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 robo- advisor Wealthsimple Inc. created its Wealthsimple for Advisors business-to-business platform and Vancouver- based 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.