Page 16 - Demo

STRATEGIES
What crisis?
Robos survive
the market sell-off
Robo assets under administration increased this year, and B2B demand is growing
By Fiona Collie
JDAWNINK / ISTOCKPHOTO
Digital wealth-management platforms are weathering the Covid- 19 storm and proving their place within the investment industry. “The perception that we had before [the
pandemic] was that robo-advisors can’t
uncertain time [with the] global pandemic going on.”
Numbers have also been positive at Toronto-based fintech Wealthsimple
manage through a time of turmoil,” says Andrew Kirk- Investors may land, president of Toronto-based Justwealth Financial
Inc. “I think we kind of debunked that myth.”
According to research from Toronto-based Investor
Economics, a division of Institutional Shareholder
Services Inc., total robo-advice assets under adminis-
tration (AUA) in Canada reached $10 billion in Q2 2020,
up from $8.3 billion in the first quarter and $7.5 billion
at the end of 2019. In March, mutual funds saw net
redemptions of $14.1 billion, according to the Invest-
ment Funds Institute of Canada, while ETFs had net sales of $2.9 billion.
Investor Economics doesn’t measure net flows for ETFs by distribu- tion channel. However, it “has become pretty clear” that robo-advisors are playing an increasingly important role in the growth of ETFs, says Brett McDonald, senior consultant with Investor Economics. “I think we’ve seen, over the past five years, the robo-advice model develop into something that will be sustainable going forward.”
The market volatility that came with the global pandemic benefited digital platforms, McDonald says, because that volatility gave people a reason to look outside their current investment situations. Investors are generally happy to let things be when markets are doing well; they’re more likely to scrutinize their investment provider or try a new one when things aren’t going well.
Many digital advice platforms state their accounts held steady or increased in the first half of the year in terms of openings, closures and deposits. “We saw more and more people deciding it was time to open an account with a digital wealth advisor,” says Randy Cass, founder and CEO of Toronto-based Nest Wealth Asset Management Inc.
Nest Wealth had a record number of account openings in March and April, when stock markets were in turmoil, Cass says. This activity came after RRSP season was over and without increased marketing.
Justwealth’s AUA are up by 53% in the first half of the year, while the number of clients is up by 64%, Kirkland says. Money flowed into new and existing accounts during the initial market volatility, particu- larly from millennial clients, he adds: “The younger demographic in our client base was actually willing to put in more money during this
16 Investment Executive’s ETF Guide 2020
look for a new provider when markets tank
Inc. Net deposits were up in the period from February to June, and Wealthsimple Invest had twice the number of new clients in March 2020 year-over-year.
Dan Tersigni, portfolio manager with Wealthsimple, says being a completely digital platform gave the fintech the advantage of not having to change as much as trad- itional advisors had to when the lockdowns began.
That’s not to say digital wealth managers weren’t busy as markets nosedived and clients went through unprecedented economic times. Financial advisors often claim that clients will abandon robos during a market crash, citing the need for human advice to keep calm and
invested. Wealthsimple and Justwealth responded to the crash by increas- ing communication with their clients via email, videos and webinars.
During March, Wealthsimple emailed clients weekly to share insights and provide market updates. The firm also offered four webi- nars — more than 3,000 clients in Canada and the U.K. participated — to give clients opportunities to ask questions.
Of course, fintech companies weren’t just dealing with retail invest- ors at the height of the pandemic. Many robo-advisors have business-to- business (B2B) divisions. Nest Wealth, in particular, has emphasized
the B2B market through Nest Wealth Pro, its white-label offering. (The firm has partnered with National Bank of Canada, Bank of Nova Scotia — through the purchase of MD Financial Management in 2018 — and a third bank whose partnership is under a non-disclosure agreement.)
“I think the surprising note of the pandemic was that [the need for a digital platform] became a much higher priority for firms than it was beforehand,” Cass says.
Many advisory firms were eager at the beginning of the pandemic to get technology in place to operate remotely and update documents such as know-your-client forms. This created an opportunity for platforms already offering those services.
Cass argues the demand is here to stay as more firms build out their technology to ensure business continuity and meet client expectations.
“Firms and advisors who build their practices and service their clients on a strong foundation of technology are going to be way better able to service those clients and add greater value than [advisors with firms that] continue to do that without technology,” Cass says.