Wealthsimple is using the Internet as a way to offer up investing that’s not only cheap to manage, but algorithmically steady, safe, and predictableLewisGardnerPhotography/Getty Images/iStockphoto
If you think about online investing, your mind will probably jump to the province of the day-traders: Trading platforms that let people try to beat the market with quick, risky trades.
But Wealthsimple, a Toronto startup, is taking the concept in precisely the opposite direction. It's using the Internet as a way to offer up investing that's not only cheap to manage, but algorithmically steady, safe, and predictable.
"We think of ourselves as the really boring, long-term way to accumulate wealth," says Michael Katchen, Wealthsimple's founder.
The ten-person firm's idea is to use technology both to cut out the costs of offering traditional investment advice, and to be more agile in automatically managing portfolios. New customers fill out a questionnaire, and are then paired with a certified investment advisor, who works remotely and is available by text, phone, or video chat. (The firm's one concession to startup trendiness is its insistence on calling its advisors "wealth concierges.")
And then, in theory, their money grows – slowly but surely. "A big part of our job is setting expectations for people. Anyone who tells you they're going to shoot the lights out and get you ridiculous returns over the long run is lying to you," says Mr. Katchen. "What we try to do is match the market: 6 to 8 per cent over the long term, and try to be really thoughtful about managing risk."
The company wants to distinguish itself with simplicity and low fees: Mr. Katchen says that Wealthsimple charges half a per cent or less to manage investments, which it can do since it's virtual and paperless. "It's an online service, and because of that we're able to rip out a lot of the cost structure and pass that on to clients."
The company is also angling to attract more, smaller customers as well as bigger fish: Clients can open an account with a minimum of $5,000. The company also manages products like RRSPs and TFSAs.
Wealthsimple's portfolios were designed by Eric Kirzner, the Rotman School of Management professor, and a longtime proponent of mixed portfolios of stocks, bonds and cash, periodically rebalanced as markets change – a strategy that's weathered the decade's financial crises well.
That rebalancing is part of Wealthsimple's pitch: where financial planners might rebalance their clients' portfolios annually or quarterly, Wealthsimple monitors each account daily, and if it hits certain thresholds, automatically rebalances it as often as need be. (The company covers all the commissions involved in these trades.) Everything can be monitored through smartphone apps.
Mr. Katchen says it's all part of a scheme to help investors avoid the perennial pitfalls of betting on a stock, going in when the market is hot, then panicking when things go south. "We're just trying to be thoughtful and disciplined about a plan that's going to work really well over the long term."
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