Robo-advisors first arrived in Canada two years ago, promising to give investors access to professional, diversified advice online – at a very competitive price. But despite the fact the growing number of robo-advisors are a formidable competitor for investment advisors, most advisors surveyed for this year’s Brokerage Report Card aren’t worried about robo-advisors.
However, advisors who focus on working with millennial-generation clients said they will be keeping a close eye on these fledgling online financial services firms.
In a supplementary question in this year’s Report Card survey, advisors were asked: “Do you consider digital asset-allocation services (a.k.a. robo- advisors) a threat to your financial advisory business?” An overwhelming 79% of advisors responded with a definitive “No.” In general, these advisors said they work with a different clientele from that which robo-advisors are targeting – specifically, the surveyed advisors deal with older, wealthier individuals who prefer a personal touch.
“Everyone is different, and you need a different portfolio for each person. You cannot create a ‘one size fits all’ solution,” says an advisor in Ontario with Toronto-based Raymond James Ltd. “That’s what those [robo-advisor] platforms offer. [They] will serve the lower end of the market more, and that makes sense.”
“Robo-advisors come in for the client who is just getting going; millennials will think that it’s a cool tool,” adds an advisor in Ontario with Vancouver-based Canaccord Genuity Wealth Management (Canada). “The type of clients we deal with, they want to see someone and they want to talk about [their investments].”
Canaccord’s management team also is unfazed by robo-advisors, pointing to the unique services that Canaccord and its advisors provide, says Stuart Raftus, president of the firm: “I would say we don’t view [robo-advisors] as a direct threat to our business, which is a very clientcentric, value-added business based on service and advice.”
No plans for a robo platform
Although some brokerages are exploring the option of adding a robo- advisor platform to take care of clients with less sophisticated needs, Canaccord has no immediate plans to launch an in-house robo-advisor platform, Raftus says. Nevertheless, he adds, the company does see this technology as a means to introduce clients to a wealth-management firm and its products and services.
Similarly, Raymond James is not so keen to jump on the robo-advisor bandwagon. The dealer’s U.S. and Canadian arms both have announced they won’t pursue adding a robo-advisor platform to their services.
Toronto-based BMO Nesbitt Burns Inc. has taken a completely different approach. The firm’s parent, Bank of Montreal (BMO), launched SmartFolio this past January; this service operates under Nesbitt’s banner and is available to any BMO client. As well, Nesbitt advisors can view their clients’ SmartFolio accounts if given permission to do so by the client.
Most Nesbitt advisors aren’t too worried about SmartFolio taking their clients. Instead, the service is viewed as an extension of what advisors do, particularly for smaller accounts or a younger demographic.
“For a forward-looking advisor, [SmartFolio] could be part of your business rather than competition. But there’s no margin to compensate an advisor,” says a Nesbitt advisor on the Prairies. “I would love to be able to offer that [SmartFolio service] to millennials and talk to them once or twice a year. It could be a great thing.”
That’s not to say, though, that some Nesbitt advisors weren’t worried about smaller accounts being pushed out of their books and onto SmartFolio’s platform. (See compensation story on page C10.)
Nesbitt and its parent bank are not alone in taking a closer look at the robo-advisor model. Richardson GMP Ltd., Royal Bank of Canada and Canadian Imperial Bank of Commerce (CIBC), all based in Toronto, are looking into using this new technology.
Robos are a threat to some
Although most advisors were confident they can weather the arrival of robo- advisors, there were others who look at these new platforms with a little more trepidation. About 21% of advisors surveyed said they consider digital asset-allocation services a threat to their business.
Specifically, many of these advisors were concerned that the comfort level of younger Canadians with technology could mean those clients will want to approach investing differently than their parents do.
“As younger people who have grown up with information being delivered on hand-held devices and laptops [seek financial advice], there might be a behavioural shift,” says an advisor in British Columbia with Toronto-based TD Wealth Private Investment Advice.
Adds an advisor in B.C. with Vancouver-based Odlum Brown Ltd.: “The younger generation seems to be gravitating toward robo-advisors. Five or 10 years from now, these things could be pretty significant. The next generation of clients could take their inheritance out the door – and that would be a huge loss for me.”
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