Q&A with North America’s first subscription-based Robo Adviser service

Randy Cass, NestWealth.com

Jon Chevreau: Most robo advisers in North America seem to use a model of charging a fee based on assets. As one of Canada’s original robo-adviser services, NestWealth.com uses a quite different model, based on subscriptions, correct? One, I might add, that you say is also unique in all of North America?

Randy Cass: Nest Wealth’s members pay a flat monthly price for access to a customized portfolio and a dedicated portfolio manager. Our subscription model doesn’t incentivize or commission sales people based on how much of a product they sell. We’re enabling Canadians to sidestep high fees and outdated banking practices that take a percentage of everything they invest throughout their lives.

Nest Wealth’s subscriber community understands that our subscription service fundamentally challenges the model banks, and even newer robo-advisors, have used to charge investors. Not only are we able to deliver a proven investment service capable of saving Canadians up to half of their potential wealth, but we’re continuously improving that service by listening and adapting to our members’ needs. This is a transformational advantage of the subscription model, and it’s one important reason why we see so many industries adopting it as a revenue model.

JC: Is this unique, both in Canada and the US and rest of world?

RC: Nest Wealth is the first and only subscription-based investing service that handles everything from end to end. Investors of all ages can subscribe to our service for $20 a month — less than the cost of a gym membership. And their subscription is capped at $80 no matter how much their assets grow overtime. We want to help Canadians do the math and recognize that our low, flat subscription payment can leave them with 100 per cent more savings than a traditional fee structure that charges based on assets.

The good news is we’re witnessing a clear shift in how Canadians want to pay for and access financial services. A new report by business consultancy EY says that the adoption of fintech services among Canadians will triple over the next 12 months. The report also shows that although consumers trust technology, they still lack awareness of its benefits. We are passionately committed to helping consumers understand and seek out a better way to build wealth. Broader awareness and education will lead to more informed choices about how families plan for their future. There’s quite a bit at stake here.

JC: Where did you get the idea in the first place?

RC: The ‘Aha’ moment came when I was watching Netflix with my youngest son and I recognized that the principles of subscription services like Netflix, Spotify, Salesforce and Zipcar were much more in line with how investors needed to be treated than the status quo.

A subscription model allowed us to create a simple way to put the investor instead of the product at the centre of the advisor-client relationship. Subscription services are based around transparency of fees and continuous improvement of the offering, and that’s exactly how the investment industry should strive to create relationships with their clients. Let them know what they are going to be charged and continuously add value or risk losing a client. The opaqueness and inertia of the current industry lacks both those factors.

An investment landscape based on the dual principles of fee transparency and better solutions that are continuously upgraded is the best possible outcome. Nest Wealth just happens to be the first Canadian firm to get there.

JC:  How have robo advisers performed in bear markets so far: i.e. August 2015 and January 2016?

RC: I can only speak to how our clients at Nest Wealth did and it’s incredibly exciting. While each client is provided with a unique portfolio specifically built to their personal financial situation, they all share a common trait of being properly diversified and optimized. As you’d expect this meant that during the times when equity markets, or any single asset class is plunging, these portfolios will be doing better because of their diversification and they did exactly that.

It’s not magic and it’s not a secret that if you have a properly constructed, diversified portfolio, you have the best possible path to reaching your goals while reducing your risk. And that’s exactly what we saw in the mini bear markets of August, 2015 and January, 2016. This means not only is Nest Wealth a much less expensive way to obtain professional wealth management but we also believe it is a superior way to invest assets.

JC: How do you feel about the term robo-adviser, as opposed to automated online advice or some other term?

RC: Ninety-two per cent of Canadians (Source: new report by business consultancy EY) are unaware that better alternatives exist to costly and outdated investing practices. We refer to ourselves as a digital wealth advisor, but the truth is, whatever term is attention-grabbing enough to rapidly reduce that percentage is great with us.

JC:   Is there not a major difference between these services in the U.S. versus Canada? My understanding is that Canadian regulators require a certain level of “Human” assistance while in the US these services can be “totally robotic” with no human interaction whatsoever.  Do you see some human assistance as an advantage, perhaps as in our earlier question about performance during a severe bear market?

RC: The major difference that exists between a service like Nest Wealth and our peers in the United States, is that our clients get the best technology combined with a dedicated regulated portfolio manager assigned to their account. Nest Wealth members get the best of both worlds: a portfolio built using cutting edge technology based on Nobel-prize winning theories, as well as a dedicated portfolio manager available to talk whenever they want. It’s one reason why the subscription model is on our members’ view better—it captures a more dynamic approach to services people want and need over time.

JC: The Canadian Securities Administrators has been looking at this sector in the past year. Can you review this and comment on the implications for investors, if any?

RC:  Our interactions with the Canadian Securities Administrators have been nothing but positive. They are extremely motivated to know as much as they can about this industry as it rapidly evolves, and I think they have done a great job of helping companies in our space clearly understand their priorities.

Clearly, we would all like to see changes adopted more quickly, but the securities regulators have a strong mission to protect the end investor and that means that they will be appropriately cautious and measured when it comes to broad sweeping changes.

I see them encouraging innovation and understanding that some of the procedures that have been in place for decades might need to be re-examined, and might even allow for better protection of the end investor when all is said and done.


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