businessman race hurdle competition

The advisors surveyed for the 2019 Report Card series were asked to peek inside their crystal balls and consider what lies ahead for their businesses.

Respondents were asked what they considered to be the biggest threat to their revenue for the next 12 months (respondents were surveyed between Jan. 2 and June 14, 2019, so timing was a factor). The six options presented, in order, were: the shift to passive management from active management; price competition; robo-advisors and/or fintech; regulation; internal firm issues; and other.

More than a quarter (28.3%) of respondents chose regulation, largely due to the growing time and cost sink of compliance for both firms and advisors. A larger contingent (30.3%) chose “other” and discussed hurdles such as unpredictable markets and aging client bases. The third-most popular answer was price competition, at 18%.

On the topic of regulation as a threat, one advisor with Calgary-based dealer Portfolio Strategies Corp. bemoaned its minutiae. “It appears that regulators are paring everything down to the lowest common denominator” as a way to catch the “few bad advisors affecting the whole industry,” the advisor says.

Since the global financial crisis, Canadian regulators have implemented rules and guidance around disclosure to clients and investor education. That’s had an impact on issues such as adequacy of the documentation and investment fees.

Even requirements that have been around for several years continue to worry advisors. “CRM2 scrapping income [that’s] derived from trailer fees, and going all fee-based, [is a threat],” says an advisor with Mississauga, Ont.-based dealer Carte Wealth Management Inc. “That would really change the industry totally. The smaller advisors like myself would be squeezed out of the business.”

Both compliance-related categories in the 2019 Report Card series performed well compared with a year ago. “Support for dealing with changes in the regulatory environment” and “advisor’s relationship with compliance department” were rated 8.6 and 8.8 by respondents, vs 8.6 for both in 2018. The importance ratings for both categories also rose in 2019, to 9.2 and 9.1, respectively.

For respondents who chose “other” when asked about their biggest revenue fears, the main issues raised were the threat of volatile markets and the shaky global economy – forces entirely beyond the control of advisors and their firms.

“The better the average Canadian is doing, the more likely they are going to look for [advisors],” says one advisor in B.C. with London, Ont.-based insurance agency Freedom 55 Financial. “Twenty years ago, people had more expendable income.”

“I am worried about the market ending up in a black swamp [due to] global instability,” says one advisor in Ontario with Toronto-based brokerage Richardson GMP Ltd.

While a handful of respondents said they were growing assets, others worried about their fees dropping. “I expect weaker equity markets, which will affect my fee-based compensation,” says an advisor in the Prairies with Montreal-based bank-owned brokerage National Bank Financial Inc.

That focus isn’t surprising, given that fee- and/or asset-based compensation remains a key revenue source for advisors across the industry – particularly for those working at or with brokerage and dealer firms. Across all advisors surveyed for the 2019 Report Card series, that type of revenue accounted for 54.2% of gross revenue, up from 50.4% in 2018. The only segment to experience a year-over-year dip in fee and/or asset-based compensation was the dealer space, but it had also seen a significant rise in that type of revenue over the past decade.

In relation to the rocky economy, a couple of familiar figures were frequently named: U.S. president Donald Trump and Canadian prime minister Justin Trudeau. “A simple tweet can spark the market one way or another, and that might scare clients [and cause] political issues,” says one retail bank advisor in Ontario with Toronto-based Canadian Imperial Bank of Commerce.

On the topic of aging clients, a trend also noted by respondents who chose “other,” multiple advisors expressed concern.

After market weakness, “the second threat would be all of my aging clients. If they die, they take the money with them. We need to bring [down] the average age of clients and their assets,” says one advisor in Quebec with Toronto-based brokerage BMO Nesbitt Burns Inc.

“The biggest threat is the age of my clients,” says an advisor in Ontario with Mississauga, Ont.-based Edward Jones. “[I] will lose $10 million in the next few years, [and] the people replacing [them] aren’t the same as the older clients.”