Say Hello to the Subscription Investing Model With Nest Wealth

It was only about a year ago when my blog had ignited an interest in technology, which eventually led to coding courses, which in turn had landed me a tech-related role (although not developer) at an ad tech company.  Fintech combines two of my passions: finance and technology. When I was offered  the exciting opportunity to interview Randy Cass, the CEO of  NestWealth, I knew it would be a perfect fit for the blog. He is a man with many achievements under his belt – 15 years of experience in the financial services industry, multiple awards as a fintech entrepreneur and having been the host of BNN Market Sense between 2012 and 2014.

 

Nest Wealth is Canada’s first subscription based investing service

In the interview, Randy explains the benefits of the subscription model, who is NestWealth’s target demographic, emerging trends in fintech, and advice for inexperienced and experienced investors.

When asked about what should Canadians who may be “out of the loop” with the fintech landscape know about robo-advisors and wealth management services he states that there has never been a better time to be an investor in Canada.

 “By that I mean the Canadian investment  landscape historically  has had many, many problems and they still do, but a lot of those problems are finally being resolved.  

 Historically and even today, Canada is the highest fee country in the development world when it comes to financial investment – Equity mutual funds would  average 2.5% /year in fees –triple of what it is south of the border.

Passive investment strategies over any meaningful length of time do better than the vast majority, if not all of combinations of  active management.”

He then leads into why it’s such a great time to be an investor in Canada right now:

 “Services like Nest Wealth – are taking best practices that have been known to institutional investors for decades and saying  it’s time that retail investors have access to a pricing model that makes sense. Instead of paying a percentage of your wealth to the industry you pay a flat monthly fee.”

And highlights the financial industry’s history of being opaque with the investor:

 “Up until now, everybody got paid based on how much mutual fund product or investment product was sold.

It really put the product at the center of the relationship between the advisor and investor. 

 When you take fees that have been hidden and move them to the front of the relationship and say they are going to stay flat and fixed, no matter how big your assets grow and then you make people recognize that in a  subscription model, they have a right to expect and demand that the product will get better over time and the experience will get better  over time.

 If you put that onto a wealth management solution, then the investor ends up being in the best possible situation because they: 

•  Pay vastly less than what they  traditionally would
• Get a more sophisticated, personalized  solution
• Continuously see improvements customization of the relationship that didn’t exist in previous types of relationships”

I then proceeded to ask about who is the ideal Nest Wealth investor and who can benefit from using this service

“Nest Wealth targets the biggest problem in wealth management in Canada right now:

  The forgotten middle: people who have made smart choices,  people who have been smart about their finances, managed to save a bit of wealth but don’t have millions of dollars, so they might not   have access to sophisticated full service financial advisors. Those people find that they’re either left alone or default to high fee banking solutions.

Most people are busy and don’t want to do this on their own but they want to go to bed at night, knowing their finances are being taken care of in a professional manner. They put their savings in a mutual fund that’s taking 2.5% and they  end up sacrificing 40% of their  potential wealth and not achieving what they want to achieve.”

NestWealth gives people the following for a flat subscription fee that’s completely transparent:

• Pay a fraction of what they otherwise would pay for
• More free time and a peace of mind
• Can rest easy at night  knowing they’re doing the best thing they can for their family

Randy highlights the affordability of the subscription based model in that:

“For the same amount of money as a latte a week, you can now have as good professional advice as anyone in the country “

He also notes that “Technology is at a stage where it’s not necessary to handle a large-scale and products are not expensive to purchase.   There’s just so much that we can do, but the industry still charges the same amount, if not more, as it had four decades ago.”

[Tweet “The $ should stay where it belongs -in the investor’s pocket and not in the industry’s “]

When asked about the philosophy behind the subscription model, Randy says:

“Key takeaway is that the fee should be based on the service, rather than the amount of money you invest.

 NestWealth honestly believes that strapping flashy new technology on outdated business practices and outdated fee models is not akin to progress, not changing things for the best interest in the investor.

