What Wealthsimple acquiring SimpleTax means and why tax preparers are the urologists of the financial world

OPM 3 min read

Last month, Wealthsimple acquired SimpleTax, an online DIY tax filing service out of BC.  SimpleTax has about ten employees and this is a small acquisition for a firm that just raised some $130 million earlier this year.

SimpleTax is known for awesome, user-friendly interface and a "pay what you want" fee model.

This acquisition is in keeping with Wealthsimple's sprawling ambitions, having started as a robo-advisor, having added savings accounts and commission-free trading.  It's clear that Wealthsimple wants to be a contender in the race for the Primification of Finance, the War to be the One Financial Bundle to Rule Over Money, ie the famous WOFBROM.

The tax prep market has interesting aspects.  Think of data, which digital disrupters are obsessed with.  Tax preparers are the urologists of the financial world.  They get to ask you very probing personal questions and it's perfectly normal.  Your tax prep firm (or software) will know your income, employer, your marital status, your dependents, your medical bills...an incredible array of personal information about you.  It's the ideal Trojan horse from which to take over a person's household finances.

The ascent of “bank-killing” fintechs has not quite lived up to the hype.  And higher than anticipated cost of client acquisition accounts for that.  Tax prep might be one way to acquire clients on the cheap.  Tax is an easier sell than asking someone to transfer all their savings to Wealthsimple.  It's the common denominator of every economically active person.

Another aspect of the tax prep market is that it is almost completely unregulated.  There's no prescribed qualification to be a tax preparer.  There's no authority that supervises the industry.

Personal finance is not just about picking ETFs. A financial planner is pretty limited in what they can do for you.  A wealth manager even more so.  What everyone needs is a "financial concierge" or a personal CFO.  Someone who has a complete picture of your finances (income, assets, debts, insurance needs, etc.)    There's also the administrative drudgery, a lot of which is tax driven.  Many people are not even organized enough to know what their RRSP contribution room is.  But the average person cannot afford a personal CFO...unless it's done by software. Software will dominate the lower-end of the retail financial services market.

Wealthsimple talks about "exploring ways to offer a more comprehensive product experience" and reducing "financial friction".  It's easy to see how.  When you go to contribute to your RRSP, they will know exactly how much you can.  And then, when you get your tax refund, you will get prompted with intelligent ways to invest it. Consumers don't want to deal with multiple financial intermediaries, re-enter their data over and again and prove that they are not money-laundering drug dealers.

That's the promise of the Primification of Finance.

In Canada, Wealthsimple is the only contender worth watching, its only competition is from outside the country.  (Such as Revolut which will launch imminently here).

Historically, banks have not cared much for the tax prep market, except on their higher-end trust and estate offering.  Of course, banks don't need tax services to lure clients because they already have a killer app, the chequing account.  Many fintechs in Europe are going directly after this core bank product.  Is tax a smarter, more prudent and more strategic customer acquisition approach?

Journalists ask Michael Katchen if his plan is to be acquired by a bank and the answer I surmise is that he wants to be the bank - but even more powerful.

Is it too early for the Competition Bureau to have Wealthsimple in its sights?  Not at all.  I believe Michael Katchen has a Bezos-like masterplan and it's hiding in plain sight.  He says openly that he wants to replace the banks as a client's primary relationship.  He is so far ahead of the other local digital disrupters, it will be hard to catch up.  On the other hand, the market for urology clinics is still wide open.

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