Canadian online investment management platform Wealthsimple is launching in the UK next month after acquiring its full licence from the Financial Conduct Authority (FCA). Techworld sat down with its European CEO Toby Triebel to talk about what Wealthsimple needed to do to enter the UK market, and what it can bring to British investors.
The Cambridge graduate has been in the job for a year now, with the mandate to launch the company's first European product here in the UK, a role which has largely comprised a lot of regulatory paperwork.
Wealthsimple secured its full UK investment management license from the FCA in April. It took "lots of paperwork, lots of going back and forth, thinking and establishing processes that the FCA is very keen on," according to Triebel.
Next, Triebel built a UK team from scratch, starting with legal and compliance, followed by PR and communications, growth, client success, and a single portfolio manager, into a dedicated team of 12 people.
He also worked with the engineering team in Toronto to get the UK investment platform ready for a September launch, including integration work with its back office partner SEI Investments.
Why Britain? "The UK has an obvious advice gap, more obvious than in Canada and the USA," Triebel said. "There are 5.5 million people that would like to have access to financial advice but do not have access, either because they are too small, or don't want to pay the exorbitant fees, with the average UK investor paying 2.6 percent according to Grant Thornton. That is crazy."
Wealthsimple won't be able to lean on its established brand here. The competitive landscape is healthy in the UK, with a burgeoning group of investment platforms launching in the past couple of years, from microinvesting with Moneybox to London-based wealth management platform Moneyfarm.
What does Wealthsimple invest in?
Wealthsimple takes a 'hybrid' approach to investing clients money, like Nutmeg here in the UK, so it's not technically a 'robo advisor'.
This means there is a central investor committee, chaired by Alain Bergeron, senior vice president and head of asset allocation at Mackenzie Investments. This constructs the various portfolios Wealthsimple invests client money in, depending on their risk profile - more on that later. The technology takes care of the onboarding and reporting part while the algorithms decide which portfolio to assign to which client.
These are then managed by country managers who can tweak portfolios, apply country-specific tax wrappers - like an ISA here in the UK - and are available at the end of the phone for customers.
Like most of its competitors, Wealthsimple invests clients money in exchange traded funds (ETFs).
Investopedia describes these as: "a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund." They are low cost and low risk compared to traditional mutual funds.
When asked if he is concerned about a potential ETF bubble, Triebel admitted it was a hot topic at Wealthsimple, but not a major concern.
"My view is that we have a long way to go," he said. "By the time it will become a problem there will be a solution. I have to admit I don't have a solution but we are quite some time away from this."
What does it look like?
Triebel walked Techworld through the onboarding process for Wealthsimple while it was still in the beta testing phase, ahead of a September launch.
The first part is a risk questionnaire to assess your risk appetite and investment horizon, with questions designed to understand your financial position - for example, what you are looking to invest, what the goal is (buying a home, saving for retirement, etc), how long you are looking to invest for (Wealthsimple suggests longer term investing), monthly income after tax, main source of income, monthly outgoings, combined value of investments, debt, emergency cash balance and previous investment experience.
Next there are three multiple choice questions intended to gauge risk appetite. For example: "If you were to invest £10,000 for five years and had to choose between these investment scenarios which would you go for?"
Now the Wealthsimple algorithm crunches through these responses and recommends a portfolio with an asset mix that complements your risk appetite. Everything is transparent (see image below) and users can tweak the portfolio if they want.
Finally, you agree to some terms, Wealthsimple will run a KYC check and you are ready to open an account, like an ISA, and fund it with a direct debit or bank transfer.
Now you will have access to a personalised investing dashboard including a graph showing current performance, with the ability to drill down into individual assets to see how they are performing.
The dashboard also includes forecasted returns over time. This is based on expected performance, and Triebel said this is a difference between Wealthsimple and some of its competitors.
"Past performance is not accurate because the interest rate environment was so different in the past," Triebel said. "So we are more realistic than a lot of our peers. We look at the funds that make up the portfolio and they each have an expected return.
"With the fixed income funds it is the yield. With equity we calculate it based on a risk premium and the 10 year UK government yield."
All of this can be done either on desktop via the Wealthsimple website or on the mobile app.
According to Triebel, at least half of its US users prefer to use the mobile version. The key difference with onboarding is that on mobile it follows a chat interface, so you simply respond to the questions from a chatbot as you would on something like WhatsApp.
In terms of fees, Wealthsimple is free for the first £5,000 and then charges a flat annual fee of 0.7 percent until £100,000 and 0.5 percent above that. The fund cost is then charged on top and is typically 0.2 percent so the most you pay in fees is 0.9 percent.
A lifestyle brand for financial services
Wealthsimple is targeting young professionals, which is heavily reflected in its marketing approach.
"We're trying to be a lifestyle brand in financial services, and that is in my view somewhat unique as no one else has tried to do that," Triebel said. "The perception of that has been very positive in North America and we would expect that to resonate as well, if not better, here in the UK."
This has been reflected in the company's recent hires. Chief product officer Rudy Adler and executive creative director Mike Giepert both came from the creative agency Wieden+Kennedy in Portland, and were behind Wealthsimple's slick Superbowl ad ahead of its US launch in January.
It also recruited former GQ editorial director Devin Friedman to lead on content. This includes things like the Wealthsimple magazine - sample headline: How to Open a Joint Account Without All the Resentment (or Bankruptcy) - and the Money Diaries series with celebrities like Elijah Wood and Jon Hamm.
In terms of funding Wealthsimple is backed by financial services company Power Financial Corporation to the tune of $100 million Canadian dollars as part of a "strategic investment".