If you’re really going to take the time to introduce a product that has to change things so the investor can keep as much as wealth as they are entitled to, then you have to evaluate all aspects of the business and one of the aspects was that the fee charged should not be based on the amount of money that someone invests. It should be based on the amount of services they consume and the amount of value that you  bring to the table. We are the  only advisor that says that is how we are going to charge people. We are not going to charge you more as things get bigger in your account or as your assets get larger, just because we can. We’re only going to charge you a greater fee  if we are offering a service or solution that you want to take advantage of and want to increase subscription package that you’re a part of.

We don’t have a history in this industry of being transparent with the fees we charge.

If Canadians are not aware of the fees they’re paying during their investment life cycle, it could potentially be the second largest investment they ever make outside their house.

Being completely upfront by having a flat fee and subscription model basis, we’re allowing clients on a monthly basis to say to themselves – am I getting the value that I’m paying  for this service? Am I getting the service that I expect from an advisor that’s handling my money and are we seeing the types of things that we would expect from a subscription based model:

• Continuous improvement
• Personalization
• The ability to see the product get better from one state in time to the next

 We’re asking traditional players in the industry to step up to make their pricing transparent and to question whether the model to continuing  to charge more for no additional services is the way that this industry should progress or  it time to re-evaluate everything and move to the subscription model that NestWealth is putting on the table.”

As a tech enthusiast, I was very curious to know what were some of the emerging trends in Canadian fintech,where he saw  the industry going in the future and if he saw more partnerships between traditional banks and fintech companies.

 “  We were mentioned in CB insights, which is one of the leading research firms in the States, they just put together their chart of the leading 100 fintech companies in the world and we were on it. That was a real honour for us and there were some other Canadian companies on it as well, I think 4 or 5 other Canadian companies out of the 100.

  It’s just a great community of companies & entrepreneurs looking all at the same goal of making things better for the Canadian investor or the Canadian banking customer or the Canadian individual who’s just looking for a better way to handle their finances.

  The first thing I’d say is that we have an incredibly robust community of  fintech and it’s  thanks to the support of things like Mars downtown which now  has a fintech cluster. The banks  have been active in trying to promote fintech. I think it’s just an incredibly exciting time to be part of a company that’s emerging in this space and to be an investor  or banking individual in Canada. 

The second thing would be that I think we’re  just at the start of where we’re going to get to. Recognition among Canadians of fintech is vastly lower than recognition of fintech and utilization of fintech in other developed countries.”

I was a bit surprised when Randy mentioned that only a small percentage (8%) of Canadians are using a fintech type product or are aware of fintech, in comparison to other countries where the  percentage can be double or triple that.

He thinks that when people see the solutions that are being put on the table where the amount of differences it can make in their financial situation  are not marginal –  but with Nest Wealth for example, it’s hundreds of thousands of dollars can be saved in fees when switching to the subscription model, people change. They move.

These are changing times as Randy mentioned.  If he was a mutual fund company, he would be nervous about what the future looks like and if he was a fintech company, he would be excited about what  the future looks like.

He then moves to the final point: about why it would make sense to form great strategic partnerships.

“Large financial institutions will have to find new ways to add value and will have to partner with companies like NestWealth that bring cutting edge solutions to their client base. We are always engaged in conversations with large financial institutions with how they can help each other, make things better- It’s a good symbiotic relationship that I imagine will only get better in the years to come.”

While we were on the topic  of partnerships I wanted to know what was the reasoning behind the decision to partner with Metroland Media, a company that owns various community newspapers.

” The hardest barrier to overcome in Canada is making people aware that they have options and choices that they didn’t have, even a year ago. By partnering with Metroland Media that has hundreds of newspapers at the regional level, have a relationship with Torstar, lots of popular digital channels-  we thought one of the things they could bring to the table was  forums to education consumers, reach them consistently, build trust and let them know their brand was out there.  We have a weekly column called Wealth Matters in all the Metroland Media properties. We’ve put on seminars to educate people. We know we have  to help educate people about what they’re paying in fees, once we do, their eyes open to the types of solutions that exist.  One of the ways to educate people in  media that’s familiar to them was to form partnerships with  companies like Metroland Media.”

