Toronto-based robo-advisor firm Wealthsimple Inc. now offers its investment-management services to all consumers in the U.K. – a market receptive to fintech, but crowded with similar, established competitors – after having completed a pilot program this past summer.
Wealthsimple U.K. Ltd., based in London, currently has six full-time staff members who are heavily supported by the parent company’s team in Canada. Wealthsimple employs about 130 people in three offices in Canada, the U.S. and the U.K., and has more than $1 billion in assets under administration.
“We wanted to build an international business,” says Michael Katchen, Wealthsimple’s CEO and founder, “[and] I think the U.K. is a natural next step for us.”
Wealthsimple is the first and, so far, the only Canadian robo-advisor to operate outside of this country. With the exception of Toronto-based Nest Wealth Asset Management Inc., most Canada-based robo-advisor firms have no immediate plans to expand internationally. Nest Wealth plans to launch its business-to-business (B2B) platform, Nest Wealth Pro, outside Canada within the year. The direct-to-consumer platform will remain in Canada.
At the moment, Wealthsimple offers only its direct-to-consumer platform in the U.K. However, Katchen says, there are plans to launch the company’s B2B model, Wealthsimple for Advisors, in that country soon.
Wealthsimple has entered the U.K. following regulatory change there. In 2013, the U.K.’s financial regulator, the Financial Conduct Authority (FCA), implemented several reforms, known as the Retail Distribution Review (RDR). These reforms include both a ban on embedded commissions and higher accreditation standards for financial advisors.
In 2014, an initial review of the RDR by the FCA noted that the dust had settled around these reforms (at least, in part). For example, the study, completed by London-based Europe Economics, found that the number of consumers who can’t access advice (often described as the “advice gap”) is relatively small because most investors have been able to find an advice model to suit their needs. For example, some clients with smaller accounts who were dropped by their advisory firms now are clients of other firms. Similarly, some price-sensitive clients have decided to forgo full-service advice in favour of cheaper alternatives.
Perhaps most important to a fintech firm such as Wealthsimple U.K., the review found that the RDR creates opportunities for innovation in the market and that “simplified or automated advice models may take off.”
Furthermore, London itself is a friendly space for startups, says Gregory Smith, partner and leader of Ernst & Young LLP’s national wealth- and asset-management practice in Toronto, because the U.K. city offers the four criteria for a fintech hub: talent, available capital, demand and policy-makers who encourage innovation.
In fact, the FCA launched a “regulatory sandbox” in 2016, which allows companies to test innovative ideas and products, business models and mechanisms. Says Katchen: “The FCA really is looked at as a leader [in] fintech regulation and thinks about [the direction in which] financial services regulation should evolve.”
British consumers support new fintech solutions, according to the EY FinTech Adoption Index 2017. The index’s underlying study found that 42% of digitally active people in the U.K. are adopting fintech, compared with 33% of Americans and 18% of Canadians.
Says Smith: “There is great opportunity in the U.K.”
Nevertheless, Wealthsimple is entering a U.K. market that already includes several robo-advisors, including Nutmeg Saving and Investment Ltd., MoneyFarm (MFM Investment Ltd.), Wealthify Ltd. and Scalable Capital Ltd., to name a few. These firms’ head offices are in London, with the exception of Wealthify, which is based in Penarth, Wales, and Scalable, based in Munich.
Fees for these platforms are 0.25%-0.75%, depending on the company, the client’s level of investible assets and the type of portfolio chosen. Wealthsimple U.K.’s pricing model follows its parent’s two-tier Canadian model. Wealthsimple Basic offers a standard level of service, including personalized portfolios, automatic rebalancing and access to a financial advice via call, text or email for accounts of up to £100,000 in investible assets; this plan has a management fee of 0.7%. Wealthsimple Black offers those same features in addition to others, such as tax-loss harvesting and financial planning for accounts with more than £100,000 in investible assets; this plan has a 0.5% management fee.
Low fees are a hallmark of any robo-advisor, but Wealthsimple U.K. may be subject to even more pressure to keep costs low than its parent has, says Craig Geoffrey, assistant professor, teaching stream in finance, at the University of Toronto’s Rotman School of Business.
“Going into any market like the U.K., it’s a little more competitive,” says Geoffrey. “There are going to be more cost pressures versus what a Canadian company is used to in its home jurisdiction.”
Still, there’s confidence Wealthsimple U.K. will be able to carve out a space for itself, Katchen says: “There’s a number of really exciting fintech companies already in the U.K. doing great things for the U.K. consumer. [But] it’s just Day 1, and there’s an enormous opportunity. In fact, [there is] enormous need for more players to make financial services more accessible, lower in cost and more human.”
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