Small and medium-sized financial advice businesses (SMB) punch above their weight when it comes to economic impact, according to a recent study released on Wednesday by PricewaterhouseCoopers LLP and Advocis.
According to the study, Sound Advice: Insights into Canada’s financial advice industry, SMBs contribute $19 billion to GDP and employ roughly 182,000 people directly. As well, the study notes that this sector generates $4.5 billion in provincial and federal tax revenues.
The SMB market, however, is only one part of the financial services industry and an even smaller part of the overall finance and insurance industry, which directly accounts for $102 billion of real GDP.
“We’re really focusing here on one small segment of the overall financial industry but it’s a very significant portion,” says Byren Innes, senior strategic advisor, PwC.
The study, which was conducted by PwC and commissioned by Advocis, includes an overview of industry research of the composition and characteristics of SMBs, the regulatory framework, a survey of over 2,000 individuals in SMBs across Canada (approximately 1,800 of which were advisors) and an estimate of the economic impact of the industry.
Advisors and businesses examined as part of the study come from all across Canada and advice channels including independent mutual fund and securities dealers, independent insurance agencies and exclusive agents of insurance companies and full-services securities brokerages not affiliated with any of the Big Six banks.
“This is not just a “big-city” phenomenon,” says Innes. “The economic impact is in fact national.”
SMBs have a total impact (direct and indirect benefits) on national GDP of 1.4% and 1.5% on employment, according to the survey, and a direct impact of 1.1% and 1.2% respectively. This sub-sector of the financial industry therefore accounts for a higher percentage of GDP than the direct impact of industries such as pharmaceuticals (0.3%), motor vehicle manufacturing (0.9%) and aerospace (0.6%).
The survey found that the average SMB advisor is over 45 years of age and is dual licensed. These individuals generally have between 10 and 20 years of experience (or more as in the case of the insurance industry), and run businesses with two to three employees – including the advisor – generating revenue between $100,000 and $150,000.
According to the study, approximately 80,000 advisors work in SMBs and are frequently the main source of financial advice to Canada’s “mass-market” demographic, meaning households of $100,000 or less in financial assets. As such, given the clientele of these SMBs and their overall economic impact, Advocis argues that regulators must take a balanced approach when contemplating future changes for the industry.
“The regulatory changes being contemplated in Canada and throughout the world will, in our view, at the end of the day remove choice from the marketplace and restrict access to much needed advice by making it unaffordable for the average, mainstream Canadian,” says Greg Pollock, president and CEO, Advocis. “We support transparency and enhanced consumer protection but we don’t want to simply look to other jurisdictions such as the UK and Australia where their circumstances don’t apply to us here.”