Most read: Wait, is that the future calling?

The founder of a Vancouver-based advisory firm explains how radical tech disruption arrives this fall.

Most read: Wait, is that the future calling?

There has been a spate of interest recently around so-called “robo-advisory” firms. At least a half-dozen such firms have popped up over the last couple of years. In the U.S. companies like WealthFront and Betterment have packed on billions in AUM in recent quarters. As the trend gets set to hit Canada, advisors would be wise to understand where the tech is taking us.
Earlier this week WP reported on a new firm in Canada, WealthBar, that is getting set to offer so-called "robo-advisory" service from Vancouver. WP talked to the company’s founder, Chris Nicola, who provided a few more of the details on what's to come. 

Nicola was working in IT for his family’s firm, Nicola Wealth, when he began thinking about the intersection of technology and wealth management. “We started talking in the early 2000s about things we could do to bring their business into the digital era,” says Nicola in an interview.  He realized he was sitting on a new business niche. “I started to find more colleagues were asking about what to do for saving for retirement. I started to realize there was something here,” says Nicola.

He did some research; found that that Betterment and Wealthfront were working on this. But Nicola also realized the business models of these wholly-techn focused firms were not enough. “For us, it’s always been about building a full-service offering,” says Nicola. That is, the new firm will evolve beyond the first generation of robo-advisory firms and will add real humans to the mix.

So far, the early robo-advisory firms have been radically tech-based—they use algorithms to slot clients into pre-determined portfolios with no human assistance—Wealth Bar represents an evolution of sorts. The company will offer access to real advisors. There will be the tech-enabled side of the firm that gets clients into portfolios and generates financial plans with tech. But access to real advisors will also be part of the mix. A former Sun Life advisor is on staff. The company will be a licensed life agency. There will be real advice from a human on RESPs, RRSPs and taxes. That is, the company is merging the new digital possibilities with traditional advisor services. The result is an entirely new type of advisor firm.

“What we’ve found, is that people are looking for convenience. They don’t have time, or want, to go into a bank. They always find a way to put that off," says Nicola. That is, over the last fifteen years people have gotten used to doing things from their laptop. What they don’t want to do is make an appointment, drive to an advisors office and sit there for an hour. “Lots of people we talk to, they say, ‘I want to do it this way.’ This is what we’ve found,” he says. 

But while some sophisticated clients will go online, find a model portfolio on, say, Canadian Couch Potato, and use that to invest, “For others we find that the advisor is still important. There is a segment that need and want advisors…they aren’t as sure about what to do," says Nicola. "There is always going to be a need for real advisors." But even for those, the future is digital. "There is still a lot of paper being shipped around," says Nicola. "But we can let clients know automatically about things like RRSP deadlines, rebalancing….the process becomes easier. There are less mistakes. Taxes are easier to do. There are less missed opportunities." That is, with less paper to get lost of shuffled, automated processes mean fewer mistakes, contributions get made on time. The ultimate result, bigger portfolios. "As rules like CRM2 come in, it's going to be harder for firms that aren’t set up this way to compete," he says.

In fact, future competitive advantage in the industry will be with those that are most competent in terms of tech. Can the firm keep data safe? Can it get a system up and operating? Who can maintain technological standards? "If you can believe it, the industry doesn’t have standards on digital protection yet," he says. No wonder he feels like he's way out in front of the industry. He feels he's got a niche because traditional Canadian firms have been slow to adapt to the tech opportunities he is adopting. “The industry needs to modernize. People want advice, but they want it at lower cost. Over time the years as the top advisors moved upmarket to the fee-based world. But there was less advice given to the client. Look, I know there are lots of good people giving advice today [through the embedded compensation model]. But some institutions began giving less and less advice….Eventually, people were paying full commission on mutual funds at the banks, but getting no advice whatsoever, and people didn’t know that."

To Nicola’s mind, this drift and complacency has left those older institutions and aged models exposed to a wave of tech-enabled disintermediation about to roll through the industry. Consider his take on fees.

“We’re still working out where we want the pricing to be, but we think we can get it down to 50 basis points on investments and 70 basis points including advice. The points on investments are a little higher than some index funds, but we’ve got some interesting ones, including funds in real estate… But we think we can get the fees down to about 1% per client, all in.” That is, this is provocative stuff. Companies like ING are providing balanced portfolios for 1%. “But I think we can get you advice as well for 1%,” says Nicola.

If that sounds like the future knocking, it was. So far, WealthBar has been offering some financial planning services and is just now working on getting a small select group into investments. The company received approval from the BCSC a weeks ago and is getting set to do a full launch this October. Get ready. The future is arriving faster than many think. When I ask if it feels exciting to be ramping up to launch such an interesting new company, he is quick with his response. “We are excited. We’re really busy. But we are excited," he says.