What Can Robo-advice Teach Us About Financial Services?

2014 was a very eventful year for the Canadian financial services industry. Among all the regulatory chatter of CRM2 implementation, Canadian retail wealth passing the $3.5 trillion mark, (and the client research specialists at Corporate Insights joining the Investor Economics family), it was also the year that several robo-advice firms launched their services to the Canadian public for the first time. Following in the footsteps of some British (Nutmeg) and American (Wealthfront and Betterment) counterparts, Wealthsimple, Nest Wealth, WealthBar, Smart Money and Questrade all launched a new venture into the online advice world. Since then, nearly a dozen more firms have joined the melee, with 16 online advice offerings now available to Canadian retail investors (and from some of our conversations, many more are on the way).


The robo-advice business has evolved leaps and bounds since it came into being several years ago. But what can these new digital entrants teach the rest of the financial services world about the industry? Of the many things we have learned from observing the robo-advice movement, several key highlights are below:

  • Customer acquisition is a primary challenge for any distributor seeking growth: Hence, it is those who have been best at finding/harnessing consumer attention, breaking consumer inertia, and have the necessary capital and business development/partnership savvy who have found the most success to date in the robo-advice world. For online advice firms, the most common avenues through which this has been accomplished is via traditional marketing, engineering as marketing (or freemium products) and the formation of strategic partnerships and alliances.  
  • Existing customer relationships are a hugely important asset for established wealth management firms: Existing client relationships are a primary driver of how incumbent firms are able to scale-up new digital offerings faster than new entrants. However, this also demonstrates the importance of customer retention in an industry where relationships are hard won. Because retention is so important, many distributors, including robo-advisors, are looking to grow with their clients over time (adding service tiers to accommodate every stage of the financial lifecycle) or are looking to seal-up cracks where relationships might be broken, including after market downturns and after life events such as the transfer of wealth from one generation to another.
  • Those closest to the end client on the financial services value chain tend to have the greatest influence over the economics of those below them. Fintech firms who prioritize user growth over profits recognize this as a long-term strategy. This idea is also factoring into the strategic plans of many asset managers, who find themselves one step removed from the end client in most financial services contexts and are considering whether owning distribution, or the technology that facilitates distribution, might be a potential solution to this problem.
  • As advice relationships shift from people to brands, a new kind of dialogue with the end customer is required: As direct channels continue to make inroads into the intermediated advice landscape, another more subtle shift is occurring, where end customer relationships are moving from relationships with people (financial advisors) to relationships with brands. This shift creates new challenges/opportunities when it comes to developing a dialogue with the end customer. Face-to-face financial advice is a very human and customer-centric process. Robo-advice can also be very human and people-centric, just in a 21st century way. In order to reach that objective, client communication channels (including mass communication channels like published content) are important for online advice firms to consider, along with the messaging, responsiveness and degree of personalization that comes along with it.
  • Competition for mass market clients is heating up: Given the technology-driven scalability associated with the automated investment model, robo-advice is likely the key conduit through which competition for mass market investors takes place. This is where the classic story of disruption is most applicable to the wealth management world: targeting an underserved or unserved segment.
  • Advice is being repriced: Indirectly, the rise of robo-advice has put a price on key pieces of the face-to-face advice value proposition including: asset allocation, portfolio maintenance tasks, product selection and light financial planning (something termed by Vanguard as advisor beta). As the robo-advice model moves ahead on the product development curve, it is also likely that more components of the advisor value proposition will be automated and repriced into advisor beta in the near future. Hence, distributors charging fees well above the price of advisor beta will be under increasing competitive pressure to justify the added value they bring to the table (namely, behavioural coaching, complex financial planning, estate and tax services, etc.).


Although some may say robo-advice firms have changed the game, we suggest they are fighting an age-old battle but have come equipped with new weapons. Something we are eager to continue tracking as we move towards the fifth year of robo-advice presence in Canada.