Robo-advice won’t take off until the banks get behind it

By Susan Yellin | June 28 2018 07:00AM

Photo: Unsplash

Robo-advice will only start to take off in Canada when more of the big banks get serious about taking part in the digital platform, the Federation of Mutual Fund Dealers (FMFD) conference was told.But a consultant says that if the U.S. is any example, it might take at least a year or two for that to happen.

“The banks aren’t serious about it yet,” Michael Stanley, president of Sterling Mutuals told the April FMFD conference.

But Stanley said banks have already taken the first step to robo-advice by launching their own suites of exchange-traded funds (ETFs), basically the main ingredient for a robo-platform.

“Once you are the asset management arm and the distribution, now you have a value proposition that will work,” said Stanley. “This is a very unique country. You have an incredibly concentrated form of distribution [the banks] that are all in asset management. And I think personally … that when the banks decide when they want to get into a business in this country, they do it in a pretty good way.”

Exchange-traded funds

While all of the big banks offer ETFs, only two provide a widespread robo-advice platform at the current time.

Of Canada’s Big Six banks, Bank of Montreal launched its SmartFolio in 2016 through its brokerage arm, BMO Nesbitt Burns. National Bank moved into the robo-advice space just over a year ago by making a $6-million investment in robo-advisor Nest Wealth. At the same time, Nest Wealth has licensed its investment technology to National Bank to set up a digital platform to help the bank’s advisors manage clients’ funds.

Last fall, Royal Bank began testing its RBC InvestEase platform with a small test sample in Ontario and then launched another pilot project for a larger group in the province in January.The RBC InvestEase portfolios invest in index ETFs developed by RBC Global Asset Management.

That’s it, so far. Neither Scotiabank nor CIBC offer a robo-advice system and there’s no robo-advice platform at TD Bank – yet. But TD spokesperson Jacqueline Zonneville said the bank does see value in robo-advisor-type capabilities.

“Given ongoing discussions of the disruption in the industry, we plan to collaborate on this kind of capability in the near future,” Zonneville said in an email.

All told, as of Q1 2018, the Canadian providers of robo-advice have discretionary, managed online assets of just over $2 billion in assets under administration, said, in an interview, Brett McDonald, associate consultant at Strategic Insight, which conducts a regular survey among 17 robo-advice services.

“It’s so early in Canada – I think that’s why the banks haven’t moved there yet,” McDonald said. “It’s early for technology in general finding its way into the financial advice world. It’s still pretty early for the online advice business in general in Canada in terms of consumer awareness and adoption. But I think you’ll see a lot of change and evolution in the years ahead.”

Robo-advice has been around a lot longer in the U.S. but even there it’s taken until recently for some of the big banks to dip their toes into the water.

“We’re starting to see some of the bigger and more established U.S. institutions starting to add a robo-advice option to their shelves,” said McDonald. “In the past 12-18 months, you see banks like Wells Fargo, Morgan Stanley, Merrill Lynch, [and Singapore-based] DBS, all adding the robo-advice service and that’s after evaluating the market for quite a long period of time.In terms of how the Canadian market is looking, it’s following in that path as well.”

Banks, he said, are not looking at robo-advice as a single, direct, distribution channel but rather at technology and advice in a more holistic way, such as how to make manual processes more efficient.

Profitable and well-run, Canadian banks need to determine how a robo-advice platform would sit within their larger institutions, he said.

“That being said, any time you are looking at change, it’s a bit of a balancing act between managing risk and looking at the current state of the business, versus how to foster innovation and evolving and creating a sustainable business model for the future. It’s a challenge.”

While there may be some fears that robo-advice will usurp the role of the financial advisor, a number of speakers at the conference said that’s just not so.

Robo-advice, or some form of technology, is already assisting financial advisors in one way or another, but they cannot take the place of a human being, said Karen Adams, president of Fundserv Inc.

“There’s no doubt everyone in this room knows that advisory services in some way, face-to-face, human-to-human, are never going away. However, will technology assist us in serving our clients better? Absolutely. It already is. Let’s embrace it. Let’s not try to resist it.”

Professional advisors

Jordy Chilcott, head of investment distribution at Sun Life Global Investments, said robo-advice can help many advisors, acting as a nudge to investors to move forward with a professional advisor. Chilcott also said robo-advice may be the answer to getting orphan accounts moving again.

Stanley said technology is helping to take on the administrative part of onboarding clients, leaving the advisor free to manage the client relationship.

“In the end, what client isn’t going to face death, disability, taxes, retirement or depression in some point in their career? For that, face-to-face financial advice is the best thing.”

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