Robo-advisors face hurdles to growth

Robo-advisors face hurdles to growth

Robo-advisors face hurdles to growth As low-cost investment firms, robo-advisors have been a benefit to many Canadian investors — and a competitive threat to many traditional advisors. But according to a new analysis of Canada’s fintech market, technology-based investment firms still face challenges to their competitiveness.

“While a handful of robo-advisors have been successful, there are still many barriers to their growth,” said the Competition Bureau in its new fintech market report.

According to the bureau, fees embedded in the management expense ratio — a hot-button compliance issue throughout the investment industry — are often not discussed with or easily understood by investors, which can dissuade them from switching to robo-advisors. The time and monetary costs involved in setting up new accounts and transferring assets might also be a discouraging factor.

“In addition, robo-advisors may not be able to deliver the true online experience consumers might expect, particularly given that electronic forms and signatures are not yet accepted throughout the industry,” the bureau said.

The report also cited regulatory hurdles. It pointed out that having a “meaningful discussion” to determine client’s risk tolerances and investment objectives can be difficult for online providers; earlier this year, robo-advisors said they were working with the Ontario Securities Commission on a more relaxed know-your-client (KYC) process.

Another challenge for robo-advisors is the requirement to hire registered advising representatives for portfolio decision-making, “increasing costs and impeding the development of automated solutions.” Robo-advice firms must also have an agent-for-service in each province they offer services to, which would offset their efforts to lower costs by operating from just one location.

To help digital investment and advice firms, as well as other fintech sectors, the report made several recommendations to regulators, such as:
  • Developing technology-neutral, device-agnostic rules;
  • Using principles-based regulation to make enforcement efforts more adaptive to new technology;
  • Basing regulations on an entity’s function so that all providers with the same function carry the same regulatory burden;
  • Making oversight proportional to the level of risk a certain fintech firm’s failure would presents to the financial industry; and
  • Continuing efforts to harmonize regulations across regional boundaries


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