Rise of fintech includes many future risks, FSB says

Vancouver-based Responsive Capital Management Inc. intends to bring active management to the robo-advisor market through artificial intelligence (AI)-driven portfolios with the launch of a beta test program this week.

More specifically, Responsive’s platform is built to manage investments based on hundreds of global economic data signals, from factories in China to U.S. credit risk, rather than follow a strict passive management strategy, says Davyde Wachell, Responsive’s CEO.

“We can give the robo-advisor customer a more high-octane view of the world,” he says.

Besides the AI-driven portfolios, Responsive also uses “chat bots” to communicate with clients. Initially, these “bots” will send clients economic updates through messages over text, Facebook or Slack, a workplace messaging service. Eventually, Wachell plans to have the bots update clients about their portfolios and help investors sign-up for the robo-advisor.

But while AI-technology is a big part of this new robo-advisor, there are still humans working behind the scenes at Responsive. In accordance with Canadian regulatory requirements, Responsive has a portfolio manager on staff to make sure investments are suitable for clients.

Says Wachell: “Any portfolio recommendations or advice ultimately is determined by the portfolio manager.”

Currently, Responsive’s portfolios consist of exchange-traded funds (ETF) focused on the larger global indices and asset classes, but Wachell says the firm plans to build out its offering: “Our short-term product is ETFs, but longer term, we certainly have the competency to build out our own models and to look at different funds and platforms.”

Given the active nature of the platform, it’s a little more expensive than the average robo-advisor. Management fees for Responsive are 0.8% for portfolios between $10,000 and $200,000. Accounts with more than $200,000 in assets have a management fee of 0.5%. On average, robo-advisors have fees ranging from 0.3% to 0.6%.

Wachell argues that the slightly higher fees are justified given that Responsive’s active management approach offers downside protection for portfolios that passively managed portfolios can’t provide.

“Right now, there’s been a huge bull market [and] passive [management] is great,” says Wachell. “But if you’re going to a passive portfolio now and the market goes down over the next couple of months, it’s not going to be that great and those savings [on fees] is not going to be worth it.”

Responsive joins a growing number of robo-advisors in Canada, including: WealthSimple Financial Inc., Nest Wealth Asset Management Inc., Justwealth Financial Inc., Smart Money Capital Management Inc., Bank of Montreal’s SmartFolio and Portfolio IQ, which is owned by Questrade Financial Group Inc., all of which are based in Toronto, as well as WealthBar Financial Services Inc. and ModernAdvisor, both based in Vancouver, and Invisor Investment Management Inc. of Oakville, Ont.

Responsive is currently licensed as a portfolio manager in British Columbia, Alberta and Ontario and will officially launch in August.

Photo copyright: rawpixel/123RF