Rise of robo-advisors in mortgage business could have an impact

Robo-advisors, often described as “disrupters” in the financial services sector, may in fact turn out to be more like partners to traditional wealth-management firms and their advisors.

In recent months, two Canadian robo-advisors – Toronto-based Wealthsimple Financial Inc. and Oakville, Ont.-based Invisor Investment Management Inc. – have launched pilot projects for financial advisors.

Last month, Invisor formed a partnership with an unnamed independent financial planning firm to embark on a project in which both firms would share clients, but address different financial planning needs of those clients. The financial planner would take a “holistic” view of a client’s financial picture, while Invisor would manage the investment portion of the client’s plan.

This trend is part of the maturing robo-advice model, says Pramod Udiaver, co-founder and CEO of Invisor. And it is something that traditional financial services companies are seeking, particularly in light of regulatory changes such as new fee disclosure requirements with the implementation of the second phase of the client relationship model (CRM2).

“I think a lot of the existing advisory shops are looking into areas [in which] they can really add value,” says Udiaver, “and [asking] what are the areas that they can have more scale or have some other expert provide that service.”

Invisor’s new joint advisor platform follows the launch of a similar project at Wealthsimple. In January, Wealthsimple began offering a “very select few advisory firms” a platform whereby advisors at these firms can invite clients to sign up with Wealthsimple, says Jason Goldlist, chief marketing officer with Wealthsimple. In signing up, the investor becomes a client of both Wealthsimple and the financial advisor. As part of the partnership, the participating advisors will be able to view their clients’ Wealthsimple accounts.

Although Wealthsimple’s new platform is available to a small pool of advisors so far, Goldlist says, the service will be accessible to all financial advisors, regardless of their firm, once it is fully operational. (Wealthsimple has a partnership with Montreal-based Power Financial Corp., which announced in April 2015 that it would invest up to $30 million in Wealthsimple. However, Goldlist says, that doesn’t mean that this advisor platform is exclusive to Power’s subsidiaries, such as Winnipeg-based Investors Group Inc. or Mississauga, Ont.-based Investment Planning Counsel Inc.)

“What we’re trying to do is not be tied up into any exclusive opportunities,” says Goldlist, “[but] build a platform that can be used by any advisor.”

Similar to these projects, Toronto-based Bank of Montreal‘s (BMO) SmartFolio program allows advisors at the bank’s brokerage arm, BMO Nesbitt Burns Inc., to monitor the accounts of clients who sign up for BMO’s fledgling robo-advisor if given permission to do so.

As well, other robo-advisors, such as WealthBar Financial Services Inc. and Modern Advisor Canada Inc., both based in Vancouver, and Toronto-based Smart Money Capital Management Inc., are looking to work with financial advisors.

Randy Cass, CEO and founder of Toronto-based Nest Wealth Asset Management Inc., also sees opportunity for his company to partner with financial advisors and their firms.

“We are committed to providing Canadians with a better wealth-management experience,” Cass says, “either directly through the Nest Wealth brand or by providing the technology to companies that wish to partner with Nest Wealth going forward.”

This shift toward a business-to-business (B2B) model also is visible in the U.S. Most recently, the U.S. arm of RBC Wealth Management offered a pilot robo-advisor platform through a partnership with San Francisco-based FutureAdvisor. That West Coast robo-advisor was purchased by New York-based BlackRock Inc. in August 2015.

Such partnerships are likely to continue in both Canada and the U.S., according to Michael Raneri, managing director and strategy and fintech lead with PricewaterhouseCoopers LLP in San Francisco.

“In my opinion, [robo-advisors] need to be acquired or partner [with other bricks-and-mortar firms],” says Raneri, “because to establish and scale a financial services brand is very, very expensive.”

Financial services institutions, however, are not the only ones that may be looking to partner with these emerging online fintech companies. Organizations with large customer bases and strong brands – from telecommunications firms to retail firms – could be looking to expand their offerings through a partnership with a robo-advisor.

For example, robo-advisors need scale to be viable, says Mark Yamada, president and CEO of PUR Investing Inc. in Toronto. So, a partnership with a company that has a large customer or subscriber base, such as a media company, could make sense.

Nest Wealth belongs to one such partnership. In August 2015, Mississauga, Ont.-based Metroland Media Group Ltd. invested $1.5 million in Nest Wealth. As part of that deal, Cass contributes a weekly column called “Wealth Matters” to Metroland’s media outlets.

“[Canada does] have companies that have very tight customer relationships,” says Cass. “And, as [the financial services] industry begins to shift and rely on greater technology and change the user experience and expectations – from both a pricing point of view and an experiential point of view – these companies inevitably will look to partner with companies like Nest Wealth to extend into wealth management.”

As well, Wealthsimple recently partnered with ZipCar Inc. in a promotion in which the car- sharing company sent an email to its Ontario members with a link to sign up with Wealthsimple at a discounted rate.

Raneri foresees the possibility of such B2B partnerships with non-financial services firms in Canada and the U.S., but he also feels that this trend is more long-term because non-financial services companies will have to earn the trust of consumers and prove that these companies can in fact manage clients’ wealth.

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