As a start-up entity, we recently raised our first round of growth capital from outside investors. It was an interesting experience to get in front of potential investors, address their questions and concerns, and generate ideas to improve our offering in order to make a successful market entry providing online financial advisor services.
During this process, we noted three common views we wanted to address about their assumptions on investor behaviour.
1. “Canadians are generally risk averse, conservative investors. They don’t trust start-ups or independents when it comes to financial advice.”
We agree that investors in general tend to be risk averse as it’s their hard-earned savings they are investing. However, we disagree that Canadians don’t trust start-ups as there are a number of independent small firms successfully serving the needs of Canadians after having been start-ups themselves.
Take a look at the Top 50 financial advisors in Canada today. Many are independent service providers. However, most of these firms are focussed on serving the needs of wealthy Canadians only (as indicated by the average assets per client managed by these firms, well in excess of $500,000 in most cases). In a traditional face-to-face advice model, a business cannot be profitable if it has a large number of smaller-sized accounts.
To serve a mass market, a business needs to intelligently leverage technology and establish an operating platform to be able to reach thousands of Canadians at an attractive and affordable price point, while providing high quality financial advice and maintaining a great client experience. Our goal is to serve this market and grow with the evolving needs of our clients.
2. “Canadians may not love the big banks but they trust the banks with their money.”
It’s important to understand that leaving your cash with someone is different than investing your savings through someone. When you leave your cash in a chequing or savings account, you trust the bank to protect your money.
However, when you invest your savings you are investing in a company or a business by holding a security issued by that entity. To select the security that is right for you based on your savings goals, you need sound investment advice which can only be provided by a person who is qualified, experienced, and licenced. Even when you are investing through a big bank, you should still be checking the background of the individual who is providing you with investment advice.
Another consideration is the investment products offered by the banks. Typically, one bank branch does not sell the investment products offered by another institution. If you currently have investments with one of the big bank branches take a look at your statement and you will likely see the mutual funds in your portfolio are those offered by that bank. These may be the best of the bank’s own products, but there may be other products in the market better suited to your individual needs and goals that you could get access to only through an independent financial advisor.
So is it truly that Canadians trust banks when it comes to investing? Or is it that Canadians who are not considered high net worth have nowhere else to go for financial advice? We think it’s the latter. Businesses such as Invisor are filling the gap we believe exists today, through the intelligent use of technology to make investment management services available and affordable to all Canadians.
3. “I think there is a real uphill battle to convince Canadian investors to pay for investment advice from an unknown start-up.”
As we all know, there is a close relationship between value and price. When it comes to investing, many Canadians think it doesn’t cost them anything especially when they hold mutual funds in their portfolios, because all the costs are deeply buried inside those products that investors don’t ‘see’.
From our experience, we know that when investors understand the costs they truly incur and the long-term detrimental impact this has on their financial goals, it becomes very clear that paying for investment advice from an independent online financial advisor in a transparent manner gives them access to well-constructed portfolios using the most appropriate investment products available in the market while saving them significant costs.
Consider the recent report from the Canadian Centre for Policy Alternatives, which concluded that high mutual fund fees could cause Canadians to delay their retirement by as much as 11 years or leave them with 40 per cent less money for their retirement. We are glad there are regulatory changes coming soon that will make disclosure of advisory fees mandatory to investors so Canadians can make better and more informed decisions regarding their choice of working with an advisor.
At Invisor, we simplify investing and make professional investment management services available and affordable to all Canadians so they can reach their financial dreams sooner. We do recognize that like other emerging business models, we face an uphill battle as we work towards spreading this message and value proposition to all Canadians, competing with incumbent financial institutions.
As some of our potential investors told us, it sounds like a David and Goliath story. But we do draw inspiration from David as we move forward with our mission!
Discover how easy it is to get started with an online financial advisor. Take this short questionnaire now to view your personalized, goal-based investment plan.
Invisor offers Canadian investors personalized investment management solutions at a fraction of the cost of traditional advisor models, without requiring any minimum investment amounts. Get started now to tell us a little about yourself and your goals, and we’ll find an investment solution just right for you.
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