Almost six in 10 (58%) financial advisors in Canada see themselves moving to a fee-based compensation model over the next three to five years; yet, their feelings on the possible move vary greatly depending on the level of assets they manage, according to a new report from Toronto-based Vanguard Investments Canada Inc.
For example, 36%of advisors who manage assets of $50 million or less feel a move to a fee-based model will affect their revenue positively. However, that number catapults to 72% for advisors who manage between $50 million and $100 million in assets and 71% for those with more than $100 million in assets under management (AUM).
Vanguard Canada’s report comes from a larger study produced by the firm’s parent company, Valley Forge, Pa.-based Vanguard Group Inc., that surveyed advisors in Canada, the U.S., Australia, Hong Kong and the U.K.
It’s to be expected that advisors with smaller books of business will grow at a slower rate under a fee-based model, simply because there are fewer assets on which to charge a fee, says Jason McIntyre, head of distribution for Vanguard Canada.
However, success is possible for any advisor with a fee-based practice who can articulate his or her full-service proposition clearly, adds McIntyre, who bases his opinion from working with advisors in the U.K. and Australia, where product commissions have been banned.
The most successful advisors in those regions are those who concisely communicate their value-added services, such as a concentration on wealth-management and behavioural coaching, he says.
“When you are charging direct fees to investors, you have to be clear and let them know what they are paying for. It’s much more than putting together portfolios for people,” he says.
Advisors should also place more focus on communicating how they inform and coach their clients, McIntyre notes, especially at a time during which there are a slew of products to decipher and clients have unprecedented access to information and news.
“That whole aspect [of behavioural coaching] has been undersold by the advisor community, but it’s an important role that [advisors] play and I think they deserve to be recognized for providing those services,” he says.
Two-thirds of advisors surveyed in Canada cited regulatory changes as the top industry trend. Although many advisors are concerned about the effects these changes will have on their profitability, they also believe that positive effects will include greater levels of trust between advisors and clients as well as more communication with clients.
When asked to name their main professional challenges, “regulatory changes” came in second place with 26% of advisors. The top spot went to “new client acquisition,” which was cited by 31% of advisors.
Advisors’ concern about growing their client base is not a surprising finding, says McIntyre: “Like any business, if you’re not adding equity or growing the equity in your business, then your business is going to be in trouble.”
However, Canadian advisors are still optimistic about their future in the financial services sector, with 55% believing their total number of clients will increase within the next two to three years and 88% saying their total AUM also will increase.
Approximately half (51%) of Canadian advisors cited a greater use of technology as a major future trend in the industry. Technology may be affecting the size of advisors’ client populations but it is also helping advisors be more effective, according to the report.
“What advisors may lose through client defections to automated advice they may gain through increased efficiency and greater productivity enabling larger books of business,” the study states.
Survey participants across the various regions referred to tools – such as virtual meeting technology and cloud computing – that are making their portfolio management and client interactions easier.
Ipsos conducted the survey for Vanguard, which consisted of qualitative interviews by phone, conducted in February 2015, and a larger quantitative online survey, which took place between July and September 2015. More than 900 advisors were surveyed, with 164 of those advisors coming from Canada.
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