The time has come to leverage fintech tools. Investors want both advisors and the conveniences of technology, so aim to enhance your current connections as well as attract new generations of clients.
Firms and big banks are attempting to take part in the digital revolution, In Q1 2017, Laurentian Bank revealed it plans to open more advice-only branches, given customers are more rapidly turning to online banking. RBC is also moving to more non-traditional branches, while CIBC, BMO and Scotiabank have been considering tech opportunities by developing in-house offerings and looking for partnerships.
National Bank announced last week that it has signed multiple agreements with Nest Wealth, one of Canada’s original and more established robo-advisors (both Nest Wealth and Wealthsimple launched in 2014, and have expanded since).
National Bank says in a release that the agreements, which are still subject to regulatory approval, include “both a strategic minority investment of $6 million by National Bank in Nest Wealth and a commercial agreement between the two companies” that will allow the bank to use the robo-advisor’s investment technology.
In an interview with Advisor.ca, Martin Gagnon, executive vice-president of wealth management at National Bank, said the plan is to roll out new technology to advisors and build on National Bank’s InvestCube offering, which currently serves less than 20% of the bank’s investor base—and mainly those with simpler financial needs.
Are other institutions and firms moving in the same direction?
For non-bank wealth management firms, building or investing in new technology can be challenging. Regulation is seen as a major barrier, according to a recent PwC report, and scale is needed to meet cost pressures.
Indeed, during Q1 2017, several wealth management firms mentioned the growth of robo-advisors and the need for technology. However, there were no major announcements, only hints at future offerings (CI Financial listed a robo platform as an initiative in its fiscal Q4 report).
As the PwC report highlights, firms are busy figuring out the needs of the market and investing selectively, which will lead to “incremental returns” as they invest slowly. Through this process, experts suggest focusing on differentiating yourself, controlling costs and on what clients want.
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Gagnon notes there aren’t many examples of major investments in robos. “Typically, banks want to build everything in-house,” even though fintechs are “already revolutionizing the customer experience.” (Nest Wealth CEO Randy Cass told Toronto Star last week that this is the first time one of the Big Six banks has made a major, strategic investment in a Canadian fintech firm.)
Still, IPC said last year it was running a pilot program to use the Wealthsimple robo-application for its advisors. IPC’s owner, Power Financial Corporation, has invested tens of millions in Wealthsimple. Also, Credential Financial, in March 2017, said it had selected Nest Wealth Pro as its digital advisor offering.
For its part, National Bank is far from giving up on the human touch, despite its support of robos, Gagnon clarified. “I want to be clear: we’re investing heavily in advice and we strongly believe in advice, and this hasn’t changed. We’re not replacing advisors with robots,” he says.
Tied to its focus on digital innovation and the drop in branch traffic, the bank announced 600 layoffs in October 2016, but no advisors were affected at that time. Plus, says Gagnon, the Nest Wealth partnership “has nothing to do with the job cuts or the [bank’s] efficiency program.” He adds further digital initiatives will be made to boost efficiency and National Bank’s wealth segment, which saw net income grow by 31% in Q1 2017.
David Christianson, a portfolio manager and senior vice-president at the bank, says he welcomes the deal. In an email to Advisor.ca, he explained, “As an NBF advisor, I am excited by the alliance–not threatened. Anything that can bring new and better technology (even to an old Luddite like me) is a welcome thing, as it ultimately helps us do our jobs better and more efficiently.”
He adds, “Having access to tools I trust to help look after smaller clients is becoming more and more important” in today’s regulatory environment.
Deeper dive into National Bank’s decision
Gagnon was unable to provide more detail on the $6-million investment. But, he says the bank chose Nest Wealth after surveying all of Canada’s robo-advisors; one of the firm’s strengths was its Nest Wealth Pro offering, launched in April 2016.
The bank began negotiations with Nest Wealth in fall 2016, he says, adding: “The most important thing for us [was] to offer tools to our advisors—be they MFDA, CFP or IIROC reps. We want to […] help them better serve their clients.”
He adds, “We thought, ‘We can develop [something] in-house and it will take two years, or we can partner with someone and shorten that timeline.’ This [move] is a leap frog” as well as “a show of confidence in robo-advisors,” he says, which Gagnon refers to as “cool and sharp.” He expects the bank will start leveraging Nest Wealth Pro’s technology within the next four months.
The bank’s wealthier clients, who have more complex needs, likely won’t benefit as much from the technology. Gagnon expects it will “apply to many clients. But, if you have lots of assets, multiple marriages and a holding company, for instance, you’ll have a complex financial plan,” and thus more complex needs.
The success of robos depends on wider industry support and integration, says Gagnon. “We looked at the penetration rate of robo-advisors, and all of the robos in Canada together don’t have $1 billion of assets. So what’s missing?”
He concludes that while robo-advisors are “really good” at serving customers, acceptance of them isn’t as broad as he would expect.