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If you’re here, you know that Wealthsimple has decided to give a $1,129 iPhone 15 to anyone who transfers $100,000 or more into a Wealthsimple account. And by now you may have some thoughts. Like: that seems kind of crazy. Or: that’s gotta be a gimmick. Or, if you’re interested in finance and business: how is it a good idea to do this? What’s the math here? The answer to these questions gets at Wealthsimple’s central theory of existence. We think we can build the most powerful financial company in Canada by doing one thing: Making sure our clients do well. And yes, getting a phone without having to pay for it is a good deal for most people. But there’s more to it. Let us explain.
It’s smarter to give our money to the people who make our business work (you, the client) than to advertising agencies or Facebook.
We keep close track of how we spend money at Wealthsimple. And if you were to look at our books you’d see that more than half the money we spend on marketing goes directly to clients – by way of bonuses and discounts for saving more money with us and referring other customers. That’s unusual for the financial world. And it’s on purpose. We’d rather give our money to you than places like Google. And that’s not just altruistic: We think it’s more effective, because Canadians will stick with companies that do more for them. Spending less on ad campaigns (and not doing show-off stuff like buying the naming rights to a stadium) means we can offer a lower-cost product that doesn’t require monthly fees or minimum balances for basic accounts, offers better rates of interest on savings, and so forth. And if you’re happy with us, you’ll probably mention that at some point to someone you know, which is the most effective kind of advertising there is.
The way we earn our money back is better for you.
You’re likely wise enough to know that when a company spends money to attract business, it has a plan to get that money back. But how (and how quickly) that money is earned back is important if you are a consumer, and Wealthsimple makes money differently — and more slowly — than many of our peers. We charge an 0.5 percent fee on managed portfolios — significantly lower than the 2 percent average most mutual funds charge. We also charge fees for certain USD/CAD conversions and for specialized transactions like options and crypto trading (see our fee schedules for full details). And, like all financial institutions, we make money on something called interest margin, which means we earn a small amount of interest when we put the money in your cash accounts at CDIC-protected banks. But generally speaking, we charge less for the services we provide than our legacy competitors.
Because we charge so admirably little in fees and such, we’ll need to keep your business for about two years to earn back the cost of our initial investment in your patronage, i.e. the iPhone. And, again, because of the low fees, if you moved $100,000 to us from an average mutual fund into a Managed Portfolio, you would save $1,500 in your first year — which is enough to buy another iPhone. (You could be the person who has two iPhones!)
So we’re essentially making a gamble that you’ll think we’re better.
We are betting on Canadians being rational consumers. We figure that if people realize that they get a better product for less money they’ll stick around. While we do have a short hold period on the funds. Over a longer period, we’re confident in our customer retention abilities. (Historically, more than 98 percent of Premium clients have stayed with us at least a year.)
A phone is also all you need to manage your money.
We know it’s a pain to move money around — a lot of banks go heavy on the bureaucracy. But once you do, because Wealthsimple operates in the 21st century, you won’t have to deal with any of that stuff again, and you’ll be able to manage your money from your couch, with your new phone, instead of having to wait in a bank lobby drinking some of the worst coffee that’s ever been made and thinking to yourself, “shouldn’t I be able to do all this on a phone?”
So that’s the story. Now, who wants an iPhone?
Ben Mathis-Lilley is a senior writer for Slate.com who has also worked for BuzzFeed and New York magazine. The author of 2022's The Hot Seat: A Year of Outrage, Pride, and Occasional Games of College Football, he lives in New Jersey with his wife and three children.
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