The merging of technology and financial advice has long been evolving in Canada. Traditional dealers have used asset allocation software for years to help optimize client portfolios and systematize the advice process.
Today, the infiltration of technology into the wealth advisory space has deepened.
Companies like WealthSimple and BMO’s SmartFolio are offering an advisor-less solution for investors seeking to manage their money. While a threat to some advisors, these ‘robo advisors’ are not quite feasible as a going concern. With average account sizes hovering around $10,000 it is quite likely these businesses operate at a loss. Consequently, robo advisory space will see increasing consolidation.
Power Financial, for example, is a major stakeholder in WealthSimple. One can only imagine how Power Financial’s many arms – Investors Group, Mackenzie Financial, Great West Life – will leverage the relationships built using the WealthSimple platform. Indeed, many advisors within Investors Group will likely use WealthSimple’s technology platform to automate a portion of their books. On its own, however, it is likely that WealthSimple would simply wither and die over the long run.
Some have suggested that BMO’s own robo advice offering is simply a lead generator for its more profitable lines of business – mortgages, credit, etc. – and an entry point into a lifelong relationship with a client.
Of course, this raises the question: what’s stopping standalone robo advice firms from expanding their offering into credit?
Well, capital intensity is one possible answer. The lending business needs to be funded by deposits. And attracting deposits requires trust. This is a huge competitive advantage that the big 5 banks in Canada have over any new entrants. A grassroots financial institution will need to run twice as fast to go half the speed of the big banks.
Still, the big 5 banks don’t have a monopoly on trust. Amazon, for instance, is highly trusted by buyers and sellers to exchange payments and deliver goods. In fact, Amazon holds earnings for a time period until payments are made. In a way, Amazon is already a de facto bank because these held payments represent a permanent deposit base from which Amazon could expand its financial offering.
This level of trust means that Amazon is only steps away from providing a variety of financial services, including advice.
Check out this interview to see why Amazon might be the next big threat to financial advisors: LINK
Categories: Wealth Management