The (Artificial) Intelligent Investor | Deal Law Wire


Investor advice platforms, at both the retail and institutional level, have evolved in recent years – from the use of classic literature to expanded services offered by brick-and-mortar firms. However, with the growth of app-induced innovation, various robo-advising platforms have taken the lead in providing investors with seamless, efficient, and cost-effective means of advice.

We previously addressed how M&A transactions may occur with fintech companies and traditional banks. However, in this post, we will explore how Canada’s fintech sectors have expanded in recent years and key considerations for wealth management firms looking to acquire or sell certain platforms.

What is robo-advising?

The most common example of fintech in the wealth management and investment space is the use of robo-advisors. Robo-advisors are automated, digital platforms that provide financial-planning services based on market algorithms and trends – a stark contrast from traditional avenues such as investment advisors. Typically, one could rely on an investment management firm and advisors to make market predictions in the process of managing and investing clients’ funds. In contrast, robo-advisors involve very little human supervision, instead leveraging AI-based technologies to analyze both micro and macro market trends.

The rise of M&A activity in the wealth management industry as it relates to investing can be attributed to two different factors. The first is through a simple yet sweeping increase in demand. Robo-advising has become an appealing option for investors because of its low-cost components and minimal barriers to access. The second relates to the expectations and preferences of investors, which have significantly altered in the wake of the COVID-19 pandemic. These unique challenges have demonstrated the need for key technology capabilities in order to help “future-proof” wealth management services.

Recent trends

In 2020, only ten venture capital-backed fintechs launched globally, a significant decrease compared to 2019 and 2018, which saw 98 launches and 156 launches respectively. However, with 2020 proving to be anomalous, the post-pandemic boom is expected to produce a marked uptick in fintech investments, with an increased focus on consolidation as various investment firms acquire a variety of tech-based platforms.

Like many recent developments driven by the COVID-19 pandemic, traditional financial and investment-based firms sought to quickly expand digital offerings and tools for consumers. As a result, several fintech firms in Canada made various significant acquisitions earlier this year.

Institutions and other actors in the wealth management industry should consider a number of factors in “future-proofing” businesses, including effective management of enterprise architecture, adoption of agile and pragmatic technological innovation, implementation of intelligent digital/cloud-based business process automation, and the creative use of artificial intelligence and data analytics.

Looking ahead

For the Canadian market, the fintech industry will likely continue to innovate the wealth management and investment space. Moreover, with recent moves by firms acquiring other types of platforms, investors can expect to see a sustained rise in cutting-edge product offerings.

The author would like to thank Vahini Sathiamoorthy, Articling Student, for her significant contribution to this blog post.

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