Financial advisors working in the brokerage, dealer and retail bank spaces seem to be focusing on clients with more investible assets, rather than serving a higher number of smaller households, the 2019 Investment Executive Report Card series has revealed.
This topic was first examined in the 2017 Report Card series, when respondents were asked whether their firms were encouraging them to drop smaller clients. While some advisors denied the trend, others said the economic and industry reality wasn’t “so black and white.” Several noted there had been some “selling off of the lower clients,” often mentioning a threshold of $100,000 in assets under management (AUM).
Advisor book data from that year was also mixed, showing an upward year-over-year trend in the reported average AUM of brokerage advisors alongside downward asset growth for dealer and bank advisors. However, there was a slight but collective uptick in the percentage of client households being served that had assets of $250,000 and more (60.5% on average and across all three segments, up from 55.6% in 2016).
Since then, the average book value of advisors across the four industry segments captured in the Report Card series has continued to climb, increasing to $83.6 million in 2018 and $109.5 million in this year’s survey. In the brokerage, dealer and bank spaces, the average book values of the advisors surveyed all grew more than 20% from 2018 to 2019. (Report Card data from 2018 and 2019 excludes Toronto-based Bank of Nova Scotia advisors, who serve clients out of a collective base and can’t provide individual book information.)
Continuing to look at those three segments, the percentages of client households with assets in the upper ranges all increased by between 1% and 3% between 2018 and 2019. Conversely, the percentages of households with assets in the lower ranges all declined by the same margin. Overall, clients with assets of $250,000 and more accounted for 70.7% of respondents’ books in this year’s Report Card.
Asset growth per household over time has likely pushed investors into higher brackets, accounting partly for that shift. But, since brokerage, bank and dealer respondents have also reported adding more client households in the past few years (e.g., the average brokerage advisor was serving 182.3 in 2017 vs 193.1 this year), is there more to the story?
Survey questions for the 2019 Report Card series didn’t explicitly ask about client household trends, but a look at comments made across various categories showed concerns about client segmentation.
For example, respondents were asked to pick out of six options what they saw as a threat to their revenue for the year to come. (See Threats to the bottom line for advisors) Of the advisors who selected “regulation” (28.3%), “price competition” (18.0%) and “internal firm issues” (9.5%), several directly brought up smaller client households.
“The grid gets cut every year,” says an advisor in Quebec with Montreal-based bank-owned brokerage National Bank Financial Inc. “I will potentially have to get rid of the $250,000-and-less clients, and potentially charge more for every trade,” they add. (Steve Galimi, vice president at the brokerage, says the firm makes “regular adjustments” to compensation and that it has introduced growth bonuses in recent years.)
An advisor in Atlantic Canada with Toronto-based bank-owned brokerage ScotiaMcLeod Inc. said getting access to smaller clients in the first place is tough: “The next generation, we don’t really have access to. They might have a lot of debt [and] have smaller accounts.”
Respondents in the dealer space also pointed to challenges. “With the increase[d] pressure on fees, driven by regulators, it’s forcing [us] to deal with only rich clients,” says an advisor in Ontario with Winnipeg-based dealer Investors Group Inc. “People won’t be able to get help. [You] need minimum account sizes.”
“[There’s a] push for fees to come down. Smaller clients may have to get orphaned or deal with [the] bank,” says an advisor in B.C. with Mississauga, Ont.-based dealer Investment Planning Counsel Inc.
Based on comments over the years on the topic of minimum account size, respondents have never been keen to cut clients off. “I’m scared of some of the things [firms are] thinking of. They keep raising the minimum account size,” said a brokerage advisor in Northern Canada in 2016. For advisors operating outside of major cities, they added, being able to have “more [of a] small-community attitude would be nice. There’s reputation risk by [creating] this minimum account size.”
In 2017, a brokerage advisor in Atlantic Canada said they had noticed a philosophy shift: “The industry as a whole is heading to a place where there are lots of gaps [for] clients [who] need help. Because of the minimum account sizes put in place, I can’t afford to help those people.”
As a result, advisors appreciate support for all clients. For example, one 2019 respondent in Ontario with Quebec City-based dealer Investia Financial Services Inc. calls his firm “excellent” partly because he appreciates “the way they have allowed minimum accounts to do quite a lot still.”
Respondents have also stressed that firms need to be flexible. In 2016, a brokerage advisor in Ontario said, “We have a minimum account size, which is applied across the board. When we pointed out that it’s unfair to apply that to small clients who have been with us for 30 years, they exempted those accounts. The senior management is exceptional.”