Some firms have developed tiered levels of advice that provide additional services as clients gain assets and their needs become more complex.oatawa/iStockPhoto / Getty Images
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As automated investment management evolves beyond simple rules-based robo-advice, wealth management firms are folding it into their offerings as they look to serve and retain clients at multiple levels.
A recent report from Toronto-based research firm Investor Economics, an ISS Market Intelligence business, detailed a “progression pathway” in which wealth management firms could use digital advice platforms as a base service for clients with smaller accounts, add hybrid elements for those with more assets, and eventually move clients through to a full advisor relationship.
Royal Bank of Canada (RBC) has been developing this progression model. Although RBC launched its InvestEase hybrid advice platform in 2018 as a service for young investors, Christine Socasau, head of InvestEase, says it’s most popular with investors older than 30 years of age.
“They know they need to be investing for their long-term goals and want to feel confident about their investing decisions, but may not have the need for complex financial planning conversations,” she says.
Many RBC clients are using the robo-advice tool as one component in a range that includes self-directed and in-person advisor options. InvestEase accounts are reviewed and approved by a portfolio manager, who is also involved in day-to-day trading and annual reviews, as well as available to answer questions on the phone and via e-mail with clients, Ms. Socasau says.
“When [clients] are ready to have those [more involved financial] planning conversations, they can keep their assets in the [InvestEase platform] and draw from the expertise of our partners in the RBC ecosystem, such as financial planners, and trust and estate planners,” she says.
Some of RBC’s clients only use InvestEase. The bank doesn’t try to migrate people away based on their asset size, Ms. Socasau says, but rather on their needs. Those who want more options can mix and match other investment solutions at the bank.
Andrea Casciato, head of digital investing for Bank of Montreal’s BMO InvestorLine, says hybrid advice costs approximately one-third of full-service offerings. As adoption scales, service providers can pass more savings on to investors.
BMO’s InvestorLine arm provides hybrid options for clients at different stages. Its SmartFolio product is a robo-advice platform supported by a team of advisors, but investors can move to adviceDirect, which provides advisor-based support for self-directed investors.
AdviceDirect requires a $10,000 minimum balance, and adviceDirect Premium, which offers access to wealth planning services, is for clients with at least $500,000 in assets. That gets them support from a dedicated online advisor with direct access to other financial planners at the bank to handle specialist needs such as retirement, education, estate, tax, insurance and business succession planning. Clients can also work with a more traditional in-branch advisor if they prefer that to an online model.
AdviceDirect sends investment-related alerts using data and insights gathered at an individual client level. There are opportunities for more personalized insights in areas such as tax optimization and further digital platform integration with the banks’ broader wealth planning operations, Ms. Casciato says.
She says artificial intelligence will allow for more sophisticated and personalized in-platform advice: “We already see more than 50 per cent of investors reviewing and/or acting upon in-platform alerts, nudges and insights.”
Outsourcing investment management
While banks are guiding clients through different levels of investment services, some advisors are outsourcing investment management to automated service providers. That’s the approach that Muskoka, Ont.-based Strata Wealth and Risk Management Inc took, says Tyler Burtch, its managing principal. He focuses on financial planning with his clients, leaving the investment management business to Advisor Solutions by Purpose via its Harness Investment Management Inc. platform.
“We’re not making investment recommendations on the specific funds, but more in terms of their stage of life and risk/reward ratio,” Mr. Burtch says. He then works with a portfolio manager at Harness who adjusts the portfolio accordingly.
Purpose acquired Wealthsimple for Advisors, a subsidiary of robo-advisor firm Wealthsimple Inc., in 2020, transferring its clients to its Harness Investment Management registered portfolio manager subsidiary. Harness offers 100 model portfolios that it can combine in different patterns for clients.
The automated trading system knows which model portfolios each client holds. A rules-based system automates that rebalancing, which can happen daily.
“So, when we want to do a big rebalance ... we have the ability to move quickly and trade efficiently across thousands of client accounts in one go, and we can do that while personalizing the solution for clients,” says Oliver Yoon, managing director at Advisor Solutions by Purpose and chief operating officer at Harness Investment Management.
Mr. Burtch, as the client’s financial planner, speaks with a portfolio manager at Harness Investment Management about the client’s specific situation.
“We direct things from a tax perspective, and Harness structures the portfolio based on that,” he says.
Aside from leaving Mr. Burtch to focus on more value-added conversations with his clients, the economy of scale from large-scale semi-automated investment management also benefits clients, he says.
“We’re able to do all-in fees that are far less than the big banks and the big investment houses – and performing a much better job.”
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