A Canadian robo-adviser start-up has received a significant investment in a bid to boost its chances of successfully penetrating the already saturated U.S. market. Wealthsimple announced the investment of $20 million from Power Financial Corp and formally launched its operations in the US.
The robo-adviser market is dominated by large investments firms, and it was established that in order for the Wealthsimple to become a success, it required a large investment – which was provided by fellow Canadian company Power Financial Corporation. Its decision to enter the US market means it will be the first foreign entity to do.
Robo-advisers, that give automated financial advice, is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners.
Industry analysts have been pessimistic in their assessment of Wealthsimple’s chances of being successful – pointing to the presence of established firms like Charles Schwab and Vanguard as an indicator of the challenges in the sector.
However, founder and CEO of Wealthsimple, Mike Katchen declared that it was too soon to set targets in the US market, and was confident the decision to upscale would prove to be successful.
"People are absolutely right, this business is absolutely about scale, when Vanguard or Schwab launch a product, that's not a question people have, but we are confident.”
Katchen added that Power Financial's long-term backing gives it an edge. Power and its subsidiaries have put in a total of C$50 million in Wealthsimple since first investing in the start-up back in 2015.
Wealthsimple disclosed that close to 20,000 customers in Canada have signed up since its launch a little over two years ago, investing more than C$750 million in exchange traded funds. It expects to cross the C$1 billion threshold soon.
A robo-advisory expert and senior analyst for research firm Celent, feels that the Canadian start-up will have to reduce fees in order to establish itself in the industry. William Trout said: “The U.S. is such a competitive market and Wealthsimple will have to drop fees in order to get any play.”
Ii has also emerged that Wealthsimple owns a London office – and is planning to open in 2017 – but a spokeswoman for the company said that the project in relation to the UK was an ‘exploratory’ one- while Trout added that the UK robo-advisory industry was also saturated.
Wealthsimple, which offers a socially responsible investment option, said real advisers can also provide financial planning advice to clients. It also has a platform for financial advisers in Canada, but said it has no immediate plans to launch the service in the United States.