Robo-advisors not so long ago regarded as unwelcome competition by many financial advisors are shedding their image as trendy upstarts and proving their value as useful tools for advisors.
Human advisors are adopting these digitally assisted investing platforms as key elements of their services to clients instead of fearing that robo-advisors will replace hands-on service. Increasingly, robo-advisors are working in tandem with human advisors; not replacing them. This so-called “hybrid model” an advisor incorporating a robo-advisor into his or her practice can have many advantages, from lowering the cost of investment advice and streamlining onboarding functions to freeing up more time for advisors to confer directly with their clients.
Tony Mahabir, CEO of Toronto-based Canfin Financial Group of Cos., views the digital platforms as “a great employee.” For Mahabir, a robo-advisor is a tool that takes over some basic client service functions while allowing him to focus on more complex financial planning issues.
“Robos are not a substitute for human advisors,” Mahabir says. “They enable advisors to do a better job for clients.”
These partnerships are developing in both directions. Some robo-advisors that began operations by offering digital-only services based on algorithms have gradually added more customized advice and personal contact for clients, including communication by phone and online.
In some cases, the term “robo-advisor” is not even used to describe the automated investing platforms that offer no human input into the options selected by clients. These firms, notes Jeff Woolley, president of Global View Capital Management in Ancaster, Ont., are more “roboallocators” than robo-advisors.
From a standing start a decade ago, there now are more than a dozen roboadvisors in Canada offering digital investing platforms that range from a minimum of human interaction, at very low cost, to others that offer substantial, faceto- face advisory services. Often, the history of a company offering digital investment advice says much about how these tools will be used by the firm.
For example, Bank of Montreal’s BMO SmartFolio and Royal Bank of Canada’s RBC InvestEase are primarily online portfolio-management platforms offering their own products to a large base of the parent banks’ existing clients, with the banks’ advisors and portfolio managers working behind the scenes.
Others, such as Vancouver-based Wealth Bar Financial Services Inc., which pairs online investing with professional advice, and Toronto-based Justwealth Financial Inc. both began operations as digital investment platforms offering a range of standard options to online users. Both now offer more advisory services with a human component, although generally to a lesser degree than in a traditional advisory practice.
Questrade Financial Group Inc., one of Canada’s first and most successful low-cost, online trading brokers, now also offers robo-advice. The combination of the two areas of expertise has helped boost the firm’s business.
Whatever the format, advisors who use robo-advisors say the digital help reduces their administrative, client reporting, communication and compliance burdens. As a result, robo-advisors free up more time for you to spend with your clients and allow you to expand the size of your practice by building client relationships. You also can expand key client services that cannot be performed by digital platforms, such as financial planning and estate planning.
Stephen Scatterty, financial advisor and branch manager with Insch Wealth Management, which operates under the Worldsource Financial Management Inc. banner in Bowmanville, Ont., uses Wealthsimple’s robo-advisor platform in his practice. He says time devoted to client onboarding has been reduced dramatically to roughly 24 minutes from an average of about six hours.
“The engagement process makes it easy to bring clients on,” Scatterty says, citing easy-to-use digital information-gathering, “know your client” documents, investment policy statements and other documents.
From a reporting standpoint, Scatterty notes, each client has a private dashboard. This allows clients to monitor their investments on a real-time basis, with features such as rates of return, gains and losses, and regular email updates. Most roboadvisors offer similar functions with varying degrees of sophistication.
Doug Dahmer, a retirement income specialist with Retirement Navigator in Burlington, Ont., also uses Wealthsimple in his practice. Dahmer says the robo-advisor has “given me more time to spend with my clients.” That benefit allows him to solidify his client relationships while he builds the financial planning side of his practice.
For some advisors, the choice of one robo-advice platform over another is dependent on whether the robo-advisor succeeds in delivering the investing experience that individual clients seek, says Scott Plaskett, CEO and senior financial planner with Ironshield Financial Planning Inc. in Toronto. That can include a mix of passive and active investment advice delivered in online formats that clients find informative and easy to use.
But in some cases, you may not have much choice about which robo-advice system you use: your firm decides, notes Krystian Urbanski, senior vice president and associate portfolio manager with the private client group of Forstrong Global Asset Management Inc. in Toronto, whose firm is a subadvisor on the Wealthsimple platform.
Woolley, who uses Wealthsimple’s actively managed programs, says advisors usually prefer an element of active management: “Most advisors are not fully on board with 100% passive investments.”
In such cases, the choice of robo-advisor is likely to be at least partly dependent on the availability of both passive and active strategies.
Scatterty favours active strategies in which a portfolio manager reviews macroeconomic and geopolitical conditions prior to repositioning portfolios, as opposed to purely algorithm-driven, passive strategies.
Plaskett uses both Nest Wealth Asset Management Inc. and Wealthsimple, but for different purposes. He uses Nest Wealth for low-cost, passive investments; Wealthsimple for tactical and active investments managed by subadvi sors on the platform. Nest Wealth, a hybrid platform, also constructs individual portfolios for clients rather than placing clients in model portfolios in all cases.
Some robo-advisors focus more on attracting their own individual clients and do not necessarily support advisors. Mahabir, who uses Invisor Investment Management Inc., says that hybrid platform works collaboratively with advisors. Invisor, he says, “actively engages human managers to intelligently put together the right asset mix.”
Although Woolley’s firm uses Wealthsimple primarily, Nest Wealth also is used in a limited way. He adds, however, that Nest Wealth is more expensive for smaller accounts and limits the amount of trades for such accounts, which are subject to fees.
Dahmer chose Wealthsimple because he has had too many issues with other providers and spent a lot of time correcting mistakes. This is not to say that he has not experienced “system glitches” with his current provider that result in errors.
Woolley has had similar experiences, but says errors were fixed to his satisfaction.
Overall, there is consensus among advisors that robo-advisors are a positive addition to their practices, and do not compromise their ability to increase the size of their business. However, the client experience, while not directly attributable to robo-advisors, can sometimes be less than desired when a robo-advisor is used to assist with investment choices.
In these instances, you must make individual decisions about what will work for your clients regarding robo-advisors and what won’t.
For example, Woolley says, the age range of his clients is 18 to 86. But among that group, his older clients often have difficulty using technology and, in most cases, he says, robo-advisors are not a helpful service model for those clients.