for startup creation that’s always stuck with me. There wasn’t a business plan that said, “Let’s go after young people.” It was more like, “We feel this pain, let’s try and fix it.”

That said, it’s worked really well. Why? Incumbents don’t really care much about younger Canadians, because they don’t have the kind of money boomers have, and the entire infrastructure banks have created services that wealthier demographic, but younger generations want a very different kind of experience.

Not only did that resonate with young Canadians, but we now serve a very broad client base. We’re doing over a billion dollars a month in net deposits, and that’s before the wealth transfer from previous generations to our core client base really gets started.

One of the primary financial concerns younger Canadians have is home ownership. Does the lack of affordable housing concern you?

I think Canadians ought to be concerned about this. If you think about what Canada needs for its long-term prosperity, it’s a vibrant growing economy that is powered by incredible talent. If our incredible talent cannot afford to live here that is a real challenge to building the kind of Canada that we all love and sometimes take for granted.

How can Wealthsimple help Canada manage the challenge of housing affordability?

We were quick to launch the first home savings account, which was a good step for the government. We now make up 30 per cent of all the FHSA’s that have been opened. The second, which we’ve hinted at, is our desire to get into mortgages.

What would a Wealthsimple mortgage look like?

If Wealthsimple gets into mortgages, it will be the same kind of approach of making it simple and accessible and delightful that we have brought to the investment experience.

It’s crazy to me that if you open your first bank account at 12 and you bank there for 20 years, when you go for a mortgage you’re handed a stack of paperwork as if they’ve never met you, and then you get the sucker rate, which they hope you don’t know is negotiable.

In each of our products, the more you do with Wealthsimple, the more value you get out of Wealthsimple. If you invest with us, you get a better interest rate on our banking products. If you bank and spend with us, you get cash back directly into investable rewards. When we introduce any new product people can expect it to tie into the relationship they have with Wealthsimple.

Given that you now offer so many bank-like products, is it safe to call Wealthsimple a bank?

We always say that Canada doesn’t need another bank, it needs something better. I think that’s what we aspire to do. I mean, who cares about the nomenclature?

The company has also been labelled a robo-adviser, and while that term might be outdated the idea behind it may be more relevant than ever thanks to artificial intelligence. What role do you see AI having in the future of financial management?

I always hated the term robo-adviser, but AI is incredible, we use it robustly across our technology stack, and it will be ubiquitous in the not-too-distant future. I am not one of those people that is worried that AI is going to take over the world. I am very bullish on AI, and I think people should be thinking about how to use these new tools to make themselves more productive.

Wealthsimple started as a service that offered broad diversification and safe investment products like ETFs. Why the change, and what responsibility does the platform have for the recent surge in speculative investing on trending stocks?

My original hypothesis was that you should never hire someone to manage your money, but I found that a lot of people wanted me to do it for them, so that’s why we started in wealth management, but extending into brokerage was about getting back to those roots.

I’m incredibly proud of how we performed through meme stocks and the recent surge in equities and crypto. We’re technically not allowed to give financial advice, yet we started to surface these warnings in the app, which you could argue was a regulatory grey zone, because we didn’t want people jumping into this without being informed.

We can sleep at night knowing we did our best to give them the information they needed to make good choices. I look at our performance relative to most brokers and feel proud of the way that we’ve handled ourselves.

The Bank of Canada recently published a report highlighting the country’s productivity problem. Are you worried that Canada is falling behind?

One of my favourite books is called “Why Mexicans Don’t Drink Molson,” which points out how Canada has all the raw ingredients to be the global powerhouse in beer — we’re the world leader in freshwater and one of the top producers of barley — yet Mexico produces 20 times as much beer as we do.

There are regulatory challenges, there’s a protectionist history and that’s created a culture of mediocrity, which we need to shake off. In Canada, we pull things out of the ground, and we finance the pulling things out of the ground. If that’s the same economic story we tell our kids, we are screwed.

We need a culture of risk-taking, and we need more people to start companies. I started Simple Ventures because I wanted to stop talking about it, and start doing something about it.

‘‘ We always say that Canada doesn’t need another bank, it needs something better. I think that’s what we aspire to do.

MICHAEL KATCHEN

WEALTH SIMPLE CEO AND CO-FOUNDER

What advice do you have for aspiring entrepreneurs?

Just get started. I see people get stuck in the cycle of, “I don’t feel quite ready,” for 20 years. Nothing will prepare you to be an entrepreneur — the first six to 12 months of trying to build something will teach you more than 10 years of planning — so get out there and start.