Wealthsimple

In 2014, Michael Katchen founded the robo-advisor Wealthsimple. Katchen’s stated goal for the company was “to bring financial services to everybody, regardless of age or net worth.” He has said the idea for Wealthsimple started during his time in Silicon Valley where he dispensed DIY investing advice. Wealthsimple grew into the U.S. and U.K. markets in 2017.

Their headquarters are in Toronto, Canada and they have offices in New York and London. Michael Katchen plans to take the company public in the coming years, with the stated goal of $20 billion in assets under administration (AUA) as the moment to go public. As of Q1 2019, Wealthsimple announced $4.3 billion AUA with about 150,000 clients.

Despite the upward trend in robo-advisors, Wealthsimple uses a hybrid approach where they pair their robo-advisors with a team of financial experts who review the performance of portfolios. There are support teams for their services and they offer portfolio review to clients in their higher tiers. Financial planning and goal setting is available to their Wealthsimple Generation tier, though they offer simple financial advice to their basic users.

They pair their tools with a slimmed down, aesthetic-forward app and website design intended to appeal to younger (read: Millennial) investors. The platform focuses on ease-of-use and simple steps. Wealthsimple estimates they own 70% of the digital advice space in Canada. In Michael Katchen's words:

Millennials are missing out on opportunities to secure their financial future. A lot of young people are mistrustful of big banks and put off by the paperwork. We are combining financial expertise with smart IT to shake up the industry and modernise investment.

Wealthsimple accounts in Canada are insured by the Canadian Investor Protection Fund (CIPF) who insure up to CAD $1 million. In the US, Securities Investor Protection Corporation (SIPC) insures investors up to USD $500,000. In the UK, Financial Services Compensation Scheme (FSCS) insure investors up to GBP £ 50,000. All accounts are subject to a management fee assessed by Wealthsimple. This is a 0.5% fee for Wealthsimple Basic accounts or 0.4% for higher tiered Black or Generation accounts. They may also be assessed a fee by the manager of the ETF's held their investments, known as management expense ratio (MER). MER's are assessed annually at around 0.1% to 0.2%. These fees, charged by the managers of held investment funds will be quoted annually, but, as all Wealthsimple fees, assessed monthly. MER's won’t be payable by the investor but will be reflected in the prices of the ETF’s held. Three types of accounts are offered through their investment: Wealthsimple Basic, Wealthsimple Black and Wealthsimple Generation.

In Canada, Wealthsimple allows investors to open TFSA, RESP, RRIF, RRSP, Spousal RRSP, LIRA, Non-Registered Investment (Personal or Joint), Wealthsimple Save and Corporate accounts. In the US, Wealthsimple allows investors to open Traditional IRA, Roth IRA, SEP IRA or Non-Registered Investment (Personal or Joint) Accounts. In the UK, Wealthsimple allows investors to open ISA Individual Savings, JISA Individual Savings or Personal Investment Accounts.

Wealthsimple Basic: This is tiered for accounts under $100,000. This is the simplest and most popular account type with a management fee of 0.5%, multiple account types dependent on country, socially responsible and Halal investing options, high-interest savings accounts, tools to assist saving, auto-rebalancing, auto deposits, dividend reinvesting and financial advice.

Wealthsimple Black: If an account is over $100,000 the investor is tiered into the Wealthsimple Black account. Here you receive all the same services of the Basic account, but the management fee is 0.4%, tax-loss harvesting is included, as well as tax-efficient funds, a financial planning session and VIP airport lounge access in over 1,000 airports across 400 cities.

Wealthsimple Generation: when an account reaches over $500,000 the investor is tiered into Wealthsimple’s Generation account. This combines the Basic and Black accounts while adding In-depth financial planning, tailored portfolios, a personalized financial report which can include goal-setting and 50% off a comprehensive health plan from Medcan.

Wealthsimple manages investment portfolio’s using a mixture of artificial intelligence and portfolio advisors. The philosophy of investment is based on the Nobel-Prize winning Modern Portfolio Theory. This theory proves a passive investing approach focused on diversification of industry and volatility is the more reliable way to grow money over time. Wealthsimple pairs this theory with portfolio’s designed around low-cost ETF’s which track the markets as a whole and minimize individual volatility. They further diversify their portfolios across markets to minimize the risk of single market collapse. They offer three portfolio types dependent on the account holders risk tolerance: Conservative, Balanced and Growth. During Wealthsimple’s quick onboarding procedure, often cited at between ten and fifteen minutes to sign up, they include a questionnaire to match you with one of these portfolios and further match these portfolio’s with asset allocations to suit your risk tolerance. This process allows Wealthsimple to build a diverse portfolio without the costs of having to buy, sell and re-balance on a consistent basis.

Conservative portfolios focus on low-volatility bonds – about seventy percent of the portfolio while thirty percent is in stocks – for stability and growth.

Balanced portfolios are a fifty-fifty mix of low-volatility bonds and the more volatile equities for low-to-medium risk tolerance.

