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New models of online investment advice and services- part 3 Print

img-idema-ian-gascon.jpgNew 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.


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 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   web site has recently discussed financial advisers and planners, with some suggestions as to where to go to find Canadian fee-only planners; see hereSee also the Canadian MoneySense site. 

Last Updated ( Friday, 13 December 2013 )
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