Retail trading and wealth management have seen significant changes as a result of digital transformation. Among these, the emergence of robo-advisory platforms has been among the most notable developments. Robo-advisory platforms use algorithms to provide automated investment advice and management services (asset allocation, portfolio rebalancing, and other related services) based on clients’ investment goals and risk tolerance. Most use either low-cost exchange-traded funds (ETFs) or index funds as investment vehicles.
Apart from robo-advisory services, online trading platforms have also emerged as a tool for investors to trade various securities such as stocks, ETFs, and options directly via digital platforms, luring investors with commission-free trading facilities. While robo-advisors offer investors a passive form of investing, online trading platforms enable investors to actively engage in day-to-day trading activities.
The retail trading industry comprises robo-advisors, online trading platforms, and digital infrastructure providers. Among robo-advisors, the industry is further split into three segments, based on their product offering (hybrid vs. digital) and target market.
Robo-advisors that offer hybrid services to consumers contribute to the bulk of companies in the industry and include established players such as Wealthsimple, Betterment, and Scalable Capital. This segment also hosts several incumbents such as Vanguard, Charles Schwab, and Wells Fargo. Robo-advisors that are digital pure players include the likes of M1 Finance, Acorns, and Wealthfront, while those that offer B2B services are limited and include a few companies such as Guideline and Blooom.
Online trading platforms mainly focus on directly offering trading options to consumers and include established players such as Robinhood and Webull. Players in the space have also branched out to offer cryptocurrency trading and banking services.
Wealthsimple stands as the highest funded disruptor in the robo advisory space, with a total of USD 900.4 million as of August 2021. The company is a hybrid operator in the B2C space, combining digital robo advisory with human expertise, and holds a significant lead over the second largest player in the space, Scalable Capital which had USD 314.2 million in funding as of the same date.
Other notable players include Betterment, Wealthfront, and SigFig, which have been around for more than a decade and are well known in the robo advisory space. These companies compete in the mass market by offering a wide variety of features. Both Betterment and SigFig have also partnered with businesses, such as advisory firms and banks, to expand their respective client bases.
Smaller players often differentiate themselves by catering to specific clientele (such as female investors, non-resident investors, Halal investing, and employer-sponsored retirement accounts), responding to the fact that customers tend to feel more secure with personalized services rather than the generic offerings.
Among online trading platforms, Robinhood stands as the largest player and is also the only publicly-traded company in the space, having been listed on the NASDAQ in July 2021 at a valuation of USD 32 billion. Other notable players include Trade Republic, Public.com, and eToro, who have collectively raised close to USD 1.5 billion in funding to date.
Based in Toronto, Wealthsimple is a hybrid investment management platform that allows individuals to invest in diversified portfolios, according to their risk profiles. The company launched the robo-advisory platform in Canada in 2014, and expanded into the UK and US in 2017. Wealthsimple sold its US-based clients to Betterment in March 2021. In September 2020, Wealthsimple also sold its B2B robo advisory platform—called Wealthsimple For Advisors—to Purpose Advisor Solutions. Further, in December 2021, it sold its UK business book to Moneyfarm, following its decision to cease its UK operations and focus on the Canadian market.
The company’s robo-advisory platform features access to financial advisors, automatic portfolio rebalancing, tax loss harvesting, and dividend reinvestment. Over the years, the company has also added other services to help individuals achieve their financial goals such as high-yield saving accounts, commission-free trading, crypto trading, and automatic investing of spare change. In December 2021, it also announced plans to launch Wealthsimple Trade Plus—a new subscription service for trading US stocks with no currency conversion fees—in January 2022. As of 2021, the company has more than USD 3 billion in assets under management (AUM).
The basic subscription requires zero minimum account balance and charges a 0.5% annual fee—the same rate as Toronto-based competitor Justwealth. To access financial advisors and more advanced features such as financial planning sessions, the platform requires a higher minimum account balance of USD 100,000 with a reduced annual fee of 0.4%. Wealthsimple Trade Plus is expected to have a monthly subscription fee of CAD 10 (~USD 8).
In May 2021, the company raised CAD 750 million (USD 610 million) in funding led by Meritech and Greylock, at a post-money valuation of CAD 5 billion (USD 4 billion). The funding will be directed towards developing new products and expanding the company's workforce.
B2C: Hybrid (Digital and Human):
B2C: Digital Pure Players:
B2C: Online Trading Platforms:
The incumbents include financial institutions such as asset management companies, brokerages, advisory firms, and banks. Most provide digital services primarily to accommodate demand for low-cost advisory services from existing clients and sophisticated investors. The incumbents generally charge slightly higher fees than the disruptors (e.g. 0.30% vs. 0.25%) and require higher minimum balances for standard services.
The incumbents have mainly participated in the industry through in-house developments, acquisitions, and partnerships, with the major players commonly developing their own proprietary platforms. With advances in technology, companies have scaled rapidly to dominant positions.
Some players made their entrance into the industry marked via acquisitions and partnerships designed to capture market share faster. One of the earliest through this avenue was BlackRock, via the acquisition of robo-advisory startup FutureAdvisor in 2015. More notable recent examples include Goldman Sachs when it acquired United Capital in May 2019 and Empower Retirement when it acquired Personal Capital in June 2020.
Many large incumbents have branched out to develop both robo-advisory services and online trading platforms. Morgan Stanley, for instance, developed and launched its own robo-advisory service “Access Investing” in 2017. In 2020, the company entered the online trading space by acquiring E*Trade Financial Corporation.
Launched in 2015, Vanguard Personal Advisor Services is the largest robo-advisory platform in terms of assets under management (AUM), USD 148 billion according to the company’s Q1 2020 filing. The platform provides hybrid advisory services by combining its proprietary investment modelling technology (Vanguard Capital Markets Model) with human advisors. Human advisors help clients create financial plans and monitor and rebalance portfolios when necessary. Support is also available through phone and videoconferencing. The platform charges 0.30%, similar to most incumbents, but has a higher minimum account balance requirement of USD 50,000. As an account balance increases, fees drop to as low as 0.05%.
No investor data is available