Wealthsimple, a Canadian-based robo-adviser startup, announced a $20 million investment from Power Financial Corp, and formally launched in the United States on Tuesday, as it looks to compete in a crowded American market dominated by big investment firms.
Wealthsimple's national roll-out will make the Toronto-based firm the first foreign robo-adviser startup to enter that market, according to an industry analyst.
Robo-advisers give automated financial advice or portfolio management using technology, and do not use a human financial planner. Their online service is touted as a low-cost, convenient alternative to traditional outfits.
But increasing competition from large, established firms like Charles Schwab and Vanguard have raised questions about the ability of startups to gain enough traction to become profitable.
Founder and chief executive Mike Katchen said it was too soon to set U.S. targets and declined to specify what amount of assets under management the company would need to become profitable.
"People are absolutely right ... This business is absolutely about scale," he said in an interview.
Katchen said Power Financial's long-term backing gives it an edge. Power and its subsidiaries have put in a total of $50 million in Wealthsimple since first investing in 2015.
"When Vanguard or Schwab launch a product, that's not a question people have," said Katchen, who is 29. Wealthsimple said 20,000 customers in Canada have signed up since its launch a little over two years ago, investing more than $750 million in exchange traded funds. It expects to cross the $1 billion threshold soon.
Wealthsimple, which caters to young and first-time investors, is charging a 0.5 per cent fee for investments up to $100,000. Above that, the fee is 0.4 per cent. There is no account minimum, and the first $5,000 is free.
"The U.S. is such a competitive market and Wealthsimple will have to drop fees in order to get any play," William Trout, a senior analyst with research firm Celent and robo-advisory expert, said in an email, noting that existing U.S. competitors charge lower fees.
Wealthsimple's website also lists a London office "opening in 2017," which a spokeswoman said was still "exploratory." Trout said the U.K. environment is also crowded.
Wealthsimple, which offers a socially responsible investment option, said real advisers can also provide financial planning advice to clients.
It also has a platform for financial advisers in Canada, but said it has no immediate plans to launch the service in the United States.