Despite my belief about the distant relationship between emerging technology and the government, Randy stated that for NestWealth:

“First of all, I’ll say that all our interactions with regulatory bodies, specifically in Ontario have been really positive.  They are curious, want to know about us,  they want to educate themselves and want to make sure they are up to speed on where the industry is going.

 They’ve  been very, very helpful in letting them know what we have to do to give them comfort, as well as what we have to do to make sure we are staying between the lines they’ve clearly drawn as to what an investment manager or portfolio manager has to do in Canada.

So I’ve found our relationship has been extremely productive so far.   They are in a tough position. They have competing balances and priorities of needing to protect the Canadian investor and yet wanting to allow innovation to occur naturally as well and I don’t think otherwise of them taking their time to come to proper decisions because we’re talking about peoples’ life savings,  we’re talking about peoples’ retirement,  we’re talking about peoples’ financial goals being accomplished by what they’re being able to save and you don’t want to misstep there. So  if it takes a little extra  while for them to be comfortable with how things are evolving, you’d rather see caution than not.”

Regarding advice for investors where they are young or old, inexperienced or seasoned or intimidated by the associate technology, Randy offered some sound advice:

“If you don’t love it, don’t do it. If you want to pay attention and manage your assets yourself, it can be done.  But you really want to have to dedicate your time and energy in that direction. If you don’t, you’re going to forget something you’re supposed to do.  You’re not going to rebalance your portfolio properly.  You’re not going to monitor it appropriately.

If you want someone else to take care of your assets then you should pay attention to a few things,that matter the most:

• Understand how much you’re paying to have them provide that service
• Understand how they get compensated for providing that service
• Don’t ever believe that someone is giving you a service for free because it never happens that way
• Recognize that there is very little evidence that exists that an active manager can continuously outperform a passive benchmark

[Tweet “You control what’s controllable and ignore everything else”]

By controlling what’s controllable means the following:

• Figure out what your risk tolerance is and you create a diversified portfolio that reflects that risk tolerance 
• Rebalance when it goes out of whack with what you want it to be
• Reevaluate it at least on an annual basis so it stays in line with your life changes

On top of all that, you minimize your fees so that you understand what you’re paying and they’re as small as possible because more than anything else,

[Tweet “A percentage saved on fees is a guaranteed percentage to your bottom line”]

 and while the number sounds small a 1.5 % hit on someone who is 40 and saving $12,000 a year off a $100,000 base, if you pay 1.5% until the time you retire, the difference in where you retire will be about $300,000.

There is no such thing as an insignificant fee and there is no such thing as an investor that knows too much about how their advisor gets paid. Many people, by figuring out how to reduce the fee drag on their current portfolios will find out they can get a lot close to their comfortable retirement than they feel they are right now.

It’s not that you might be in an impossible situation to hit your financial goals, it’s just that you might need to re-evaluate how you’re going to get there.

We see a lot of people who are nervous, who are anxious and it goes back to moving into a position of control and saying alright, I’m going to take control of how much I pay, take control of who I pay it to, take control of the  process of understanding what fees are going to be charged to me and as long as you feel like you’re  in a situation where you’re getting a properly constructed diversified portfolio that suits your needs and the process is transparent , there are ways still to get where you need to get, minimizing the fees you are paying is certainly one of the quickest and surest ways to start that process.”

My final question was  about how he thought the character and nature of investing would change, and what role did Nest Wealth/robo services have in facilitating that change? Did he see the subscription based investing model becoming the new norm?

“The new services that Nest Wealth have demonstrated is that there is a price that people should expect to pay for wealth management, asset allocation and someone to monitor and manage their portfolio and that price can be as low as 20, 40, 50 or 80 dollars /month or it can be some other type of fee structure, but it’s definitely not the 1.5-2.5% fees that people have historically paid. I think that companies will recognize that and to provide those services at the levels that companies like NestWealth have provided them from a fee point of view means that a lot of the stuff that was inefficient and a lot of the stuff that was costing companies money is now going to be done through technology and better user experience and  better products.  I imagine that within 10 years, it is the norm to have the core of your investment portfolio invested through an automated or an online digital advisor like NestWealth.”

And there you have it. It sounds like nothing but a bright, promising future for fintech and investors in Canada.