Finance has long been the prerogative of a handful of insiders and inaccessible to others. However, brokerage apps like Wealthsimple have messed up the codes of the sector. Far removed from the boring stereotypes of the stock market, these applications have simplified, democratized, and even embellished investing—almost making people forget the true risks involved. Investors, more and more young people influenced by social networks, are storming the platform to take charge of their personal finances.
Founded in 2014, Toronto-based Wealthsimple had a “mission” from the start “to revolutionize the financial sector so all Canadians can achieve financial freedom,” testified Michael Katchen, its founder and current CEO, in a recent post published on the site the company. Today, the company offers a whole range of products: from Wealthsimple Trade to buy stocks on the stock exchange, to Wealthsimple Tax to declare income, to Wealthsimple Crypto to invest in cryptocurrencies.
The “naïve” bet, as Mr. Katchen describes it, that Wealthsimple needed to transform the financial landscape paid off. The company, majority-owned by Power Corporation, has enjoyed unprecedented success over the past year. As of March 2020, Wealthsimple’s client base was approximately 350,000 clients across Canada, the US and the UK with $6.8 billion in assets under management. Today, the company has nearly a million customers — a 185% increase — and $10 billion in assets under management. If we also include Wealthsimple Tax users, the number of customers increases to 2 million.
The company refuses to provide information about the average profile of its customers. But it only takes a quick tour of her website or her Instagram account to realize that she’s specifically targeting millennials and even Gen Z.
Wealthsimple relies heavily on peer-to-peer recommendations. For example, if you invite a friend to join the Wealthsimple Trade interface as a new client and they invest $100, you will receive $25 as a reward and they will receive $10.
Another way Wealthsimple Trade attracts consumers? By not charging commission fees for transactions made on the exchange, unlike other brokerage apps like those of TD, RBC or Questrade, where fees vary from $5 to $10 per transaction. But Wealthsimple also incurs costs: in particular, stock exchange fees when buying American shares.
“Every institution’s business model involves a profit margin. That is primarily their goal. There is always a cost, no matter how subtle. And consumers really need to be aware of that,” warns Reena Atanasiadis, professor of finance and dean of the Faculty of Administration at Bishop’s University.
The big role of influencers
Tédia Rosarion, who has just graduated in accounting, belongs to this new generation of investors seduced by Wealthsimple. Eager to popularize and share her knowledge, the young 25-year-old Quebecer became a personal finance and investment influencer a few months ago, a “financial activist” as she describes herself.
“I used to work in a bank, but I quickly realized that it wasn’t right for me,” she says. In January 2020 I dropped everything and started my own business. I started making videos on Tiktok, YouTube and Instagram. “On Tiktok, the young woman is followed by almost 13,300 subscribers and has about 130,000 likes on his videos.
Can she live with that? ” Yes. My YouTube channel should be monetized soon and I have a contract with a company,” she explains. The company in question is Wealthsimple. Tédia Rosarion receives money for every person she persuades to download the platform. With the community that she has built up over the months, the influencer has been able to win over many new followers. “Several hundred, maybe even a little more than a thousand,” she says. There was a lot of downloads towards the end of fall and winter 2020 in particular, she notes, but the pace has slowed recently.
In the next few weeks, Tédia Rosarion will also have to collaborate with the application to create promotional videos. We see videos of this kind scrolling by the shovel on social networks. Ellyse Fulford, another well-known Canadian personal finance content creator (317,500 subscribers and 2 million likes accumulated on TikTok), she also participates in this type of promotion for Wealthsimple.
Tédia Rosarion welcomes the democratization of finance. “It’s important to take control of your personal finances and Wealthsimple is a really good app for beginners, it’s easy to use. You can invest the amount you want. There is no such barrier to entry. »
However, it’s also this ease of use of the platform and its trendy side that causes some investors to rush headlong into the stock market – sometimes forgetting that the risks of losing money are actually real. During the GameStop saga earlier this year, 67% of Wealthsimple users who bought shares in the company lost money.
For her part, Tédia Rosarion has not embarked on the GameStop adventure. “I invest for the long term. What I aspire to is financial independence. »
Marketing well done
The fact that Wealthsimple uses influencers is a strategy typically aimed at Gen Z and Millennials, points out Jean-François Ouellet, professor of marketing at HEC Montreal. “These generations are used to what is called gamification. It is having fun or having fun applications. Investing has always been perceived as something serious and risky. But the fact of having interfaces that make the experience a bit more playful, a bit more enjoyable, that’s what really attracts them,” explains the professor. Wealthsimple somehow leveraged “design best practices” to make the experience “inviting,” says Ouellet.
The company also uses the principle of “remarketing” extensively, he adds. Remarketing is the process by which brands send targeted advertisements to Internet users who have already consulted their products. “Once you go to their website, you will see advertisements on every platform imaginable. Whether you’re a Wealthsimple customer or not, you’ll be remembered by the company quite frequently,” notes Mr. Ouellet.
According to the professor, “there might be one collision between Wealthsimple and the financial markets. “These have always been serious by default because you need a certain stability,” he explains. The problem, however, is that when you have a multitude of small individual players who act more impulsively and less thoughtfully, markets tend to fluctuate. This threat is very present and needs to be watched. However, it’s not a bad thing that younger people are interested in finance. »
So will apps like Wealthsimple be the future of investing? It’s a model that’s gaining ground, says Bishop’s University’s Reena Atanasiadis, but it won’t replace traditional institutions. “We thought cashiers in financial institutions would disappear completely and be replaced by ATMs. But there are still some. Large institutions will not be easy to replace. They may even buy these companies,” the expert believes.