There has been a steady concentration of financial assets among the banks and life insurance companies for the past decade. It may spell the doom of independent advisors as the big financial services companies become the default choice.
Bigger is inevitable
After the financial crisis, many were suspicious of the big financial brands. Some had failed. Others were bailed out. And no one quite knew what liabilities were looming on the books. This happened in the US. It happened in the UK. It happened in Germany and the Netherlands and Belgium.
Many of the globe’s most well-known brands are in trusteeship; others have disappeared.
But not in Canada. Whether by luck or by regulation or by prudence, Canada’s financial brands survived with little public opprobrium. Some, of course, had to cut their dividends or exist with unprofitable lines of business. But they have hummed along all the same.
This puts independent advisors in a doubly uncomfortable situation. First off, the big financial brands, whether they are insurance companies or banks, have become the default option for investments and financial solutions. They are trusted not to get in over their heads in the mortgage market, not to be reckless on their trading desks, not to sell disreputable products.
And they build on that trust by making selective acquisitions, Wellington West Capital, Jovian Capital, AIC Funds, Dynamic Funds, Berkshire, DundeeWealth, HSBC’s wealth management unit, Macquarrie’s wealth management unit, ING Bank of Canada and many others.
The competitive landscape is very different from a decade ago. There are fewer banking and insurance options. There are fewer investment product suppliers. There are fewer places for advisors to hang their hats.
The independent advisory business, as we have known it for three decades, is all but dead.
Independents not dead
Big banks and big insurance companies have always had an advantage when it comes to asset-gathering. Size begets size. There are economies of scale, there is a national distribution network, there is a range of product options. All true.
A brand is something that is known by reputation. A client thinks they’ve not heard anything bad about this bank or that lifeco. But that is not the same thing as value. The more the working parts behind the brand, the greater the likelihood of disappointment.
The brand falls apart. Value must be experienced and demonstrated client by client.
This is the value of independence. An independent advisor can earn the same living as a bank advisor by charging a fee for service or a fee for assets under management, using ETFs, or cheap mutual or pooled funds. To the client, the costs may not be all that different from what a bank charges.
Yes, there will be pressure on independent advisors as the banks and lifecos gobble up independent brokerages and product providers. It will be tough to start out as an independent advisor.
The commoditization of products differentiated only by brand actually works in the independent advisor’s favour. It allows them to focus on all the things that can’t be branded: the value you provide to the client, in understanding their life goals and helping them to achieve them, irrespective of the brands advertised in the mass and social media.
Of course, the value proposition applies to all advisors, those with brands and those with none.