Financial planner says comparison of data will actually prove the value of good professional advice
Wealthsimple’s 0% trading app has been hailed as a “masterstroke” in proving the value of professional advice.
In a rebuke to critics of the descent to zero fees and advisors who believe returns not fees should be the focus for investors, Jason Pereira, partner and senior financial consultant at Woodgate Financial, said the online platform’s model, unwittingly or otherwise, is actually an “incredible” move in behavioural science.
He said that, however dumb some advisors think the decision is, there will always be a portion of the market that will do it themselves.
And he believes Wealthsimple, through the data it is accumulating, has struck on a “genius” incentive to capture investors and eventually convert them to a fee-paying portfolio.
He said: “One of the things that no discount broker has ever done, to my knowledge, is benchmark your performance versus either a benchmark or a portfolio you should have been in the first place.
“So what does Wealthsimple have now? It has both points of data. It has how you’ve done on your own and it can very easily show how you would have done in comparison if you’d just taken the portfolio that your risk tolerance said you should have taken.
“In the future when you open up that app, you’ll see the line on how you did versus how you could have done if you’d just done things properly by hiring someone and paying that fee.
“Guess what you’re incentivized to do? Actually listen to professional advice because it’s been proven in front of you in black and white that you don’t know what the hell you are doing.”
Pereira insists that Wealthsimple - and other robos - will then simply flip the “DIYers” over to its own portfolios but he believes the traditional advisor will benefit from an enhanced appreciation of advice that makes a difference.
Zero or low fees, he added, is the ideal bait with firms now finding other ways way to monetize elsewhere.
He said: “When Wealthsimple first announced [the 0% app], my first emails were to the CIO saying, promise me that in five years you’ll get me the data for academic research because the treasure trove of this and the genius of it is that, finally, you have an incentive. Its incentive is to convert people from non-paying to paying and now Wealthsimple has the data to prove it.
“And as for using an advisor beyond the robo advisor, you think that paying for value that matters is going to open them up to other forms of paying for value? Yes it is.”