Canada's Wealthsimple Takes on Crowded U.S. Robo Advisor MarketCanada's Wealthsimple Takes on Crowded U.S. Robo Advisor Market

By Solarina Ho

TORONTO, Jan 31 (Reuters) - Wealthsimple, a Canadian-basedrobo-adviser startup, announced a C$20 million ($15.25 million)investment from Power Financial Corp, and formallylaunched in the United States on Tuesday, as it looks to competein a crowded American market dominated by big investment firms.

Wealthsimple's national roll-out will make the Toronto-basedfirm the first foreign robo-adviser startup to enter thatmarket, according to an industry analyst.

Robo-advisers give automated financial advice or portfoliomanagement using technology, and do not use a human financialplanner. Their online service is touted as a low-cost,convenient alternative to traditional outfits.

But increasing competition from large, established firmslike Charles Schwab and Vanguard have raised questionsabout the ability of startups to gain enough traction to becomeprofitable.

Founder and chief executive Mike Katchen said it was toosoon to set U.S. targets and declined to specify what amount ofassets under management the company would need to becomeprofitable.

"People are absolutely right ... This business is absolutelyabout scale," he said in an interview.

Katchen said Power Financial's long-term backing gives it anedge. Power and its subsidiaries have put in a total of C$50million in Wealthsimple since first investing in 2015.

"When Vanguard or Schwab launch a product, that's not aquestion people have," said Katchen, who is 29.

Wealthsimple said 20,000 customers in Canada have signed upsince its launch a little over two years ago, investing morethan C$750 million in exchange traded funds. It expects to crossthe C$1 billion threshold soon.

Wealthsimple, which caters to young and first-timeinvestors, is charging a 0.5 percent fee for investments up to$100,000. Above that, the fee is 0.4 percent. There is noaccount minimum, and the first $5,000 is free.

"The U.S. is such a competitive market and Wealthsimple willhave to drop fees in order to get any play," William Trout, asenior analyst with research firm Celent and robo-advisoryexpert, said in an email, noting that existing U.S. competitorscharge lower fees.

Wealthsimple's website also lists a London office "openingin 2017," which a spokeswoman said was still "exploratory."Trout said the UK environment is also crowded.

Wealthsimple, which offers a socially responsible investmentoption, said real advisers can also provide financial planningadvice to clients.

It also has a platform for financial advisers in Canada, butsaid it has no immediate plans to launch the service in theUnited States. ($1 = 1.3112 Canadian dollars) (Editing by Matthew Lewis)