More and more investors are turning to web-based automated portfolio managers, forcing traditional investment advisers to adapt.Thinkstock
Traditional wealth managers are embracing robots as competitive pressures grow from new automated portfolio tools.
Robo-advisers are online offerings where investors are able to access an online risk assessment questionnaire. Clients receive an appropriate asset allocation and a recommended portfolio that is predominately made up of exchange-traded funds. Management fees range from 0.25 per cent to 0.60 per cent, compared with the 1 per cent to 2.5 per cent they would pay a financial adviser.
The automated tools are attracting millennials and certain segments of retirees that are often overlooked by investment firms that target larger portfolios, according to a report released this week by Ernst and Young LLP.
This poses a threat to traditional advisers, however, because as those portfolios grow in size, investors may stick with robo-advisers and not migrate over to the full services that they can offer.
"While traditional firms will continue to focus on wealthier clients with more complex needs, they cannot ignore the increasing demand for an enhanced digital experience that the robo-advisers are offering. Traditional firms will need to quickly determine how they will adjust their offerings accordingly," says Gregory Smith, EY's wealth management advisory leader in Toronto.
Some players already are positioning for the rise of the machines. They are supplementing robo-advisery platforms with a greater connection with human advisers – even though it can cost the investor a higher fee than traditional robo-adviser offerings.
Richardson GMP Ltd. and Assante Wealth Management Ltd. recently said they are looking to build their own automated advice platforms that will be used directly by their investment advisers. (The platforms are still in early stages and the cost to investors have not been determined.) The advisers will offer different degrees of advice depending on client needs, which will keep the door open for full-service advisory relationship that will include enhanced financial services such as tax and estate advice.
"This will allow an adviser to hang onto those smaller accounts in a fee-effective way, and a low-maintenance way, without the client losing the element of advice," says Andrew Marsh, president and CEO of Richardson GMP. "These platforms will be a solution for advisers wanting to maintain household accounts, and possibly millennial accounts, that are less than $250,000."
Financial services giant Power Financial Corp. recently announced a $30-million investment in robo-adviser Wealthsimple Financial Inc.
The company has yet to say if the automated platform will interact with its existing advisory based firms that sit under the Power Financial banner, including IGM Financial Inc. and Great-West Lifeco Inc.
While not as hefty an investment, WealthBar Financial Services Inc., a West Coast robo-adviser, has a partnership with Nicola Wealth Management Ltd., a fee-based advisory firm that caters to high net-worth clients; and Portfolio IQ was launched by Questrade Financial Group Inc., a widely known discount brokerage firm.