Advisor fee structure changes at Manulife Wealth has led to frustration among the sales force and some departures from the firm. Announced earlier in the year, the moves make it difficult for advisors to serve clients with low-asset accounts profitably.
Manulife says the changes are financially prudent, but admits it could have done a better job getting the word out. “I think looking back we could have provided more notice,” said Richard McIntyre, president and CEO of Manulife Wealth. “We’re working on our communication.”
Investment Executive spoke to two Manulife Wealth advisors, and agreed not to name them because neither is authorized to speak to the media about the fee changes.
One advisor, in Ontario, (we’ll call him Mark) told us client-name accounts now cost $60 a year instead of being included in the fees.
“If it was a client who had a couple hundred thousand dollars in the client-name [account], no big deal. I’m OK with spending 60 bucks to keep them there,” he said. “But … I have a client who’s got $3,000 and I don’t make $60 a year on this account.”
He could either pay the $60 annually or switch the client over to the nominee platform and pay $150 a year, Mark said. “The only good choice is, ‘I’m sorry Mr. Client, I can’t help you, you’re going to have to go somewhere else.’”
The fee changes impacted advisors with smaller accounts primarily, which has caused some advisors to leave Manulife. Competitors are targeting current Manulife advisors, in case they want to make a move.
Increasing costs
McIntyre told us that business costs in Canada have been increasing, and the firm has had to reflect those increases in their advisor fees. “We haven’t changed our fees for about 15 years. So that might have been a bit of a shock,” he said. “We’re dealing with independent advisors who run their own business, so anytime we impact their business … we try and avoid the negative [effects], and it’s not always easy.”
The introduction of a client-named account fee was a first for Manulife Wealth. “That’s probably the one sticking point,” McIntyre said.
Other costs that used to be included in the fee grid didn’t scale according to revenue, so Manulife removed them, McIntyre explained. For example, compliance fees are now fixed costs to advisors instead of being charged as a percentage of revenue.
Recent and ongoing investments in technology upgrades also contributed to the decision.
Two years ago, Manulife Wealth switched to Fidelity Clearing Canada’s (FCC) back office technology, which it says contributed to higher costs. While the FCC system had teething problems, advisors say it is better than the Broadridge platform previously in place.
Manulife Wealth had used Broadridge for about two decades. There came a point when they couldn’t customize the platform to their needs, so they moved to FCC, McIntyre said.
In addition, Manulife Wealth replaced financial planning software Naviplan with Conquest and started offering AI-powered tools like ChatMFC, McIntryre said. “We want to be not just trying to keep up, we want to get ahead.”
A tale of two advisors
Mark’s fees went up 18% after the changes. While he kept his team’s salary the same, the business now has less cashflow to carry over at the end of the year.
“It seems like they’re only going towards large branches that have hundreds of millions of dollars, and anybody who is managing $40, $50, $60, $70 million, we’re just basically going to price you out,” Mark added.
Meanwhile, another Manulife Wealth advisor in Ontario that we’ll call John, said he understands why Manulife raised its fees and supports the changes. He has nine figures in assets under management.
“They can’t afford to keep everyone. Bottom line is: if you’re in the business … and you want to grow, you’re going to get rewarded by this,” John said, adding that Manulife is trying to become a more premium dealer.
The costs have gone up, but they’re not a “big deal,” as it was worth the improvement to Manulife’s back-end technology, he added.
If an advisor is growing their business, fees go down on a net basis as revenues increase faster than costs, McIntyre said. But advisors with flat revenues are going to experience proportionally higher fees.
If advisors have unprofitable clients, they can transfer them to Manulife Wealth’s head office, McIntyre added. “There are ways in which we can help advisors with their book of business and make sure they’re working with the right clients to suit their business model.”
Competitors on the hunt
The increase in fees prompted some advisors to leave Manulife Wealth, Mark said. And competitors know it, too.
Mark said he has been approached by multiple firms. He’s decided to stay because he recently bought out his old employer and he can’t make a move until his loans are paid off.
The industry is becoming more competitive with additional firms looking to wealth management as a source of growth, so it’s not unusual that advisors get approached by multiple competitors, McIntyre said.
IA Wealth, IG Wealth and Sun Life have all tried to convince John to switch over, but he’s not budging. Manulife Wealth is still the best independent dealer for brand value, compliance and client retention, he said.
Problems will exist at every firm, it’s “just crap at a different place,” he added. “At least here, it’s the crap that I know.”