Financial services conglomerate Power Financial Corp., is entering the robo-adviser business with an investment of up to $30-million in Toronto-based startup WealthSimple.
Power Financial — which is the parent of the Great-West life insurance company and IGM mutual fund group, will invest $10 million now in WealthSimple, with the option to invest another $20 million over the next 12 months.
The WealthSimple online investment manager launched in September and since then has secured more than 1,000 clients.
WealthSimple bills itself as a low-cost alternative to traditional types of investment advisory services and products.
Robo-advisers use questionnaires to determine investors’ appetites for risk, then invest clients’ assets into portfolios made up of exchange-traded funds (ETFs). The portfolios are rebalanced using algorithms.
Some robo-adviers, including WealthSimple, also have investment advisers available via telephone, text or video chat to answer questions.
WealthSimple says the investment will allow it to grow its team of technology and financial experts, increase its marketing efforts and give it access to a larger roster of investment professionals.
Robo-advisers tend to appeal to tech-savvy young professionals who don’t have enough assets to warrant hiring a full-service investment adviser, but don’t want to pay hefty fees for mutual fund projects.
While many larger institutions charge as much as 2.5% of a client’s assets in fees, online investment advisers charge as little as 0.3%, depending on the client’s account size.
“We believe in the value of financial advice for everyone and see the WealthSimple model as a way to appeal to under-served segments of the Canadian population like millennials and those with more modest assets,” Power Financial’s vice-president Stephane Lemay said in a statement.
“Wealthsimple has been able to reach this market.”