back to balance for dealer advisors

Over the past five years, firms have performed fairly consistently in the Investment Executive Dealers’ Report Card. But there have been ups and downs along the way: the good years were marked by advisors enjoying their independence and praising dealers for managing industrywide issues, while the tougher years saw struggles to grow books and adjust to new regulations, technologies and firms’ strategic changes.

Overall, the Report Card’s categories have seen slow and steady improvement over the past three years. In the 2019 Report Card, fewer performance ratings dropped by half a point or more (45 vs 58 in 2018 and 60 in 2017) and more ratings increased by that same margin (39 vs 22 in 2018 and 18 in 2017) – these totals exclude the IE ratings and overall ratings by advisors. (An IE rating is the average of all of a firm’s category ratings.) While the 2019 overall average IE rating of 7.9 didn’t quite reach the five-year high of 8.0 (the result in 2016), both that rating and the collective overall rating by advisors ticked up year-over-year – by 0.1 and 0.2, respectively.

What’s more, advisors at the majority of firms included in the 2019 Report Card were more positive when asked, “Would you recommend your firm to another advisor?” Across all firms, 90% would do so, compared to 88.7% in 2018. (See Dealers’ Report Card main chart.) Firms with strong recommendations led the Report Card generally.

Mississauga, Ont.-based Carte Wealth Management Inc., Windsor, Ont.-based Sterling Mutuals Inc. and Toronto-based Assante Wealth Management (Canada) Ltd. had the top three IE ratings: 8.8, 8.7 and 8.3, respectively. Commonalities included efforts to work closely with advisors and offer strong “support for mobile technology and the mobile advisor” (Assante was rated a 7.9, Carte Wealth an 8.2 and Sterling Mutuals a 9.3). For “firm’s effectiveness in keeping advisors informed” and “firm’s receptiveness to advisor feedback,” Assante and Carte Wealth were the top two for the former category, while all three firms led the latter.

Many Assante advisors said their technology tools and training could still be bolstered, but that the firm invests in and seeks improvement. When asked about receptiveness to feedback on business issues, advisors praised the “constant” and “timely” communication between upper and lower management.

Advisors at Carte Wealth and Sterling Mutuals deemed their firms to be technology leaders due to recently implemented “cutting-edge” software. On the topic of feedback, one Carte Wealth advisor cited “amazing communication,” and one Sterling Mutuals advisor says, “The senior people contact us directly.”

Meanwhile, Lévis, Que.-based Desjardins Financial Security Independent Network (DFSIN) had the lowest IE rating: 7.2, down from 7.5. It was a three-way tie for second-lowest (7.6) among Quebec City-based Investia Financial Services Inc., Winnipeg-based Investors Group Inc. and Markham, Ont.-based Worldsource Wealth Management Inc.

DFSIN’s advisors shared concerns about the “firm’s reward and recognition program” (rated 5.9, down from 7.9 in 2018) and back office and administrative support (rated 6.9, down from 7.4). Despite significant improvements (half a point or more) for “firm’s stability” and “support for developing a financial plan,” the company received significantly lower ratings in 15 categories – the most of all firms.

Throughout 2018, DFSIN implemented a plan announced in 2017 to restructure its national service offering; this included merging some DFSIN locations to streamline, and then expand, services. Still, what irked advisors most seemed to be the firm’s inability to take even more progressive steps: “Their lack of vision and inability to keep up with the times is becoming detrimental to the advisor,” says one in B.C.

Investors Group also had a rough showing. Both its IE and overall ratings were down 0.3 from 2018, and 11 category ratings dropped significantly – the second-most of all firms. Its biggest dips, of more than one full point each year-over-year, were for “client account statements” (6.2 vs 7.5 in 2018), “firm’s corporate culture” (6.6. vs 7.9) and “freedom to make objective product choices” (6.7. vs 8.6). The last category was tied for most important to all of those surveyed, alongside “firm’s ethics.”

Investors Group rebranded as IG Wealth Management in the fall of 2018, with a stated focus on financial well-being. In communications to clients, the firm highlighted how it had taken progressive steps such as eliminating the deferred sales charge.

