This post is only for those of you who follow Wealthsimple. I am the world’s foremost Wealthsimple expert, people depend on me. And this story may bring schadenfreude to some, which is an important feeling, especially during these difficult times.
Wealthsimple has announced the transfer of its US business to a competing robo-advisor, Betterment. Betterment has more assets, fewer employees (347 vs 446 per LinkedIn) and charges half as much as Wealthsimple (0.25% vs 0.50%).
Wealthsimple’s lack of traction in the US was evident, but there was an omen in something that Wealthsimple majority owner, Power Corp did last year. In mid-2020, Power subsidiary Great-West Life’s US operation acquired digital wealth manager Personal Capital, which had $13B in AUM, for about $1billion dollars. And so, contrary to impressions, Wealthsimple is not even Power’s biggest fintech bet. It’s interesting that Power went all in with Personal Capital, but has taken the opposite tack with Wealthsimple, allowing its stake to be diluted, first with the Allianz financing and then with the TCV fundraise at unicorn valuation. In fact, Power does not even nominally control Wealthsimple’s board, having 5 “representatives” out of 12, by my count.
Another subsidiary of Power had initially invested in Personal Capital in 2016 at a valuation $500m. Personal Capital was founded in 2009, raised a total of $265m and was sold for $825m plus a $175m contingent bonus. Those are not good returns by VC tech standards, except for the earliest investors. For Power, an investment in the Nasdaq would have fared better. I don’t know if Paul Desmarais III and his tech forays are the great salvation for Power Corp. - still trading below its 2007 peak.
The decision to retrench from the US was long overdue and I have no doubt Wealthsimple will leave the UK as well. Goldman Sachs has now launched a robo-advisor service in the US, under its Marcus consumer brand. Marcus is also present in the UK, along with several other well-financed, more established players. Marcus has already lost more than a billion for Goldman since 2016 (especially due to problems on the lending side). Competing with a player who can take such losses in stride and with a brand name like Goldman is pretty hard.
Wealthsimple US had $143m in AUM as of end of 2019. Wealthsimple UK had £262k in fee revenues in 2019 and a loss of £3.3m. By way of comparison, even OPM Wars has a profitable operation in the UK. I am not kidding: I sent one of my articles on Wealthsimple UK to an acquaintance there saying he could acquire it, since it was not core and one thing led to another and now I am big in the UK.
Some people have said that Paul III pushed Wealthsimple to expand into the US. Other versions have Mike Katchen wanting to be in the US because he read this book called Why Mexicans don’t drink Molson, about the poor track record of Canadians expanding in global markets. Mike Katchen also once said they had to be in NYC, because of the creative talents there, an argument I found silly - the talent for the cutesy marketing Wealthsimple is known for, can be found in any number of major cities and several minor. Two of the Wealthsimple co-founders are American. Could that have played a part in opening an office in hipster capital Brooklyn?
I conclude with my standard disclaimer that I have great respect for Wealthsimple’s three co-founders, especially their execution abilities. Wealthsimple now has more than $10B in assets, almost all of it in Canada. They are making this exit from an overall position of strength, but even the slightest chink can be exploited by a skillful competitor, if there are any!