Advice rules in changing investment landscape, says researcher

By Doug Watt | April 26, 2004 | Last updated on April 26, 2004
3 min read

(April 26, 2004) Despite stiff competition from banks and discount brokers, financial advisors control the bulk of Canada’s wealth market, says Earl Bederman, head of financial research consultancy Investor Economics.

The advice channel held 55% of the country’s wealth market at the end of 2002, Bederman said in a recent presentation to financial writers and editors at the Toronto headquarters of Rogers Publishing. The $1.6 trillion wealth market is split more or less equally between cash, fixed income and equities.

“Advice gained 10% from 1997 to 2002 and is expected to gain a bigger share over the next five years,” he said.

The direct distribution channel, including banks and discount brokerages accounted for 42% of the market in 2002, a number Investor Economics expects to fall as advice gains even more ground.

That’s a positive trend, but there are a number of other important factors advisors should be aware of, Bederman cautioned. Although the banks have lost market share in terms of direct sales and deposits, they dominate the full-service brokerage channel and own big chunks of both the private client management and discount brokerage world.

On top of that, banks have successfully developed branch advice — something that didn’t even exist in the latter half of the 1990s — to the point where it now has a 7.5% (and rising) market share. “So advisors have this new source of competition that wasn’t there before, and a fairly formidable one, armed with third-party choice, interesting products, good sales skills and good resources,” Bederman said.

The financial services industry veteran sees full-service brokers as the fastest growing advice channel, with the IDA becoming the “platform of choice” for both advisors and firms. Full-service brokers will control nearly one-third of the wealth market by 2012, he predicts.

“Some [advisors] can continue to be mutual fund centric, but they need to respond to competition and the changing needs of clients. Advice is going to be less about product and more about solutions.”

On the supply side, Bederman projects flat growth for mutual funds as the household trend shifts from a risk avoidance to a risk management phase.

“In the 1990s, it was all about mutual funds and we’ve developed this mutual fund-centric view of the world. But the real growth is coming from alternative, fund-based products,” he said, such as closed-end funds, exchange-traded funds, market-linked instruments and hedge funds.

“The traditional mutual fund is losing market share,” said Bederman. “There’s a new interest in vehicles that help manage risk.”

Many of the big fund firms are investing heavily in alternative products, said Bederman, noting CI Funds’ $3.6 billion in alternative assets and RBC Financial’s $4.5 billion.

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  • Fundamental questions (an interview with William Holland, from the Mid-February issue of Advisor’s Edge)
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  • Power Financial, one of the largest investment conglomerates in Canada with $89 billion in assets, had nearly $15 billion in non-mutual-fund assets at the end of last year.

    But not all fund companies have jumped on the alternative bandwagon, with Investors Group, Fidelity and AIM Trimark all remaining entirely in traditional mutual funds.

    “Some fund companies are still fund-centric — they’re stuck in that world, due to their culture and their history,” Bederman said. “It’s not easy to change a business strategy,” he added. “[Those companies] may recognize the need, but they need to have scale and may prefer to stick to their core products.”

    Do you agree with Bederman’s insights into the future of the advice industry? Are mutual funds losing their share, and what will it mean to your business? Share your thoughts about this research with your peers in the Talvest Town Hall on

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    Doug Watt