- Wealthsimple is an online investment management service founded in 2014 in Toronto by Michael Katchen, Rudy Adler, and Brett Huneycutt. Katchen got the idea for the company after realizing that some people desired a truly passive approach to investing.
- Wealthsimple charges management fees for various investment account types, with the exact fee depending on the amount invested.
- Wealthsimple charges a currency conversion fee for Canadian residents dealing in United States assets. The company also charges for broker-assisted phone trades and makes money on interchange fees during Visa debit card purchases. Lastly, Wealthsimple lends the cash in user accounts to other institutions, receiving interest in return.
Wealthsimple is an online investment management service targeted at millennial consumers. The company was founded in 2014 in Toronto by Michael Katchen, Rudy Adler, and Brett Huneycutt.
Before establishing Wealthsimple, Katchen was obsessed with stock investing and once helped Adler and Huneycutt track their investments using basic spreadsheets.
However, Katchen soon discovered that not everyone shared his passion for spreadsheets or indeed investing. Many believed it was too complex or laborious and as a result, wanted someone else to invest on their behalf.
In response to this feedback, the trio built a web app that would send push notifications to users telling them to buy specific exchange-traded funds.
This system was an improvement on the original spreadsheet, but investors still desired a less complex and more passive service.
Katchen then decided to bring the first robo-advisor to Canada, which formed the basis of the Wealthsimple platform.
Wealthsimple was launched in September 2014 as a technology-enabled investment manager investing in various low-index funds across multiple asset classes.
Three months later, an Android and iOS app resulted in accelerated growth amongst millennial investors. By the end of the following year, the company had $400 million in assets under management spread across 10,000 clients.
Multiple partnerships followed. In May 2016, Wealthsimple partnered with Mint to enable clients to sync their accounts with Mint’s budgeting software.
The company also partnered with TurboTax to allow Wealthsimple customers to access their taxes within the platform.
New features were also progressively added, including a mobile trading app, fractional share trading, and a savings account for bill payments, electronic transfers, and cheque deposits.
Recent figures show Wealthsimple now has approximately $9.7 billion in assets under management.
Wealthsimple revenue generation
Let’s take a look at the strategy in the following paragraphs.
Management fees were the earliest form of monetization on the platform at a time when Wealthsimple was exclusively a passive investment service.
Here, there are three options based on the amount invested:
- Basic – for amounts up to $100,000, the management fee is 0.5%.
- Black – for amounts over $100,000, the management fee is 0.4%.
- Generation – for amounts exceeding $500,000, the management fee is also 0.4%. However, there is also access to a team of dedicated financial advisors, asset location, financial reporting, and health plan discounts.
Currency conversion fees
Wealthsimple also collects a 1.5% currency conversion fee whenever a Canadian account holder invests in a US-denominated asset.
It should be noted that the company does not earn revenue by selling order flow volume because the practice is illegal in Canada.
Broker assisted trades
If a Wealthsimple user prefers to perform trades outside of the app, the company charges $45 for a broker-assisted phone trade.
A paper account statement is also available for $20.
Interest on cash
Wealthsimple introduced Wealthsimple Save in April 2018, high-interest savings account with an interest rate perpetually above those offered by traditional banks.
The company makes money by lending out the cash in its user accounts to other institutions and then collecting interest on the repayments.
Wealthsimple customers can also access a physical debit card linked with their account in cooperation with Visa.
When the debit card is used to pay for goods or services, the merchant pays an interchange fee to Visa of around 1%.
A portion of the interchange fee is then shared with Wealthsimple, with the exact percentage undisclosed.
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