Big firm fights back against robo-advisors

Big firm fights back against robo-advisors

Big firm fights back against robo-advisors It’s something Canadian firms may soon have to do. U.S. giant Charles Schwab is fighting fire with fire in the battle to keep clients from fleeing to robo-advisors – undercutting the already low-ball management fees at those upstart firms.

According to the New York Post, the battle of words between WealthFront CEO Adam Nash and Charles Schwab broke out after the Wall Street firm rolled out its “Intelligent Portfolios,” made available earlier this week, relying on automated technology to make investment decisions for investors all the while keeping costs low.

It effectively mirrors the offerings of robo firms such as WealthFront, but – here’s the rub – at an even lower cost.

“We’re starting to see a lot of evidence of these trends in the U.S. and we understand that competition is always going to be there, but it hasn’t streamed into Canada just yet,” Neville Joanes, a portfolio manager at WealthBar, a robo-advisory firm in Vancouver, told WP.

“We believe that we can provide more for less and while we know the trend that’s happening in America is sure to make its presence in Canada, we hope that by the time it’s happening, we’d have established enough of a niche to where it’s not an issue.”

At a time when robo-advisors are making their mark here in Canada offering investment services for small fees, large U.S. firms are bringing stiff competition their way, undercutting robo-firms who say firms like Charles Schwab are hoarding customer funds to pad its bottom line.

According to the New York Post, the battle of words between WealthFront CEO Adam Nash and Charles Schwab broke out after the Wall Street firm rolled out its “Intelligent Portfolios”, made available earlier this week, which uses automated technology to make investment decisions for investors to keep costs down.

The move compounds to a growing list of major firms such as Vanguard who are offering robo-advisory services as a way to grow their businesses, something Nash accused Schwab of doing – straying from its original values for “greed.”

He added, in a blogging platform called Medium, that Schwab portfolios keep too much of its clients’ funds in cash in order to lend out at a higher rate.

“They actually make a lot more money there than on trading,” he told The Post.

Chris Nicola, co-founder of WealthBar and chief technology officer, said that the Schwab situation underscores the idea that Canadian firms will start but stopped short of calling them a threat just yet.

“I think Canadian firms will start looking into it, but it’ll be a while before we start to see the effects,” he told WP.  “The product that Schwab offers doesn’t really disclose their commission fees so it’s a similar issue to the problem we already have here in Canada with CRM2 and clients not knowing how much they’re paying for these services.”

He added that BMO InvestorLine adviceDirect is one of the few that have tried to provide robo-advice but notes the service hasn’t really caught on, isn’t marketed and doesn’t compare to his company’s product.

“Banks will start to realize, and I think they already see, the growing trend but I think we’ll be able to set up a niche in the market that doesn't jeopardize our position.”