Advisors aren’t sold, however. One in Ontario says “everything” could improve, pointing to “compensation, morale, the entire corporate culture. There’s no respect.” Another in the Prairies was supportive of the transformation, even while all the changes “can be unsettling.” However, the same person says that Investors Group “should have started the changes two or three years earlier. [It’s] now playing catch-up.”

Regarding firm stability overall – a hurdle in the 2018 Report Card – the picture is now rosier. The category’s 2019 performance average was 8.9, up 0.3 over last year. Only two firms, vs five in 2018, saw significant dips in their ratings for that category (Oakville, Ont.-based Manulife Securities and Montreal-based Peak Financial Group).

Even with that positivity, a common sentiment among the advisors who rated “firm’s stability” poorly was that legacy expertise and financial strength aren’t synonymous with secure leadership. Some Manulife advisors, for example, were conflicted, with one in Ontario saying, “Financial[ly] it’s 10 out of 10, but the leadership is weaker,” while another in the Prairies called for “house cleaning at the top.” The firm’s stability was rated a below-average 8.7.

Despite firm-specific hurdles and the industry’s continuous growing pains, advisors once again reported strong growth: average book value was $48.6 million, up from $38.4 million a year ago, and the average advisor was serving 208.2 households vs 197.7. (See Rising tide lifts advisors.) From a product point of view, there was a significant bump in insurance revenue and activity. (See Need for insurance support growing.)

When it comes to advisors’ evolving business models, the category “firm’s support for advisors operating in a fee-based model” offers insight. Ratings of three firms improved significantly (Manulife, Sterling Mutuals and Worldsource), while three had their ratings slip significantly (DFSIN, Investors Group and Peak; see Praise and critique for fee-based support). Since 2016, when the category was introduced, the number of firms actively adding services for fee-based advice has steadily increased.

Thinking to the year ahead, advisors’ top two answers out of six to the question of possible threats to revenue were regulation (35.1%) and price competition (21.9%). Concerns raised included banning commissions, grid cuts and clients’ heightened awareness and criticism of fees.

As an advisor from Assante in Ontario puts it, if investors have “a poor understanding [of fees] based on media that they read, thinking low-fee is better, [you] have to constantly prove to clients that [you’re] worth it.” Another from Carte Wealth says, “I’ve lost business to the banks [and] brokerage houses that offer lower fees and costs.”

How we did it

Compared to last year’s rockier results, things are looking up in this year’s Dealers’ Report Card. Still, while some dissatisfaction has dissipated, interviews with hundreds of advisors continued to shine a light on areas in which firms could improve.

For the 2019 Report Card, the research team consisted of Jordan Barrera, Daniel Calabretta, Maddie Johnson, Bryson Masse and Surina Nath. They interviewed 512 financial advisors from 11 firms, asking for performance and importance ratings for up to 31 categories (some categories did not apply to multiple firms). On a scale of zero to 10 – with zero meaning “very poor” or “unimportant” and 10 meaning “excellent” or “critically important” – performance ratings are based on a firm’s performance while importance ratings are based on how crucial a service or category is to an advisor’s business.

A firm’s “IE rating” is calculated based on the performance average of all categories rated by advisors surveyed, while a firm’s “overall rating by advisors” is based on those surveyed rating their firm on a scale of zero to 10 using the same definitions as for the individual categories.

While the number of firms in the Report Card remained the same year-over-year, changes were made: Toronto-based HollisWeath Inc. and Richmond Hill, Ont.-based Global Maxfin Investments Inc. are no longer included; Quebec City-based Investia Financial Services Inc. and Mississauga, Ont.-based Carte Wealth Management Inc. are new entrants, meaning there is no past data or year-over-year comparison for those two firms.

As in 2018, the main chart includes a breakdown of the total number of advisors surveyed for each firm. The target is 50 for large, national mutual fund and full-service dealers, 40 for independents Portfolio Strategies Corp. (based in Calgary) and Sterling Mutuals Inc. (based in Windsor, Ont.) and 30 for smaller independent Carte Wealth. In our coverage, we do not mention the provincial locations of advisors with the three independents as they’re geographically concentrated in Alberta for the first and Ontario for the other two.

In keeping with this year’s previous Report Cards, advisors were asked two supplementary questions. These concerned the biggest perceived threat to revenue for the year to come, with six options, and how financial services industry regulators can best reduce the regulatory burden, with seven options.