Wealthsimple to launch mutual-fund investment firm with in-house advisers

Open this photo in gallery:

Robo-adviser Wealthsimple Inc. is launching a mutual-fund investment firm with its own financial advisers in a move that takes it beyond its online-investing roots.

The company is set to announce on Thursday the creation of Wealthsimple Advisor Services Inc. Registered with the Mutual Fund Dealers Association, the new firm will give MFDA-licensed advisers access to in-house services to run their independent businesses under the Wealthsimple banner, including portfolios that contain exchange-traded funds (ETFs), investments that have proven difficult for MFDA firms to purchase.

Wealthsimple’s move signals a shift for a business model that was billed as an alternative to expensive fees charged by investment advisers, a strategy the company has touted extensively in high-profile marketing campaigns that take aim at traditional investment houses.

Wealthsimple Advisor Services president Dave Nugent said the new service will differentiate itself from traditional mutual-fund dealers, which can charge administrative costs for advisers, as well as technology and business development fees that eat into an adviser’s take-home pay. Well known on the street for its retail robo-adviser investing service, Wealthsimple’s MFDA firm will use the same technology to offer portfolio-management services to mutual-fund advisers.

Robo-adviser platforms, also known as online portfolio managers, offer clients an online risk-assessment tool that quickly calculates an investment portfolio based on age, financial goals and risk tolerance. Unlike Wealthsimple’s robo-adviser platform, which provides portfolios made up entirely of ETFs, Wealthsimple Advisor Services has partnered with several money managers including Mackenzie Investments and Forstrong Global Asset Management Inc. to offer portfolios made up of both ETFs and mutual funds.

Currently, mutual-fund representatives in Canada are licensed to trade in ETFs that meet the definition of a mutual fund under securities legislation. In theory, this includes the majority of ETFs in the marketplace, but most of Canada’s mutual-fund dealers do not actually have direct access to a securities exchange to settle an ETF trade.

Mr. Nugent plans to add several more investment management firms throughout 2019.

For clients who traditionally invest in mutual funds sold by advisers, which typically charge a management fee of around 2.3 per cent to 2.5 per cent of assets, Mr. Nugent says savings could be between 0.5 per cent to 1.0 per cent, depending on investment portfolios and account size.

“We don’t want advisers having to spend time trying to build customized models because we don’t think that is where the industry is going,” he added.

Financial planner Grant Stefanowski, who has been an independent adviser for more than 21 years, is the first adviser to join Wealthsimple Advisor Services and has already transferred over his clients. One of the biggest drivers for Mr. Stefanowski, who has an $80-million book of business, is the move to a paperless business practice in which he no longer has to spend 35 minutes of client meetings signing forms.

“[Wealthsimple] is a financial-technology company and they have built one of the best platforms I have seen in the last 20 years,” said Mr. Stefanowski, who first began speaking to Wealthsimple 15 months ago after seeing how quick it was to open a tax-free savings account with the online tool. “Already, I have seen 80 per cent of my administrative costs disappear.”

One of Wealthsimple’s strengths is that it runs its own back-office operations, a service it leveraged for the MFDA firm after purchasing online brokerage Canadian ShareOwner Investments Inc. in 2015. The acquisition allowed Wealthsimple to gain end-to-end control over the platform, including trade execution, administrative services, portfolio construction and advice – a comprehensive service that is currently done by only a handful of other companies in Canada, such as the big banks.

Many Canadian robo-advisers have recently been partnering with the wealth-management industry to provide advisers with the technology platforms at a discounted rate. But in some cases, including Wealthsimple’s traditional robo-adviser service, it meant the financial adviser had to move assets off their own book of business and hand them over to the robo-adviser to manage – a move that does not appeal to many advisers.

Now, by opening its own MFDA firm, Wealthsimple Advisor Services allows advisers to maintain ownership over their entire book of business. As well, Mr. Nugent says the firm will consider helping advisers build their businesses with financing options for those looking to acquire a retiring adviser’s book of business, an event that will begin to happen more frequently with Canada’s aging adviser population.