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New
investing offerings aimed at the mass retail investor market are gradually
appearing that are based on online advice. They use online questionnaires and
other technology to minimize labor costs and provide cookie-cutter advice using
model portfolios, with some customization to take into account some personal
circumstances. In part 1 of this 3-part series we looked at the forces behind
these new product offerings. In part 2 we looked at the range of new
entrants in the USA. In the final part of this
3-part series we now look at developments in Canada. Regrettably, the Canadian scene for the moment does not
offer the diversity of offerings found in the USA. Only one pure new entrant, Idema Investments(see photo of its founder, Ian Gascon) and a few businesses which are add-ons to traditional securities businesses can
now be found in Canada.
Introduction
The US market is
blessed with a wide variety of new entrants, as well as a number of traditional
financial groups who have supplemented their basic businesses to offer similar competing
services. A DIY investor will find US entrants who can help them obtain low
cost, independent one-off advice and low-cost index based investment products. But
the business models of other entrants are less investor-friendly, so buyer beware is certainly the operative phrase.
Regrettably, to date no new entrants in Canada seek to help investors obtain
low cost, independent one-off investment advice (the kind we favor). More encouragingly
one new Canadian entrant does promote low-cost index based investment products,
a key requirement to successful long term investing.
Canada- an overview
In Canada the rush of
new entrants is currently nowhere comparable to the US, but a number of new online new entrants are likely to
start up in Canada shortly. Here are only two examples we are aware of: Investors-Aid and WealthBar.
Investors-Aid Cooperative of Canada
(Investors-Aid
or IA) is a small Vancouver-based cooperative founded in 2008 IA describes itself as a national web-based co-operative and
Canada’s only national consumer organization for investors and savers. IA was
founded by its current executive director, Garth Rustand. Not
surprisingly, he has a technical and finance educational background, as well as
20 years of financial industry experience. IA distinguishes itself by seeking to provide
independent, objective financial information and advice to investors across
Canada. IA has an interesting business model that mainstream Canadian cooperatives
might wish to emulate, and would have been reviewed in this commentary. However,
based on recent discussions with management we understand both its status as a
cooperative and its business model are under review.
WealthBar
Financial Services Inc. is another
Vancouver-based new entrant under development. The management and shareholders of WealthBar are not disclosed on its site. WealthBar is in the process of being
launched, and states that it is not
currently a registered portfolio manager can not yet provide any advice on
specific investment products. It describes
itself to potential clients as your online financial fitness coach, with the
following mission statement:
We're committed to changing online investing in Canada
because we know it needs to be simpler, more effective and more transparent.. …With WealthBar you work with a qualified financial advisor. Your
advisor will be your guide and help you create a financial plan that shows you
how much you need to save to achieve your goals. They will help you choose a
balanced portfolio that makes sense for you. Most importantly they
work directly for you, never for commissions.
We will defer
any commentary on both Investors-Aid and WealthBar at this time.
Here is the current situation in Canada.
-
No Canadian persons
from the high-tech industry have gravitated towards online investment advice
similar to Wealthfront .
- No independent full
service independent Canadian investment advisory firm has set up a related online
advice business in similar fashion to Savant Capital .
- There are no Canadian
companies similar to LearnVest LearnVest.com
that have created a network of outside financial planners that their clients
can use to obtain one-off independent investment planning services .
- Fidelity and Vanguard do not offer the kind of additional services offered by their US parent
companies, and Charles Schwab does not operate in Canada.
When all is said and
done we are only aware of one Canadian new entrant (Idema Investments ) that is
similar to US-style new entrants, plus 2 Canadian discount brokers (BMO
Investor Online and TD Ameritrade) that offer separate supplementary advice
offerings in similar fashion to certain US financial service firms.
We will now look at
each individually. But first, we discuss where to find low cost, independent
one-off investment advice (the kind we favor) in Canada.
Independent one- off investment advice
The most important decision an
investor has to take is determining the right Asset Allocation. Surprisingly it
is extremely difficult to find in Canada independent, objective, conflict-free sources
of such advice. Often financial advice is offered as part of other services (example-
a broker who is paid on a commission basis) or the advice is paid to the
adviser by the manufacturer of the investment products the investor’s adviser is
recommending, typically in the form of trailer fees, raising conflict and
disclosure issues.
If the investor needs help with
respect to asset allocation, getting it as one-time, cost-effective independent financial advice paid in an easy to
understand, transparent fashion (such as on an hourly basis) is our recommended approach. In part 2 of this
series of commentaries we refer to several new entrants in the US who help
retail investors there hook up with outside,
independent advisers who typically charge on an hourly basis. We are not aware
of any new entrant in Canada who offers such a service to Canadian investors.
There are plenty of very professional
asset allocation software packages on the market but they are generally only marketed to advisers
at investment dealers or to independent financial planners for use with their
clients, and not directly to retail investors:
Morningstar is the leading asset allocation
software product used by independent reps.
Specifically, 42% utilize Morningstar, 22% utilize
Financial Profiles, 17% Thomas/Wiesenberger Blue Print, 15% utilize
Sunguard/Frontier Allocation Master, 11% utilize MV Optimizer, and 10% utilize
Ibbotson/Portfolio Optimizer. Morningstar is also the leading asset allocation
software product used by fee-only financial advisors. Specifically, 61% utilize
Morningstar, 14% utilize
Sunguard/Frontier Allocation Master, 14% utilize a custom/propriety
application, 13% utilize Ibbotson/Portfolio Optimizer, and 11% utilize Integrated
Capital Engine (Wilson
Associates). Source 2005 Tiburon US study , p.212 or doc.21xx- Tiburon 2005
The
Future of advice study.pdf
Before leaving this topic we
should note that Peter Benedek’s excellent Canadian RetirementAction.com web site has recently discussed financial
advisers and planners, with some suggestions as to where to go to find Canadian
fee-only planners; see here . See also the Canadian MoneySense site.
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