After making a splash in the Canadian retail investment market, robo-advisors are now diving into the pension space with the recent launch of group RRSP platforms.

Vancouver-based WealthBar Financial Services Inc. and Toronto-based Wealthsimple Financial Inc. recently began offering group RRSPs. Both financial technology startup firms state that such a launch made sense for them because the line of business is a natural extension of the firms’ direct-to-consumer offering.

“[Offering a mechanism to fund a pension] actually is the same problem that WealthBar is trying to solve on an individual retail basis,” says Tea Nicola, Wealthbar’s co-founder and CEO, of the firm’s group RRSP platform launched in July. More specifically, she adds, WealthBar can offer lower pricing and more services to group RRSPs because of the company’s technology and its ability to scale.

The ability for robo-advisors to offer low-cost, diversified portfolios of exchange-traded funds and to automate much of the back office is what makes those firms’ move into the pension space a logical next step, says Mark Yamada, president and CEO of Toronto-based PUR Investing Inc.

“From the standpoint of delivering an easy, low-cost solution to a defined-contribution plan member,” Yamada says, “the idea of a robo-advisor makes a lot of sense.”

In the U.S., robo-advisors are moving into this territory. For example, New York-based Betterment LLC officially launched Betterment for Business in January, which services 401(k)s employee retirement savings plans.

In Canada, Wealthsimple launched its group RRSP platform, Wealthsimple for Business, in May. The platform, like WealthBar’s, allows employers to sign up for a group RRSP that the robo-advisor will manage.

Financial advisors and traditional pension market players need not worry too much about these new entrants quite yet. For one, advisors who manage group RRSPs can partner with robo-advisors in the group RRSP space in the same way they can with individual accounts.

For example, Dave Nugent, Wealthsimple’s chief investment officer and chief compliance officer, points out that some advisors have referred group RRSPs that they manage to the robo-advisor through the Wealthsimple for Advisors platform.

Advisors can use the platform to invite clients to sign up with the robo-advisor to manage their investments while the advisors handle other aspects of the client/advisor relationship. In the same way, advisors who manage group RRSPs can refer the investment management of the account to Wealthsimple while still being available to discuss other aspects of group members’ financial planning needs.

“Basically, advisors can refer us to a group plan and then have one-on-one discussions [with clients] if and when that’s required,” says Nugent.

To get started with a group RRSP at Wealthsimple or WealthBar, a business signs up with the robo-advisor and makes arrangements with the business’ payroll provider to have deposits made to employee accounts. Employees then are sent an email inviting them to sign up for the group RRSP on the robo-advisor’s platform. The process to open an individual account with either robo-advisor is the same. As well, pricing and portfolio construction for both firms’ online platforms will remain the same as the companies’ direct-to-consumer offerings.

Robo-advisors are entering the pension space at an opportune time. More and more defined-benefit pension plans are shifting to defined-contribution plans. And Ottawa is seeking to expand the Canadian Pension Plan partly because many Canadians don’t have employer-sponsored pension plans.

For example, almost 1.3 million workers in Ontario don’t have an employer-sponsored workplace pension, according to a 2013 report from the Ontario Chamber of Commerce. That report also found that most new jobs in the past 10 years have come from small to mid-sized businesses, which typically don’t have pension plans in place for employees.

In the retail space, robo-advisors typically work with smaller accounts – and the new group pension platforms are accessible to small businesses. For example, WealthBar’s group RRSP platform is open to businesses with 10 employees or more. At Wealthsimple, the platform is even more flexible: it requires only two or more employees. Furthermore, Wealthsimple targets its new platform at startup companies.

“We’re focusing on small to medium-sized businesses at this point,” says Nugent. “We do focus on technology-based companies.”

However, despite this opportunity to expand product lines, robo-advisors are likely to encounter rough waters when entering the pension space, Yamada says. One obstacle is that setting up pensions plans can be difficult because of the numerous reporting requirements for such plans.

Yamada believes robo-advisors are likely to look at partnering with large financial services institutions that already have the infrastructure in place to manage such requirements.

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