Industry Insights: Investing at Wealthsimple

We recently spoke with Dave Nugent, Head of Investments and part of the founding team at Wealthsimple, a Canada-based robo that has expanded to the U.S. and U.K. markets. Dave provided us with great insight into who the typical Wealthsimple client is and where he sees the future of digital advice.

“Over the past two years, we have seen a trend in the robo advice industry away from digital-only offerings toward offering access to live advisors at some level of service”

A Human-Based Approach

Wealthsimple has focused on providing a human component to their digital advice since 2014, when they first launched in Canada. Over the past two years, insiders have seen a trend in the industry away from digital-only offerings toward offering access to live advisors at some level of service. Although some investors are comfortable handing over the investment management tasks to automated software, many still want the ability to pick up the phone and speak with someone when they have questions. Dave explains, “We launched from day one with a human advice component. We believe that clients still want the ability to speak to a human if and when a life event happens.” Given the number of robo offerings that offer live advice, and the pivot of many early providers to add live advice components to their platform, Wealthsimple’s hybrid model seems to be a step in the right direction.

Wealthsimple also handles the client interaction with a focus on each client’s underlying behavior and feelings toward money. Dave says, “There is a focus on the human elements of money and how that relates to someone’s life. You won’t see us talking about where U.S. interest rates are going or what we think the price of oil is going to do. It really goes back to first principles… what are [the clients] actually trying to achieve?”

Improving The Customer Experience Using Big Data

Although robo advisors are built on technologies that allow for more efficient portfolio management, the impact robo advisors are having on the client experience may be the most consequential for the financial advice industry. Customizing client communication based on data-driven insights into their behavior, like log-in and engagement rates, can help both robo advisors and traditional advisors demonstrate value and drive client engagement. A client having the ability to complete an account application, open and fund an account in less than 10 minutes is a dramatic improvement in client experience compared to most traditional advisors. The ability to both personalize and mass communicate with clients is a powerful concept that robo advisors are working to achieve. These improvements may seem incremental, but they can have large impacts on efficiency, client engagement, and possibly the ability of an advisor to help modify investor behavior for the better.

Wealthsimple is also helping create a new type of client relationship.  Previously, most investors were faced with either self-directing their investments or paying for a full-service firm. Dave shared with us that Wealthsimple is having success attracting clients to a new model that fits in between full service and self-directed. During our conversation, Dave shared that he believes many clients, especially in the aftermath of 2008, decided they did not need a full-service advisor and the costs that come with it. Many clients do not have a complex enough financial situation that they need advice frequently, but they still want to be able to access advice when they have a life event. “Maybe the digital platform is something in the middle that takes [investment management] off of [the investor’s] hands but also does not come with the full breadth of fees and service that, frankly, the [investor] does not really need,” says Dave.

This is a powerful insight, as most investors need advice and planning at certain points in their life.  In between life changes and events, however, their financial picture is stable and does not need intervention or direction from a financial advice professional. An advice model that provides the ability to receive periodic advice but does not carry the fees of traditional advisors is understandably attractive to many investors.

Robo advisors are the champions of efficiency, in both client communication and operations. The efficiency of a robo advice offering is part of a larger trend on the pricing pressure experienced by traditional advice firms. The reality is many traditional firms are going to have to adapt to be able to serve more clients while continuing to provide a high value service. Dave points out areas where many advisors spend too much time but add little value: the middle- and back-office tasks. Technologies that can help automate middle- and back-office tasks are often packaged and sold by robo advisors . Wealthsimple has a white label product for advisors live in Canada that is finding a lot of success among firms with a focus on financial planning. Dave points out that, “as you continue to see pressures on margins and fees in the industry, you must manage more relationships in order to make the same amount of money in the go-forward future.”

As far as the future of digital advice, Dave believes that we will continue to see more product offerings and expansion into other areas of financial services by digital advice providers. He identifies an underlying theme in fintech of innovating on the client experience and how financial services and products are being delivered. In the meantime, Wealthsimple is preparing to launch a no-fee trading platform in Canada as a next step for them in expanding their offering.

As far as what sets Wealthsimple apart from the crowded field of robo advisors, Dave believes that it comes down to the simplicity of advice and whether a platform is helping their clients achieve their long-term goals.