Wealth management in Canada and around the world is changing as investors move away from relying on financial advisers and increasingly morph to a hybrid model consisting of traditional advice and digital tools and platforms that help facilitate do-it-yourself investing based on the individual’s goals.
A major report on the new face of wealth management by Accenture Consulting concludes that about 40 per cent of Canadian investors feel they do not “get what they pay for” when using a traditional wealth advisor, leading them to explore other options such as self-investing through a robo adviser. Seven out of 10 Canadian investors said they already use at least one digital tool or service when investing.
Robo advisers are a class of financial adviser that provides online financial or portfolio management advice based on mathematical rules or algorithms with little or no human intervention. These algorithms are executed by software and thus the financial advice does not require a human adviser. The software uses algorithms to automatically allocate, manage and optimize the investors’ assets.
Robo-advisers first emerged in 2008 and grew quickly in the United States and other countries after 2011. Robo advisers have brought wealth management services to a broader audience at lower costs than traditional wealth management human advisers.
Robo advisers typically allocate investors’ assets on the basis of their individual risk preferences and desired returns. Robo advisers have the capability to allocate assets in many investment products such as stocks, bonds, futures, commodities and real estate, but they often are directed toward Exchange Traded Funds. Investors can choose between products with wither passive or active asset management styles.
Robo advisers have grown much more quickly in the United States than in Canada. Canadian investors, the report notes, generally are more conservative than their counterparts in the U.S. Ninety per cent of Canadian investors do not consider themselves aggressive when investing. Sixty three per cent say developing wealth for a comfortable retirement is their main concern, 50 per cent of focused on keeping their money safe and 49 per cent are conscious about fees.
“Canada is about three years behind the United States when it comes to the proliferation of robo advisers in the market,” Kendra Thompson, managing director and global lead with Accenture Wealth Management, said in an interview.
”There are a few players in the market like Wealth Simple. The major banks in Canada have been slow to develop robo platforms because they already have full service wealth management channels. Robo is more of a capability, a building block that investors can use rather than a separate wealth management channel.”
Canadian investors, while typically conservative in their approach to wealth management, are showing an increasing openness to using technology to cut costs and maximize returns. Canadian investors are split on whether wealth management advice is specialized skill requiring human advisers or something they could do for themselves with some training. Fifty two per cent say anyone could match the performance of a professional adviser given the right tools and training.
Half of wealthier investors with more than $650,000 in investing assets say they feel then can invest as well as an adviser compared to just 25 per cent of investors with $250,000 or less.
More than half of Canadian investors, however, still feel that human advisers provide the best advice for specialized and more complex situations.
“While robo-advice seems to be working for general advisement and wealth accumulation, many investors still prefer human advisors for situations that are nuanced and of high complexity (like) wealth transfer after a death in the family, complex business interests, tax optimization, the transition to retirement, decumulation and philanthropic plans. Offering clients the best of both worlds – the efficiency and algorithms of robo advice and the human touch for more complex advisory situations – could be key to future success.”
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.