Disintermediation & Disruption: The world of Robo-advisers & CRE Crowd-Funders!

We are not talking about robots taking over the world but friendly portals with beautiful UI (user interface) and solid algorithms that reduce the overall fee and put more money into the pockets of investors with ease and convenience.

On the wealth management side of the business, we are seeing continued innovation over last 2 years with several robo-advisers becoming active in the marketplace such as WealthSimple, NestWealth, RoboAdvisors+, WealthBar, ModernAdvisor and more.

Similarly, there are now several portals that allow investors to invest directly into CRE:RealtyMogul, FundRise, RealtyShares, R2Crowd etc.

Both of these types of businesses are heavily regulated by provincial securities commissions, like OSC. RoboAdvisors need a Portfolio Manager license & CRE CrowdFunders need at a minimum an Exempt Market Dealer license (or Investment Fund).

Here are another top 5 questions/answers that bring out the similarities in the two types of disruptors:

1.   What is the average age of investors using RoboAdvisors and CRE (commercial real estate) CrowdFunding portals?

Most of us would have guessed millennials. Wrong. The average age for RoboAdvisors is 43 and while the data for CRE CrowdFunding portals is bit scattered, the consensus seems to be that the average is between 45-52.

2.   What exactly do these online portals do?

Robo-Advisers build portfolios based on investor’s risk tolerance and target stocks and bonds accordingly.

Similarly, CRE Crowd Funded portals provide options for investors to invest directly into CRE (both debt and equity direct ownership structures).

3.   What kind of investments do they use?

RoboAdvisers:

ETFs mostly. For e.g., WealthSimple uses BMO, Purpose, Vanguard, iShares & PowerShares ETFs while JustWealth uses Blackrock, Invesco, Schwab, StateStreet ETFs.

CRE Crowd-Funders:

Mostly allow investors to invest directly into the property. Equity deals are typically Limited Partnership units while Debt deals are secured via a charge against the property through a “Trust Company” that holds the title for the beneficial interest of the ultimate investor (s).

4.   What are the fees like?

Robo-Advisers:

Half of traditional investing.

Compared to Mutual Fund MERs or Financial Advisor fee which typically can be anywhere between 1.5% to 2%, the fees charged by Robo-Advisers are 0.25% to 0.50% or less per year on the assets invested through them. ETF portfolios typically charge another 0.25% on top of that.

CRE Crowd-Funders:

Half of traditional CRE investments.

Blind pools of capital such as REITs, Investment Funds and MICs typically have a very large infrastructure that is required to support the platform. Executive/management salaries, staff, marketing, legals, accounting, technology and more items like that add up to a lot. All of this comes out of investors pocket and that’s why typical returns through these type of blind pools are only half of what is achieved through CRE Crowd-Funded deals that are direct investments.

5.   But why should an investor bother if dumping their hard-earned investor dollars with a fat-cat bank advisors or CRE blind pools (REITs or MICs) has been done for so long and it works?

It’s about control, transparency, convenience and lower fees.

Investors are starting to see the benefits of disintermediation. Markets have been very opaque in the past but with advent of technology, fast internet speeds with highly advanced devices like iPad pros…investors can now take charge of their hard earned money with ease and convenience.

 

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