Growth Portfolios focus seventy-five to ninety percent of their portfolio in equities and stocks – with only ten to twenty-five percent of the portfolio in bonds – for medium-to-high risk tolerance and the greatest possible growth.

These portfolios are composed of ETF’s from different asset classes. These classes for Canadian Investors are:

Wealthsimple offers various features on their accounts to help their investors reach their goals. These are features outside of asset personalization, automatic rebalancing and free financial advice offered on all their account tiers.

Wealthsimple will cover the fees of transferring your account to them. Transfers of investments greater than $5,000 are eligible for transfer fee reimbursement on completion of a short survey. Transferring funds from Wealthsimple is easy and they will never charge penalties or lock your account.

Wealthsimple allows an investor to schedule automatic deposits into their investment account.

Dividends are automatically re-invested and no action is needed on the investors end.

Wealthsimple Black clients have access to goal-based financial planning with an experienced portfolio manager. Wealthsimple Generation clients have access to in-depth financial planning and financial experts who will design a personalized financial report customized to their goals. Every Wealthsimple client has access to human experts providing financial advice.

Wealthsimple offers free portfolio review to their clients which can encompass non-Wealthsimple financial accounts. This review will analyze fees, tax efficiency and portfolio allocation.

Wealthsimple fractionally invests client’s money to invest every dollar immediately to maximize interest return on the account. This also allows accounts of any size to have equal diversification and minimize risk to the accounts.

Wealthsimple’s SRI option allows investors to build portfolio’s from low carbon companies, clean-tech innovators, companies with a positive human rights record and Canadian Federal Bonds with AAA rating. There are no separate management fees for SRI accounts. These include PZD (PowerShares Cleantech Portfolio), CRBN (iShares MSCI ACWI Low Carbon Target ETF), VIDI (Vident International Equity Fund), ZFM (BMO Mid Federal Bond Index), and XEN (iShares Jantzi Social Index ETF). Although these accounts have the same fee structures as traditional investment accounts, the ETF’s themselves charge a management fee higher than their peers – on average a 0.25% to 0.40%, compared to 0.1% to 0.2% for regular portfolios. These fees reflect the careful selection process of SRI ETF’s.

Wealthsimple offers a portfolio for followers of the Islamic faith who want their investments to keep with Islamic principles. Halal portfolios do not invest in companies which profit from pork, gambling, tobacco or weapons. These portfolios follow the same principles of diversification and risk tolerance as traditional portfolios and offer the same gamut of features other Wealthsimple investors have available to them.

In response to the high-interest savings accounts offered by online-only banks, Wealthsimple introduced their Smart Savings Account which offers 2.00% interest per annum. There is no minimum balance and unlimited transactions. The account does have a management fee of up to 0.25% per year.

Wealthsimple introduced Roundup in September 2018 which allows investors to link their credit or debit card through their app. When the investor makes a purchase, the amount paid will be rounded to the nearest dollar and the spare change withdrawn into their investment account once a week.

Wealthsimple’s Overflow feature allows the investor to specify how much money they want to keep in their chequing account. Once a month, Wealthsimple will check the investors account and automatically invest however much is over the specified amount.

Wealthsimple for Work is aimed at helping businesses manage their employees pensions and retirement plans using their platform.

Wealthsimple introduced Master Class in April 2019 to teach the basics of investing. The course is free, uses jargon free language and consists of 10 short videos under forty-five minutes long in total.

Introduced in August 2018 and launched in March 2019, Wealthsimple Trade is a commission free brokerage with no account minimums and allows users to trade over 8,000 popular stocks and ETF’s for free. There is no trade limit.

Wealthsimple introduced a platform where financial advisors could onboard clients, open and manage accounts and ensure regulatory compliance. This tool allowed smaller firms unable to develop proprietary software operate for lower cost. Wealthsimple for Advisors gives financial advisors access to ETF's, mutual funds and individual stock portfolios.

Raised $2 million from 15 investors including David Ossip, Dan Debow, Roger Martin, Joe Canavan and Impression Ventures.

Entered into partnership with Power Financial Corp. who invested an initial $10 million with the initial potential of an additional $20 million over the preceding twelve months and option for further investment over the next three years. Wealthsimple received the $20 million later that year and an additional $20 million in December 2016. They followed this with an announcement that Paul Desmarais III, senior vice-president of Power Financial, would join as Chairman of Wealthsimple.

Raised $50 million from Power Financial to help Wealthsimple’s expansion into US and UK markets. Wealthsimple announced during this funding round they’d reached $1 billion in AUA.

Raised $65 million from Power Financial.

Wealthsimple raised $12 million from Power Financial and $18 million from Power Finacial’s subsidiary IGM. This brought Power’s cumulative investment in Wealthsimple to $238 million and an 88.6% stake. Allianz X, digital manager of Allianz Group, invested $100 million in Wealthsimple. Both Allianz X and Wealthsimple saw the investment as an opportunity to bring Wealthsimple into Europe.