There will be a tipping point for the ‘Robo Advisors’ suggests Randy Cass of Nest Wealth.

Off the top you’ll notice that the term Robo Advisor in the headline is in quotes. I could and perhaps should use the term digital wealth manager. For now, Robo Advisor is the accepted term to describe these wealth managers who use technology to enhance the experience and allow clients to move to complete managed portfolios in a very low fee environment.

The term Robo is misleading and perhaps not fair to these wealth managers and to investors. The digital wealth managers are quite human with advice and help available.

Digital when you want it. Humans when you don’t.

roboAdvisor

And certainly the range of products and financial advice and human support varies by a wide range. I’d invite you to read my reviews of the leading Canadian Robo Advisors. The goal of the reviews is to help you understand the unique characteristics and offerings so that you might find the digital wealth manager that is right for you.

The Robo Advisors have come a long way in 5 years. 

It was 5 years ago that Randy Cass launched Nest Wealth. For a backgrounder please have a read of Nest Wealth Shows You How Those Low Fees Can Be Life Changing.

And certainly while I go on and on about Robo Advisors and their ability and potential to change the investment landscape, the larger Canadian public is slow on the uptake. The total amount invested in these companies is estimated to be in the range of $6-7 billion. Canadians hold over $1.5 trillion in mutual funds, much of it in high fee crap.

Canadians continue to pay the highest mutual fund fees in the developed world. The Robo Advisors offer the ability to cut investment fees by some 70%, 80%, 90% or more. For example Nest Wealth offers a subscription-based fee structure that tops out at $80 per month. You could have $1,000,000 invested and your Nest Wealth fees would be $960 annual. So ya, you could save tens of thousands of dollars, every year.

This disruptive investment approach is starting to catch on. 

Nest Wealth commissioned an independent survey this past RRSP season and found that 1 in 3 Canadians who intended to open an RRSP account were ‘going Robo’. 

Survery Slide Nest Wealth

I had a chat with Randy Cass the CEO of Nest Wealth after the conclusion of RRSP season and he offered that the rise of the digital wealth managers is truly incredible. After just 5 years this new and disruptive and misunderstood investment approach went from nowhere to becoming a major consideration for Canadian investors.

You can also watch Randy in this BNN video.

Certainly topping the list in RRSP season was those big Canadian banks who typically offer that suite of high fee funds. Here are the top intentions indicated by survey respondents.

Big Banks and Robo's

We don’t know yet how this played out. Did the Robo’s grab a third of new account openings? I asked Randy about the RRSP season for Nest Wealth and he offered that it was incredibly robust, again. Based on my conversations with a few of the digital wealth managers the annual growth rate for the industry is in the 100% annual range or more. And what’s incredible is that other than Wealthsimple, they do not partake in any traditional (and expensive) mass media advertising. Awareness is largely driven by word of mouth, existing clients, bloggers and other investment sites and free media, online advertising and education efforts.

And survey responders did indicate that fees were a main consideration. Yes the message is starting to get ‘out there’. On big bank funds and fees I’d invite you to read the tell-all book from former banker Larry Bates who wrote the best-selling Beat The Bank.

When will we see the tipping point for digital wealth management? 

Randy offered that we might experience that tipping point phenomenon popularized by Canadian writer Malcolm Gladwell.

The tipping point is that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire.

This tipping point will happen on its own sweet time in my opinion. We can’t force the issue. Today, mass media advertising does not work. That’s like pushing on string. You can make more Canadians aware of a new way to invest, but that does not mean that enough of them will make the move to make the advertising ‘worth it’. There will be no immediate positive return on investment.

That said overall awareness is low. We need a combination of more awareness and more acceptance. Digital wealth managers need to know the consumer’s barriers and then they need to know how to communicate to remove or tear down those barriers. Research from Parameter Insights is more than telling. Awareness is creeping up marginally and slowly.

And as I often write, the ‘Robo’s’ have to find a way to sound and feel more human. The Robo moniker is an anchor in itself. From Parameter Insights …

As described in a previous report, the “robo-advice” terminology has done a disservice to the category. Such jargon has only served to make it more difficult to reach consumers who already feel disillusioned about their financial prospects… even those who earn relatively higher wages. The message is clear: digital advisory firms need to do a better job of communicating to prospects …

Common sense and what appears to be the most compelling unique selling proposition does not always work in the marketing world. You’d think that ‘hey I can cut your fees by 80% and maybe even double your returns over a lifetime’ would be compelling. Nope, low fees is not compelling enough when there are barriers.

