For an industry purportedly burdened by regulation, besieged by robo-advisors and beleaguered by rising demand for passive investing, the brokerage business seems to weathering it all rather well. Canadians continue to place their trust in the industry – the industry should reciprocate that trust by ensuring clients are paramount.
The latest edition of Investment Executive‘s Brokerage Report Card finds that advisors are enjoying stellar growth, driving assets under management to record levels and boosting their own compensation to stratospheric heights. More than a fifth of the advisors in our survey report that they now make over $1 million per year. Industry profits are also hitting record levels.
These standout results are being generated in spite of numerous forces that were supposed to imperil the industry. It was feared that the rise of robos and the shift to passive investing would undermine demand for advice, and eviscerate industry revenues; regulation would, at the same time, be driving industry costs to unsustainable heights.
These fears are proving to have been overblown.
Competitive alternatives haven’t much dented the traditional brokerage business. Nor has regulation designed to enhance investor protection rendered that business unprofitable. In fact, this record industry performance comes in the wake of reforms (e.g., CRM2) that were purportedly too costly and disruptive for the industry to bear.
Yet the prevailing message from policy-makers is that investor protection is too costly and restrictive. Efforts by the Canadian Securities Administrators to further curtail conflicts and ensure fair treatment for investors – such as its client-focused reforms, and the proposed changes to fee structures – are in limbo as regulators are being pushed to cut their rules, rather than being permitted to improve them.
Instead of embracing mindless deregulation, the industry should be seizing this moment to raise its standards, entrench good conduct and put clients’ interests first.
At a time when its own finances have never been stronger, the retail investment business should be building its reserves of trust and goodwill for the inevitable downturn to come.
Read the response to this editorial from the Investment Industry Association of Canada: Regulatory costs weaken portfolio returns, May 10, 2019