Wealthsimple growth stalls through economic turmoil

Wealthsimple Technologies Inc.’s explosive growth over the past few years has stalled as the company attempts to manage through a worsening economy.

Data published Friday by its largest shareholder, IGM Financial Inc., shows that Wealthsimple’s clientele, excluding clients of its tax service, grew just 2 per cent over the course of the second quarter ended June 30, to 1.7 million accounts. Growth in the first half was 10.4 per cent.

By contrast, the number of accounts at Wealthsimple jumped by 19.4 per cent during the second quarter of 2021. Wealthsimple’s clientele increased by 173 per cent in all of 2021, and more than tripled in 2020. The slowdown came as Wealthsimple slashed its marketing budget and cut jobs in the quarter.

Wealthsimple’s assets under management, meanwhile, dropped by 13 per cent from March 31 to June 30 this year, to $16.9-billion, IGM said. That reflects a challenging environment for asset managers; IGM, which owns IG Wealth Management and Mackenzie Investments, saw assets under management and advisement drop by 9.8 per cent to US$242.1-billion from the end of March to June 30.

IGM chief executive officer James O’Sullivan said on a conference call with analysts Friday that investment industry redemptions exceeded sales by $21.7-billion in the quarter, making it “the worst Q2 on record.”

His company, which is controlled by Power Corp. of Canada, reported Thursday it had slashed the valuation of its 24-per-cent stake in Wealthsimple to $492million as of June 30, down 47 per cent from $925-million on March 31. IGM valued its stake at $1.153billion last Dec. 31.

Power, whose affiliated entities collectively own 42.5 per cent of Wealthsimple’s fully-diluted equity and hold voting control of the company, reported late Friday it had also written down the value of its holdings in Wealthsimple, to $900-million from $1.7-billion on March 31, and $2.1-billion at the end of 2021.

IGM chief financial officer Keith Potter told analysts the devaluation “reflects a continued decline in what we saw in public peer valuations during the quarter,” as well as Wealthsimple’s “revised revenue forecasts.” He said that even with the devaluation, IGM’s average annual return on the investment to date exceeds 40 per cent, including $300-million his company got when it sold part of its stake last year.

The share price of Wealthsimple’s publicly traded American analog, Robinhood Markets Inc., is down 83 per cent from its 52week high.

Mr. O’Sullivan said IGM remained “long-term supportive of Wealthsimple,” but was non-committal when asked if IGM would further fund Wealthsimple, which has relied on financing largely from IGM and other Power affiliates. “It’s just very difficult for uh to say what the future might look like,” he replied.

Wealthsimple launched as a robo-adviser in 2015, providing automated online wealth management services to a millennial-focused audience. It began shifting to other financial services in 2018, including an online digital stocktrading platform that offered direct access to cryptocurrencies and zero trading commissions.

The company experienced a surge in retail trading clients throughout the pandemic, and was one of Canada’s top beneficiaries of a surge in valuations and investor interest in tech companies. Assets under management increased by more than 90 per cent, on average, in each of the past three years, as millennials flocked to upstart trading platforms to trade meme stocks and cryptocurrencies.

In May, 2021, Wealthsimple became one of Canada’s most highly-valued private technology companies when it raised $750million at a $5-billion valuation.

But Robinhood and Wealthsimple have both been hit by bad news. Robinhood this week said it would cut its head count by 23 per cent – its second job cut of the year – and revealed in its second quarter report it had experienced a drop in monthly active users and assets under custody. Meanwhile, Wealthsimple laid off 13 per cent of its work force in June.

In a statement e-mailed to The Globe and Mail, Wealthsimple spokeswoman Rachael Factor said: “Earlier this year, we made the decision to significantly reduce our growth marketing spending, in order to concentrate our resources on what’s most important in today’s environment. Our focus right now is on our clients: deepening their engagement with us and helping them navigate a difficult time in the financial markets. At some point markets will rebound – they always do – and we’ll respond accordingly.”