Wealthsimple Trade is known for being one of the few zero-commission trading platforms in Canada.
So how does Wealthsimple generate revenue without trading fees like its Canadian competitors?
Six ways that Wealthsimple earns revenue without charging any commissions on trading include: payment for order flow, management fees, premium subscription fees, cryptocurrency trading fees, currency conversion fees, and Wealthsimple Cash.
1. Payment for Order Flow
Until recently Wealthsimple did not earn any revenue for routing orders to particular market-makers.
This has changed and opened up a new revenue stream for Wealthsimple on the trading of US listed securities and options.
Payment for order flow in simple terms is rerouting an order to buy or sell a security to a third party for execution.
It is then executed at the largest bid-ask spread, bought at the lowest price, and sold to the person executing the order at the highest price, with the trading platform receiving a percentage of the additional spread earned.
2. Management Fees
Wealthsimple is dedicated to transparency in its fee structure.
For investors who use their robo-investing service, Wealthsimple Invest, fees are clearly shared.
The Basic package for those who invest under $100,000 has a 0.5% management fee.
For anything over that amount, the management fee drops to 0.4% and you move to the Black and Generation packages, The difference between these two packages is that the higher end one (Generation, $500,000+ deposit) includes additional services.
Additionally, through managing exchange-traded funds (ETFs), Wealthsimple collects 0.1% of every dollar invested in maintaining the ETF itself.
3. Wealthsimple Trade Plus Subscription
To access additional features in your stock trading account, Wealthsimple Trade offers a paid subscription called Plus.
For $10 per month, users get:
- USD accounts without forex fees or commissions when trading US equities
- USD cash without currency conversion fees
- Deposits of up to $5,000 instantly into your account
With a Wealthsimple Plus subscription, clients can buy and sell securities and exchange-traded funds in USD without being charged a conversion fee for each trade.
They can also hold exchange-traded funds without being charged a currency conversion fee for the management fees.
This allows users to hold USD in a separate account, which was not previously possible under the Wealthsimple Basic model.
A key pain point of Wealthsimple Trade was the fact that there was no USD account.
By appealing to investors who want exposure to US markets through a low-cost, monthly subscription, Wealthsimple can satisfy user demand while generating additional monthly revenue.
4. Crypto Fees
The fee is charged by applying a percentage to the bid-ask spread at which buy and sell orders are executed.
The spreads are available for investors to see on the Wealthsimple app.
For example, if you were to purchase $100 of ETH and the basis points (BPS) for the spread were 175bps, you would be charged $1.75 in fees.
Wealthsimple also has by-request transactions because the portfolios are automatically managed and rebalanced.
Special request transactions or extenuating circumstances are charged a flat fee of $75 per transaction.
5. Currency Conversion Fees
Although they don’t charge trading fees directly, clients who wish to trade US equities must convert Canadian dollars to United States Dollars.
For this conversion, Wealthsimple charges a 1.5% currency conversion fee.
This is only charged for Wealthsimple Basic users who have not subscribed to Wealthsimple Plus.
Clients using the Basic package for Trade will pay 1.5% on exchange fees for all US listed assets on both buy and sell orders.
The fee is lumped into the total foreign exchange cost applied to each order execution.
The rate for each trade will be available on the confirmation after the order has been fulfilled.
Did You Know?
Many other Canadian brokerages charge ~2% for currency conversions.
6. Wealthsimple Cash Visa Card
Wealthsimple offers a physical Mastercard paired with it’s Wealthsimple Cash offering.
It’s linked to the client’s Wealthsimple Cash account which functions like a bank account, allowing ATM withdrawals as well as purchases anywhere Mastercard is accepted.
Like with any Mastercard, Mastercard establishes the transfer level rate of interchange which can be a potential source of revenue for the financial institution, in this case Wealthsimple.
While there is no public information available to confirm Wealthsimple generates revenue through interchange, it is not an uncommon model in the industry.
Frequently Asked Questions
- How does Wealthsimple make money without commissions?
Wealthsimple makes money from other areas of its business model to compensate for the lack of revenue from commissions. They accept payment for order flow on US listed securities as well as charging various fees for non-trading services such as: cryptocurrency transactions, foreign currency conversion transactions, subscriptions to its Plus plan, and management fees for actively managed investment portfolios.
- How much money does Wealthsimple make?
It is estimated that Wealthsimple’s annual revenues are in the hundreds of millions of dollars. Since it is a privately held company, information on its financials are not available to the public.
- Is Wealthsimple stock publicly traded?
Wealthsimple is not publicly traded, so investors cannot buy stock. Alternatively, investors can purchase shares of the company that holds a majority stake in Wealthsimple, Power Corporation of Canada on the Toronto Stock Exchange (Ticker: POW).