The results of Investment Executive’s (IE) 2019 Brokerage Report Card show firms and advisors have stepped up their game over the last 12 months. Not only has the average book value of advisors continued to grow, along with the number of households they serve (see A banner year for brokerage advisors), but the number of significantly improved ratings for firms also surged, and were spread equally among the bank-owned, national and regional independent firms.
In a rebound over last year, only 14 of the ratings advisors gave their firms across 33 categories were significantly lower (by half a point or more), down from 58, while 116 were higher by that same margin – almost triple the 41 category ratings that significantly improved a year ago (all figures exclude advisors’ overall and IE ratings; an IE rating is the average of all of a firm’s category ratings). Further, eight of the 12 firms that appeared in last year’s Report Card saw either marginal or significant improvement in both their IE rating and overall rating in 2019. (See Brokerage Report Card main chart.)
Toronto-based RBC Dominion Securities Inc. (DS) had the highest IE rating for 2019, at 9.1, while its overall rating stayed the same – its top-rated categories were “firm’s stability” and “freedom to make objective product choices.” The top overall rating went to Calgary-based Leede Jones Gable Inc., at 9.6 – its top categories were “firm’s stability” and “firm’s ethics.” Leede was also praised for allowing advisors “freedom to make objective product choices,” which advisors once again rated as the most important category. (See Not good enough.)
A common performance driver overall was how successfully the brokerages have introduced and communicated strategic change over the years – or, at least, how well they’ve responded to critical feedback when changes have occurred. The top three firms by IE rating were generally the leaders in the categories “firm’s stability,” “firm’s effectiveness at keeping advisors informed,” “firm’s receptiveness to advisor feedback” and “firm’s corporate culture.” Results in those categories all rose year-over-year in terms of overall average performance and importance to survey participants.
In a surprise twist, most improved for both overall and IE rating was Toronto-based ScotiaMcLeod Inc., by more than one full point each. (See Firms must listen.) Following two rough Report Card years due partly to tension over layoffs, the bank-owned brokerage garnered significantly higher ratings in all 33 categories in 2019. Its largest year-over-year category gains, which were more than two full points each, were for executives’ receptiveness to advisor feedback, the firm’s corporate culture and the effectiveness of branch managers.
While ScotiaMcLeod advisors cited lingering negativity related to recent strategic shifts and job cuts, they were significantly more upbeat than in 2018, with 92.5% recommending the firm, up dramatically from 69.4% in 2018. The firm’s performance ratings in the four categories of stability, communication, feedback and corporate culture ranged from 8.2 to 8.8, even as the bank continued to close branches.
“The culture has taken a bit of a hit […] but they are working hard to get it back,” says an advisor in Ontario. Another, also in Ontario, says, “Even if upper management doesn’t have a clear path, all the advisors are supportive [of] each other.”
In contrast, advisors at Quebec City-based Industrial Alliance Securities Inc. (iA Securities), a new entrant to this year’s Report Card, remained critical of iA Financial Group’s purchase of HollisWealth, which closed in 2017. The parent company shook up its wealth management structure in October 2018 by appointing John Kelleway as president of iA Securities, and advisors were cautiously optimistic. Seventy-two percent recommended the firm, and the performance ratings related to the brokerage’s culture, communication and stability with advisors ranged from 7.1 to 8.1, all falling below the Report Card averages.
One Ontario advisor says iA Securities “has a better vision and [knows] what needs to happen,” but that it’s been “rough for the last two years. HollisWealth before iA was better.”
There are no 2018 ratings for iA Securities, but in this year’s Report Card it had the lowest IE rating and overall rating by advisors, at 7.2 and 7.3, respectively. Another low-ranked firm was Toronto-based CIBC Wood Gundy, which saw minor dips of 0.2 and 0.3, respectively, in its IE and overall ratings.
The 2019 results revealed “satisfaction gaps” – the difference between a category’s performance and importance ratings – for “support for developing a financial plan” and “support for tax planning,” as well as other holistic planning categories. Support for tax and financial planning both had satisfaction gaps of -0.5, the sixth-highest. Regarding financial planning support, for which performance ratings ranged from 5.7 (iA Securities) to 9.5 (DS), advisors said must-haves included adequate software and manageable paperwork. (See Value of holistic planning recognized.)
There were also cases when firms outperformed advisor expectations, such as in the category of “support for using social media.” In fact, the overall average performance ratings exceeded the overall average importance of social tools by nearly a full point (7.2 vs 6.4, respectively). Across all firm types, advisors mentioned that support and related technology is available, if varied (ratings for this category ranged from 6.1 to 8.4), but that they’re personally not prioritizing that area of their business. (See Failed connections inhibit social media use.)
From an individual revenue point of view, the most worrisome issue for advisors didn’t come as a surprise. Despite being able to choose from options such as “price competition” (16.8% chose this) and “regulation” (15.8%), 26.5% of participants chose “Other” and discussed volatile markets – a hurdle also highlighted in the Regulators’ Report Card – on the back of major U.S. and Canadian markets sliding dramatically in late 2018.
Of particular concern was the impact of fluctuating markets on fee-based accounts, which 74% of advisors surveyed held, up from 66.9% last year. Says one advisor in Quebec with Toronto-based BMO Nesbitt Burns Inc., “If the market goes down, there goes my pay. I am fee-based, so my investments are living and kicking every day.” An advisor in Alberta with Toronto-based Raymond James Ltd. says, “Clients are afraid to go into and stay in the market.”
HOW WE DID IT
As the investment industry continues to grow, so too has the annual Brokerage Report Card. With one firm added to the pool (Industrial Alliance Securities Inc.), and more advisors interviewed, this year’s research delves deeper into the issues faced and triumphs celebrated in the brokerage space.
Investment Executive research journalists Jordan Barrera, Daniel Calabretta, Maddie Johnson, Bryson Masse and Marina Tyszkiewicz spoke to 602 investment advisors from 13 brokerages – five are national independents, two are regional independents and six are bank-owned investment dealers. The research took place over six weeks during January and February 2019, and focused on how advisors feel about their firms’ services, support and programs, and about the direction of the industry as a whole.
Survey participants gave two ratings, each out of a total of 10, for each of the 33 categories on the main table (see Brokerage Report Card 2019 main chart): one for the firm’s performance in the category; the other for the importance of the category to their day-to-day business. A rating of zero means “very poor” or “unimportant” while a rating of 10 means “excellent” or “critically important.”
For the second year, we have included the number of advisors surveyed for each firm, with 50 per firm being targeted for larger, national players, including the bank-owned brokerages; 40 targeted for mid-sized national firms; and 30 targeted for regional independents.
The survey questions and categories were consistent with prior years, while the two supplementary questions were updated. As in the Regulators’ Report Card, published in April, the first question polled advisors about what they feel is the biggest threat to their revenue for the coming year, with the multiple choice answers including but not limited to: price competition in the financial services industry; robo-advisors and/or fintech; and regulation. The second looked at how regulators want to reduce advisors’ regulatory burdens and which priority participants want to see highlighted first, and the multiple choice answers included but were not limited to: streamlining conduct regulation; reforming product regulation; and rationalizing the regulatory framework.