That said, lowering fees and moving to a better investment approach is meaningful to some as Nest Wealth’s 2019 research showed. That important message grabs the lowest hanging fruit, the early adopters who are perhaps more ‘self engaged’ and more interested and aware. For most, investing is a VERY low-interest category.

To move to the big time, the digital wealth managers need to move to a more human and emotional and engaging (barrier crashing) set of messages. I’d suggest you get together robo arm in robo arm and form an Association. Hey, there’s the MFDA, the Mutual Fund Dealers Association, why not the Digital Wealth Management Movement? OK, that’s not the right name, give me a few days to work on that. 🙂

Awareness also needs to come attached to education. 

And according to Parameter Insights research, consumers expect digital to rule in many areas of finance. Perhaps they are just waiting for permission or validation that it’s OK, it’s ‘safe’ to jump into the digital waters. The conditions for a tipping point are present.

Organic growth is great, but it has its limitations. 

“It’s a sticky tool, it can’t make certain mistakes. There is limited room to surprise investors.” – Randy Cass

Randy Cass offers that once they get a client the experience takes care of business. The majority of existing clients after a certain period begin to move in some or a significant portion of their other assets. Those clients become Nest Wealth Ambassadors. There’s no better advertising than a spokesperson who is honest and unbiased and who might be your potential new client’s friend, brother, sister, uncle or parent.

But that’s a small army of ambassadors for each digital wealth manager. That small army can only move so fast. The industry has to move from getting them one at a time to hundreds at a time, to thousands at a time.

Technology will continue to disrupt and improve the industry and the client experience and investment returns, that’s not the question. The question to be answered is how much of this business are the existing digital wealth managers going to grab? Where is the tipping point?

That Robo suit has to come off.

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Questions to Dale cutthecrapinvesting@gmail.com or better yet leave a comment on this post.

9 thoughts

  1. Too bad you didn’t ask him about the “new” ETF proposed by Vanguard, BMO, and the like. You know those VBAL, VCNS and VGRO of this Canadian world. That could do for another of your fine blog on this subject!

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    1. Hi Pete, thanks for stopping in. I’d bet Randy is a fan of those One Ticket Solutions. I’ve honestly found that the folks at Nest Wealth (like me) are simply fans of sensible low fee investments. They would also be happy if fees fell across the entire industry thanks to the pressure put on by Digital Wealth Managers and those One Ticket offering and simple model ETF portfolios for self directed investors. Jenny Deforno their head of customer experience brings that up often – changing the industry for the better. As much as there is serious competition between the “Robo’s” there is also the sense that they/we are all on the same team. In fact Randy and I did discuss that as well. It’s rewarding to do ‘good work’. We are all on the same mission. There’s enough to go around, there’s more than a trillion that has to be moved to sensible investments. Ha.

      Thanks for your comment, robust discussion and various opinions are always welcome 🙂

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      1. Thanks for the (great) reply! For now, I am a DIY investor with many accounts (Taxable, RRSP, LIF, TFSA) and some day I’m wondering if I should “robotize” everything to NestWealth, or others. I am also questioning myself as to why not use the One Ticket solution, with some very low fees (0.20 at BMO), and barely touch my accounts, maybe rebalancing once a year. Or should I “trust” one or the other robots out there to do it for me? I’m not a newbie as I’ve been investing for more than 40 years.

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  2. Hi Pete, One Ticket is a great option. As a seasoned self directed investor you might already know how to match your risk tolerance level to your investments. And you might know what goes where with respect to your tax situation. All said, one can create certain tax efficiencies with individual ETFs and stocks. There are many low fee options. There are many levels of advice available.

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  3. Thanks Dale – you are quite right. We think that the increase in low cost, quality products in the market is a great thing and benefits all Canadians. We are very proud to be a part of it and to have been the first digital wealth manager to launch in Canada. By offering a clear and valuable alternative to the status quo, not only have we helped thousands of our own clients save millions of dollars, we have also applied significant pressure to the industry in general to step up and do better and you are starting to see that in some of the new offerings. Having said that, there is still a long way to go and not everyone is comfortable doing it themselves or investing in a one ticket solution and for all those people – we offer a sophisticated, customizable, low cost option that comes with a team of real people to help support them along the way. If that’s you – we are happy to help!

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    1. Thanks Jenny, everyone I talk with at Digital Wealth Managers or ETF providers or other low fee houses is happy to get up and ‘go to work’ in the morning. It’s easy when you have the best interests of clients in mind.

      Liked by 1 person

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