Power Financial's investment in a robo-advisor speaks to how much those startups need big firm accounts.
A sizeable investment by Power Financial in one of Canada’s newest robo-advisors suggests the financial conglomerate is playing both sides to the middle in its quest to own the wealth management space.
Wealthsimple’s announcement Thursday no doubt caught many in the wealth management space by surprise given the Toronto-based firm’s only been in operation since last September. The move by the holding company likely sets in motion a domino effect amongst some of the biggest financial services’ companies in Canada.
So, why exactly did Power Financial make this investment in Wealth Simple?
Well, no one at the parent or the child (Investors Group) is commenting (we asked) on the true motivation for making this relatively small investment in the robo-advisor – $10 million now and the possibility of another $20 million within the next 12 months – but speculation why has begun in earnest.
There are many factors that make Power Financial’s investment a smart move but none more so than the opportunity for it to gain access to an underserved portion of the Canadian wealth management industry – namely younger investors who are often referred to as millennials or Generation Y.
“The financial services industry is changing as many millennials desire smart, transparent, and low-fee services,” said Michael Katchen, Founder and CEO, Wealthsimple in its press release announcing Power Financial’s investment. “We are excited to be at the forefront of this change in Canada and Power Financial’s investment demonstrates a huge vote of confidence in our team and business.”
WP reached out to several industry participants to get their take on yesterday’s announcement. While there were a number of themes mentioned it seems a key reason Power Financial’s getting involved –
the Investors Group advisor network brings Wealthsimple a huge audience allowing it to better monetize its technology.
#pb#
Financial planner Michael Kitces commented on the U.S. experience and how the Wealthsimple news suggests Canada’s experience will be very similar.
“Several other major established firms have bought out robo-advisors altogether to leverage their technology internally. If Canada follows the same general flow, what started as ‘traditional companies INVESTING into robo-advisors’ will likely soon become ‘traditional companies BUYING OUT robo-advisors,’” says Kitces.
“The fundamental issue is that direct-to-consumer robo-advisors [in U.S.] just aren’t growing and monetizing very well because the robos misunderstood that the real problem is client acquisition costs that they can’t solve. Traditional companies have a bigger brand to lower acquisition costs (e.g., Vanguard and Schwab in the US space) and the means to monetize the audience.”
WP spoke with Katchen late Thursday. He was able to shed light on how this partnership will benefit advisors including those at Investors Group.
“From day one our approach has always been that we [Wealthsimple] would love to work with advisors to better serve their clients,” says Katchen. “That’s always been something we’ve been excited about.”
“We’ve been approached by lots by advisors in the industry about how to work together but it hasn’t been a priority to date but I can imagine we’ll now have the resources to really pursue a wonderful platform that advisors can plug into.”
Seeking to grow assets under management to at least $1 billion within two years, Katchen’s excited about the partnership.
Wealthsimple’s announcement Thursday no doubt caught many in the wealth management space by surprise given the Toronto-based firm’s only been in operation since last September. The move by the holding company likely sets in motion a domino effect amongst some of the biggest financial services’ companies in Canada.
So, why exactly did Power Financial make this investment in Wealth Simple?
Well, no one at the parent or the child (Investors Group) is commenting (we asked) on the true motivation for making this relatively small investment in the robo-advisor – $10 million now and the possibility of another $20 million within the next 12 months – but speculation why has begun in earnest.
There are many factors that make Power Financial’s investment a smart move but none more so than the opportunity for it to gain access to an underserved portion of the Canadian wealth management industry – namely younger investors who are often referred to as millennials or Generation Y.
“The financial services industry is changing as many millennials desire smart, transparent, and low-fee services,” said Michael Katchen, Founder and CEO, Wealthsimple in its press release announcing Power Financial’s investment. “We are excited to be at the forefront of this change in Canada and Power Financial’s investment demonstrates a huge vote of confidence in our team and business.”
WP reached out to several industry participants to get their take on yesterday’s announcement. While there were a number of themes mentioned it seems a key reason Power Financial’s getting involved –
the Investors Group advisor network brings Wealthsimple a huge audience allowing it to better monetize its technology.
#pb#
Financial planner Michael Kitces commented on the U.S. experience and how the Wealthsimple news suggests Canada’s experience will be very similar.
“Several other major established firms have bought out robo-advisors altogether to leverage their technology internally. If Canada follows the same general flow, what started as ‘traditional companies INVESTING into robo-advisors’ will likely soon become ‘traditional companies BUYING OUT robo-advisors,’” says Kitces.
“The fundamental issue is that direct-to-consumer robo-advisors [in U.S.] just aren’t growing and monetizing very well because the robos misunderstood that the real problem is client acquisition costs that they can’t solve. Traditional companies have a bigger brand to lower acquisition costs (e.g., Vanguard and Schwab in the US space) and the means to monetize the audience.”
WP spoke with Katchen late Thursday. He was able to shed light on how this partnership will benefit advisors including those at Investors Group.
“From day one our approach has always been that we [Wealthsimple] would love to work with advisors to better serve their clients,” says Katchen. “That’s always been something we’ve been excited about.”
“We’ve been approached by lots by advisors in the industry about how to work together but it hasn’t been a priority to date but I can imagine we’ll now have the resources to really pursue a wonderful platform that advisors can plug into.”
Seeking to grow assets under management to at least $1 billion within two years, Katchen’s excited about the partnership.
