Partners discussing new plans

This article appears in the May 2020 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.

Fee-based revenue is growing, say firms in the 2020 Brokerage Report Card. At the same time, more firms are expanding their discretionary management programs.

More financial advisors in this year’s Report Card reported collecting fee- and/or asset-based revenue compared with last year’s (77% vs 74% in 2019, and up from 61.2% five years ago). More advisors also said they have their discretionary portfolio management licence (47% vs 42.1% a year ago, and up from 29.4% five years ago).

Further, the performance ratings for both “firm’s support for advisors operating within a fee-based model” and “support for discretionary portfolio management” increased year-over-year, each by 0.2 to 8.6 and 8.5, respectively. The importance ratings also rose for both categories, jumping significantly (by 0.5 or more) in the case of discretionary management.

But firms aren’t meeting all of advisors’ expectations on this front.

With both sets of ratings rising, satisfaction gaps (the amount by which the importance of a category exceeds its performance) remained. The gap for the fee-based model category stayed at 0.5, as it was a year ago, while the gap for the discretionary portfolio management category doubled to 0.6 from 0.3 a year ago.

Still, in the fee-based model category, the ratings for five firms increased significantly, while two firms saw their ratings slip significantly.

The former group (in order of largest to smallest ratings increase) consisted of: Vancouver-based Odlum Brown Ltd.; Toronto-based ScotiaMcLeod Inc. and CIBC Wood Gundy; Calgary-based Leede Jones Gable Inc.; and Vancouver-based Canaccord Genuity Wealth Management (Canada). Winnipeg-based Wellington-Altus Private Wealth Inc., a newcomer to the Report Card, had the top rating for the category, at 9.7, with advisors praising their managed account options and fee structure.

Leede Jones tied for the second-highest rating in the category, at 9.2 (up from 8.7 in 2019), with advisors’ only criticism being that the software could use an update.

For Leede Jones, the number of fee-based advisors “is increasing all the time,” says president Bob Harrison. “And the new [advisors] that we’ve got, we’re training them to do fee-based — eventually discretionary. The programs we’ve got are pretty extensive.”

Canaccord was rated 9.0 vs 8.5 a year ago. “The firm is evolving and focusing [on] improving their fee-based support. It’s rapidly improving,” says a Canaccord advisor in Alberta.

Stuart Raftus, executive vice president and chief administrative officer at Canaccord, has seen “considerable growth” in his firm’s fee-based asset programs. “We are investing heavily in new technology to support our managed asset programs,” he says.

On the other end of the spectrum, Quebec City-based Industrial Alliance Securities Inc. (iA Securities; rated 6.9 in the fee-based model category, down from 7.5) and Toronto-based BMO Private Wealth Canada and Asia (rated 7.0 in the category, down from 7.8), were the two firms trailing their peers.

An iA Securities advisor in Ontario says the firm needs a more accessible platform: “They could give us better operations systems. The systems we navigate are terrible.” Others noted that banks were in a better position, with one iA advisor in Quebec saying, “[We’re] too late in the game.”

“If I need things, there’s a lot of layers I’ve got [to] go through,” says a BMO advisor in the Prairies.

BMO executives provided no comments regarding fee-based compensation and programs. iA Securities, however, said in a statement emailed to IE in March: “Approximately 63% of all our revenue at iA Securities is generated from our fee-based platforms. We have seen significant growth in [those] platforms over the past three years.”

When it comes to discretionary portfolio management, offering efficient technology and timely back-office support is paramount. Wellington-Altus also received the highest rating in this category (9.7), followed by Canaccord (9.1), but advisors still have suggested improvements.

“When I came over, I didn’t like [the] trading platform,” says a Wellington-Altus advisor. “I went to the board and we worked together.”

Says a Canaccord advisor in the Prairies: “I’ve seen the other models. The system [here] hinders the ability to do it well.” But another Canaccord advisor in B.C. says the firm is working on advancements: “It’s [become] a prime focus in the last three to five years. My biggest issues used to [be] tech and marketing.”

Advisors also desired technical support and guidance at Toronto-based TD Wealth Private Investment Advice (rated 6.6, up from 6.5 a year ago).

The firm continued to bring up the rear in the discretionary management category, partially due to backlogs in advisors waiting to join the discretionary program. However, one TD Wealth PIA advisor in B.C. notes that training software had recently been overhauled for the better and that “continual evolutions will help us compete.”

Another TD Wealth PIA advisor in Ontario says new technology has “saved us time with trades, but I’d like to see a little more training, seminars [and] presentations for troubleshooting.”

Dave Kelly, senior vice president and head of TD Wealth Private Wealth Management, says the bank’s fee-based and discretionary platforms “have been, and continues to be, where we focus.” He says the bank-owned brokerage has tripled spending in this area in the past two years, “mostly around making sure we have support infrastructure for advisors to aid [in] their transition to fee-based or discretionary.”

With more of the industry shifting toward fee-based compensation and discretionary portfolio management, firms should continue to review their resources for advisors in these areas.

Definition of fee- and/or asset-based compensation: In the Report Card, this type of compensation refers to arrangements through which financial advisors are paid based on a percentage of the assets managed. These fees include trailer fees. As part of a breakdown, advisors were given four other revenue options: fee for services, transaction-based compensation, deal-based compensation and branch management override.