After less than three years of trying to build its brand and win over customers in Canada, Wealthsimple is expanding its robo-investment advisory service to the United States.
"I remember very clearly when we first launched the business, I presented this grand vision of building a global financial services company," said Mike Katchen, the 29-year-old CEO of Wealthsimple.
"Our board, which is made up of some pretty accomplished entrepreneurs and financial services veterans, just about laughed me out of the room."
But that was when the Toronto-based startup had about 20 clients. Now it boasts 20,000 clients with $750 million in assets.
Today Wealthsimple takes what is perhaps its most daring step yet — into all 50 states of the massive U.S. market.
Wealthsimple is one of the largest robo-advisers to have launched in Canada in recent years. Others include: Nest Wealth, WealthBar; Bank of Montreal's SmartFolio; and Modern Advisor.
All of them are challenging the big banks and investment firms that have dominated the business for decades. And some analysts — and more than a few bankers — consider these so-called fintech firms to be potentially serious threats.
Each company offers slightly different features, but generally all are accessible on the web or through an app, where people can define their risk tolerance and goals in order to build an automated portfolio in just a few minutes.
Along with the ease of use and tech appeal, the other main attraction of robo-advisers is the very low fees — even if a person only has a small amount of money to invest.
Still small but not well-known
Although it may sound like an investing tool that would appeal mainly to millennials, according to a study by the Globe and Mail, the clients of the robo-adviser firms have an average age of 43.
"Our youngest client is 18 and our oldest client is 88," said Nest Wealth's head of customer experience Jenny do Forno.
Nest Wealth differentiates itself by offering a "Netflix-style" subscription service: it charges clients a flat fee of between $20 to $80 a month to manage their portfolios.
Currently available in six of the 10 provinces, Nest Wealth plans to announce wider availability in the coming days.
Laurence Booth, a finance professor at the University of Toronto, says he sees robo-advisers' growth potential as limited, in part because of the type of investor they attract.
"For any initial industry, you get dozens of startups and one of them will survive," he said. "These robo-advisers, I think, are very, very useful for the low end of the market."
He doubts, however, that high-net-worth investors will be as interested.
"If you've got say, $300,000 or $400,000, are you going to allocate that to a robo-adviser? Somebody you've never seen?"
The human side of robo-advisers
According to global consulting firm Accenture, nearly four out of five consumers around the world say they are open to using robo-advice for traditional investing.
But Accenture also found that two-thirds of consumers surveyed still want access to human interaction in financial services, particularly to deal with complaints and to get advice about complex products.
That could be a significant hitch for the new low-cost fintech model.
Wealthsimple and Vancouver-based WealthBar are examples of Canadian robo-advisers that combine both automated and human customer service.
"Each one of our clients has a dedicated financial adviser that they get in touch with when they have any questions to ask," WealthBar CEO Tea Nicola said.
But unlike Wealthsimple, WealthBar says it has no concrete plans to expand outside of Canada anytime soon.
Meanwhile, Katchen says he's excited to compete with fast-paced American companies. Established players in the U.S. robo-investment field include Betterment, Wealthfront, and Vanguard Personal Advisor.
"I think we're going to have to up our game even further," he said. "And that's going to make us a better company. It's going to be better for our clients in the U.S. and in Canada."