Investment industry CEOs are expecting higher profits and a bull market for investment advisors in the coming year, according to the results of the 2015 Capital Markets Outlook survey released Thursday by the Investment Industry Association of Canada (IIAC).
The IIAC survey of Canada's investment industry CEOs found that 87% of CEOs expect conditions in the global capital markets to improve, or stay the same, in the year ahead. A similar proportion of CEOs, 81%, feel the same about the prospects for Canada's markets.
Against that optimistic background, the survey also found that 69% of dealer CEOs are expecting their firm's profitability to rise in 2015. This is up from 48% last year. And, they are also increasingly bullish on the prospects for advisors, with 72% saying that their firm's investment advisor headcount will rise this year; up from 52% last year.
"These results presage attractive opportunities for investors in the coming year, particularly given that our surveys of investment dealer CEOs have proven remarkably accurate," said Ian Russell, president and CEO of the IIAC, who presented the results in a keynote address to the Empire Club of Canada in Toronto.
"In the two previous years that we have conducted this survey, the predictions of cautious optimism were borne out," Russell noted in an advance copy of his speech, adding that it's reasonable to expect a similar outcome this year. But he also noted that the survey was carried out before oil prices plunged at the end of 2014, and market turmoil ensued.
The survey responses come from a range of firms, comprised of 39% small retail dealers; 23% medium-sized retail firms; 16% institutional dealers; 13% integrated dealers, including bank-owned firms; and, 10% large, independent retail dealers.
"In assessing our economic future, the investment industry is the canary in the coalmine," Russell said. "The industry depends on market activity — financing and trading. That is a distillation of people's expectations of the economy, economic confidence and corporate earnings. In other words, the industry's health is a short-handed way of interpreting how people are thinking. It would appear our industry and Canadian investors have much to look forward to in 2015."
Industry CEOs cited the regulatory burden as their primary obstacle, with 84% listing regulatory pressure as one of the top barriers facing their firm in 2015. The second most commonly listed issue, competitive pressure, was only cited by 40% of respondents, the IIAC notes.
"Despite the regulatory burden and competitive pressures in the investment industry, the survey's indication of improved business conditions is great news for the industry, their clients and the economy," Russell said. "This is a healthy picture. While we face challenges, investment industry CEOs see a confident investment marketplace."
During his speech, Russell also highlighted two other trends from the report in addition to regulatory change: demographics and technology. For example, as baby boomers have aged the industry has seen a shift from a transactional focus to discretionary managed portfolios, said Russell. As well, baby boomer portfolios will place a greater emphasis on income and asset distribution going forward. This trend has not gone unnoticed by CEOs as 77% of those surveyed cited wealth management as a top area of growth.
Furthermore, 72% of surveyed CEOs said they would plan to hire more investment advisors in the coming year, a trend that will benefit boomers, said Russell, but also millennials who will likely be more comfortable working with younger advisors.
In terms of technology, 37.5% of CEOs said changes in that area will be a barrier to growth this year. "Increased technology and systems, and integrating the systems of introducer firms and carrier firms, adds significantly to fixed and variable costs," said Russell. "That puts particular pressure on small and mid-sized dealers."
— With files from Fiona Collie.