The “robo-advisor” market in Canada will continue to grow as traditional financial services firms, such as banks and asset managers, venture into the niche and the services themselves evolve, suggests a new report from Boston-based research firm Celent.
Although the robo-advisor business in Canada is still in its early stages, it’s growing fast, says the report, entitled Thawing Market: The Growth of Robo Advice in Canada: “Once skeptical, banks and other wealth-management incumbents are waking up to the threat posed by online advisors offering low costs and fee transparency to investors.”
Moreover, Bank of Montreal’s (BMO) move into the robo-advisor business earlier this year with the launch of BMO SmartFolio will put pressure on startups to “broaden their offers beyond the commoditized portfolio management function,” the report suggests. For existing robo-advisors, this may mean expanding to new products and asset classes, introducing more sophisticated planning services and exploring different business models.
At the same time, the report predicts that other traditional financial services firms will likely follow BMO into the automated advice business “as demographic and regulatory tailwinds have made robo advice an attractive proposition for banks, asset managers, and insurers alike.”
Although robo-advisors may not necessarily hold a lot of profit potential for these large, traditional firms, the report says that it is appealing for other reasons: “The expansion of the client base will drive needed fee income and help institutions reduce dependence on their high cost, human delivery channels. Equally, the self-selecting nature of the platform and the digital trail left by investor adopters offers opportunities for more efficient customer analysis and segmentation.”
The big banks have been able to take it slow so far, the report notes, given their strong market positions. Yet, it warns that, “This dominance is by no means guaranteed.
“Canadian investors are tired of overpaying for investment advice, and robo advice speaks to the digital zeitgeist. The question is not whether a wealth-management market frozen in time will thaw, but how quickly,” the report concludes.
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