Note: This post was written by Victoria Barclay and Dennis Bardetsky of the CFA Society Toronto. I've republished it here (with their permission) because the publication this appeared in, The Analyst (September edition), is not available online. I've slightly reformatted the article to better fit this blog. I was one of the panelists who spoke at the conference. The original title was "FinTech Conference - Three market developments poised to disrupt your business".

The financial services industry, which has enjoyed relative stability for decades, now faces disruptive financial technologies that are evolving at an unprecedented rate.

CFA Society Toronto hosted a sold-out FinTech Conference in June that brought together pioneers at the forefront of this evolution. They discussed three areas of financial technology: wealth management through robo-advisors, crowdfunding, and the application of blockchain. Even though the three conference panels covered a variety of topics, the recurring theme was that exciting new technologies can make the moving and allocating of capital more efficient.

Robo-advisors Are Here to Stay

Firms offering digital advice have already arrived in Canada: Nest Wealth, Wealthsimple, and WealthBar, to name a few big players, as well as SmartFolio by BMO and Portfolio IQ by Questrade. The key similarity in their offerings is that some, if not all, functions traditionally performed by an investment advisor have been automated.

The panel discussed key benefits of digital advice. As Amelia Young, principal of Upside Consulting, put it, we should not wonder whether robo-advisors are here to stay … but how this disruptive technology will shape the financial advisory industry as a whole.

Randy Cass, founder of Nest Wealth, said that robo-advisors can competently automate such operational tasks as client assessment, defining asset allocation, portfolio rebalancing, performance measurement, and reporting. Cass added that scaling up of the distribution model means that the professional advice, which used to be available only to a select few, can now be rolled out to masses of people in a very cost-effective way.

Bake all of the best practices into one experience and consistently repeat this experience, said Joe Cianciolo, head of business development at FutureAdvisor. His product includes a reporting iceberg model that crystalizes results that matter most to investors (e.g., net dollar gain) at the top. Curious investors can drill down to review portfolio information on a more granular level. It’s really about investor empowerment, which helps investors connect on their own terms, Cianciolo added. Also, investors’ portfolios are accessible around the clock through a digital platform.

Julie Barker-Merz, president of BMO InvestorLine and head of wealth direct investing at BMO, was asked if she was concerned about robo-advisors’ channel conflict with traditional private wealth solutions. She believes that, initially, the outcome would be similar to when trading fees dropped from $30 to $5 per trade or when cost-effective ETFs were introduced to rival their mutual fund counterparts.

Barker-Merz also believes that investing in robo-advisors’ technologies is a strategic move that will grow future market share by offering a client-centric service that will be very attractive to cost-conscious Canadians seeking professional portfolio management services.

With the refinement of robo-advisor technology, it’s expected that certain modules will become standardized and commoditized. It remains to be seen how companies will find ways to differentiate their services. As Michael Lynds, senior vice-president, business development, at IRESS Canada, said, Digital advice 1.0 is already here. What everyone’s waiting to see is what 2.0 will look like!

Crowdfunding – Another Alternative Investment Asset Class

Brilliant ideas don’t always turn into successful companies. It’s a well-known fact that effective funding mechanisms play a critical role in start-ups’ success. In Canada, early-stage companies have limited sources of funding because Canadian institutional investors tend to be more conservative than those in other countries. Crowdfunding allows entrepreneurs to sidestep these gatekeepers and pitch their ideas directly to individual investors. This is facilitated through portal companies that aggregate individual contributions into a substantial investment.

The future of the Canadian economy is in digital technology, and there are a lot of start-ups that need funding, said Peter Misek, a partner at BDC Ventures, which supports 42,000 small- and medium-sized Canadian businesses. There’s also a lot of investor appetite, he added. Crowdfunding is an alternative investment vehicle that can unlock opportunities that were prohibitively expensive to most private investors. It also allows investors to select ventures they’re passionate about.

In Canada, there are heavy restrictions on how much can be raised through equity crowdfunding because the inherent risks are high. Under the start-up crowdfunding exemption available in certain Canadian jurisdictions, non-accredited investors can commit a maximum of $1,500 to a venture, and the start-up can raise no more than $250,000 per offering in this fashion.

It appears that Canadian regulation on crowdfunding is moving slower than that in many other countries. It would be great to see Canada embrace this technology and other disruptive innovations that are sure to become mainstream in the coming years, said Anthony Di Iorio. Di Iorio is CEO and founder of Decentral; co-founder of Ethereum, a rival to bitcoin; and chief digital officer of TMX Group. Misek agreed, saying that the solution should be investor education—not limitation.

Canada should follow the example of the U.S., Israel, the U.K., and Australia, where crowdfunding is now a legitimate way of raising capital, suggested Hitesh Rathod, co-founder and CEO of NexusCrowd. We are three to five years behind in the development of crowdfunding, which means [we need] to catch up, he said. A well-developed crowdfunding mechanism could fuel the growth of start-ups and small- to medium-sized private companies in Canada. A robust crowdfunding mechanism would also make the Greater Toronto Area a hub of innovation able to compete with Silicon Valley.


Canada has a mixed track record when it comes to welcoming new financial technology such as blockchain and bitcoin, according to the final panel of experts.

Cryptocurrency permits peer-to-peer value exchange—without the bank intermediary. Bitcoin is the world’s first open-source, decentralized digital currency and payment network, explained Sunny Ray, co-founder of Unocoin, a bitcoin trading platform. Most people find it confusing at first because it’s two things in one: a digital currency, like dollars or gold, that goes up and down in value; and a payment network, like Western Union, MasterCard, or PayPal, that moves value from one person to another.

The banking system was a hurdle for us, said Joe Weinberg, CEO of Paycase, a mobile-first remittance platform using blockchain technology. We’re working with banks and regulators to see that we will have clearance to operate, he said.

Canada is punching above its weight when it comes to encouraging the fintech industry, said Matthew Spoke, CEO of Nuco, a start-up that applies blockchain to enterprise systems. We’re fortunate to have Ethereum here and a vibrant community of talent.

Ray said he was excited that actions of Canadians are having global impact. He believes Canada is poised to become the Silicon Valley of the fintech world. The biggest challenge he sees is that Canadian entrepreneurs are afraid to fail.

Regulators should understand the new technologies first before they regulate, the panellists agreed. Do less, but pay more attention, said Addison Cameron-Huff, a programmer–lawyer with an in-depth knowledge of the nascent industry.

Money laundering using cryptocurrencies is harder than most people think, Weinberg said. Different cryptocurrencies are evolving as digital tokens, and bitcoin is built to make money laundering not the best solution. Cameron-Huff pointed to a 2015 Treasury report—U.K. National Risk Assessment of Money Laundering and Terrorist Financing—that says bitcoin is an unlikely money-laundering risk.

Cryptocurrencies fill an obvious gap. Many people in India are unbanked, Ray said, explaining that they have no local bank branch but need financial services in order to receive remittances, for example. It’s like cellphone usage spreading in a place where no land lines exist.

Blockchain is being touted as a breakthrough in fintech, and its impact has the potential to rival that of the Internet, now that value can be exchanged instantly and globally without requiring third-party involvement or participation. Entrepreneurs are actively searching where the key innovation of blockchain can help fill the gap.

Victoria Barclay, CFA, is a Toronto-based risk manager and has been a CFA charterholder since 2006. Dennis Bardetsky, CFA, is manager, risk and investment analytics, at RBC.


Note: This blog post is a republication of an article that appeared only in print. It was not authored by Addison Cameron-Huff (unlike every other blog posts on this site). Please contact the CFA Society Toronto to obtain the original print version from the September edition of The Analyst.