Only people who follow Wealthsimple will see this post. People trust me because I know the most about Wealthsimple than anyone else in the world. And this story might give some people schadenfreude, which is a good feeling, especially in these hard times.
Announcement by Wealthsimple
Wealthsimple has said that it will give its US business to Betterment, a competing robo-advisor. Betterment has more assets than Wealthsimple, but it has half as many employees (347 vs. 446) and charges half as much (0.25% vs. 0.50%) as Wealthsimple.
It was clear that Wealthsimple wasn’t doing well in the US, but what Power Corp, which owns most of Wealthsimple, did last year was a good sign. Midway through 2020, the US branch of Power subsidiary Great-West Life bought digital wealth manager Personal Capital for about $1 billion. Personal Capital had $13 billion in assets under management (AUM).
So, despite what most people think, the company is not even Power’s biggest bet on a fintech company. It’s interesting that Power went all in with Personal Capital but has taken the opposite approach with former by letting its stake get smaller, first with the Allianz financing and then with the TCV fundraise at unicorn valuation. In fact, Power has only five “representatives” on the board of the company, out of a total of twelve.
Another part of Power invested in Personal Capital in 2016, when it was worth $500 million. Personal Capital was started in 2009, got a total of $265 million in funding, and was sold for $825 million plus a $175 million contingent bonus.
By VC tech standards, those are not good returns, except for the first investors. Power would have done better if he had put his money in the Nasdaq. I don’t know if Paul Desmarais III and his moves into technology will save Power Corp., which is still trading below its 2007 high.
It was time for Wealthsimple to leave the US, and I have no doubt that they will also leave the UK. Under its Marcus consumer brand, Goldman Sachs has just started offering a robo-advisor service in the US. Marcus is also in the UK, where he competes with a number of other well-funded and more established players.
Since 2016, Marcus has already cost Goldman more than a billion dollars (especially due to problems on the lending side). It’s hard to compete with a player like Goldman who can take such losses in stride and has a well-known name.
At the end of 2019, Wealthsimple US had $143 million in AUM. Wealthsimple UK had fee income of £262k and a loss of £3.3m in 2019. In comparison, even OPM Wire has a business that makes money in the UK. I’m not making this up: I sent one of my articles on Wealthsimple UK to a friend there and told him he could buy it since it wasn’t central. Things went from bad to worse, and now I’m famous in the UK.
Some people say that Paul III pushed Wealthsimple to start doing business in the US. In other versions, Mike Katchen wants to be in the US because he read a book called Why Mexicans Don’t Drink Molson, which is about how Canadians haven’t done well when they try to expand into international markets.
Mike Katchen also said that they had to be in New York City because that’s where the creative people are. I didn’t think that was a good reason because the people who make the cutesy marketing that
Wealthsimple is known for can be found in a lot of major and minor cities. Two of the people who started Wealthsimple are from the U.S. Could that be why they opened an office in Brooklyn, which is known as the “hipster capital of the world”?
I’ll end by saying, as I always do, that I have a lot of respect for Wealthsimple’s three co-founders, especially their ability to get things done. Wealthsimple now has assets worth more than $10 billion, and almost all of them are in Canada. They are in a strong position overall as they leave, but even the smallest weakness could be used against them by a skilled competitor, if there are any.
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