The discussion around proprietary product and its role on a financial advisor’s shelf has gone on for years – the Canadian Securities Administrators have even considered whether selling such products should impact advisor titles. While investment firms are largely left to decide how to manage in-house products, the products’ use can elicit strong feelings and negative misconceptions.
This year’s Dealers’ Report Card found advisors from Toronto-based Assante Wealth Management (Canada) Ltd., Mississauga, Ont.-based Investment Planning Counsel Inc. (IPC) and Winnipeg-based Investors Group Inc. reporting that proprietary managed product sales accounted for 25.4%, 18.1% and 12.9%, respectively, of their annual gross revenue. The overall Report Card average for that product type was 4.4%. (Aside from Oakville, Ont.-based Manulife Securities, where the sale of proprietary managed products made up only 0.2% of gross revenue for the firm’s advisors, these three are the only firms in the Report Card where advisors said they use them.)
Advisors at IPC and Assante, in particular, went so far as to claim that access to certain support benefits, like wealth management services and rewards and recognition programs, was tied to the sale of proprietary managed product. Executives at both firms say that perception is incorrect.
While IPC has “a lot of managed money,” the company also offers separately managed accounts for some client groups, says Reggie Alvares, executive vice president at IPC and leader of the operations and client services team. Most important, he says, advisor support, compensation and recognition are “available to all” and “not based on the product.”
Assante has 42 approved manufacturers represented on its shelf. “Programs offered by Assante are available to all advisors, subject to any specific registration requirements,” says Sean Etherington, president of Assante Wealth Management, in a statement emailed to Investment Executive (i). Further, all advisor compensation is treated equally, he says, and the rewards and recognition program is “product-agnostic.” However, “programs such as the Evolution Private Managed Portfolios do have additional wealth planning services embedded in the solution.”
Nonetheless, some advisors were critical of, or weren’t using, support services due to the perceived connections they see between what they sell and firms’ services.
Assante’s ratings for “support for high net-worth clients,” “support for developing a financial plan for clients,” “support for developing an investment plan for clients” and “support for tax planning” all dropped significantly (by half a point or more) compared to 2018 (to 8.9, 8.0, 7.7 and 8.0, respectively) – although all but the tax rating stayed above the overall performance averages. Some advisors said they disliked the planning tools because they were difficult to use or expensive, while others cited the alleged weight of in-house managed product and programs.
For the financial planning category, one Assante advisor in Ontario says, “If you’re using in-house wealth product, [I’d rate it] an eight. But zero if you are using it for third-party product. [It’s] the same for all wealth-management services, besides insurance and portfolio management.”
Two other Assante advisors, one from B.C. and the other from Atlantic Canada, said support does exist for those who don’t use proprietary product, but that it costs them.
As for investment planning, an Assante advisor from the Prairies similarly says, “They provide [support] for their proprietary products. There isn’t any real support if you want to pick mutual funds outside of the Assante CI platform.”
Planning services also assessed in the Report Card were “support for wills and estate planning” and “support for insurance planning.” Assante’s ratings in these categories dipped only slightly year-over-year (by 0.2 and 0.1, respectively) and exceeded the overall performance averages. Further, Assante was rated 9.4 for “freedom to make objective product choices” and 9.0 for “quality of firm’s product offering,” with advisors saying the shelf is “not limited” and “top-notch.”
IPC, for its part, received the lowest ratings for both “support for developing a financial plan for clients” (out of the six firms rated) and “support for wills and estate planning” (out of the three firms rated) at 5.9 and 6.4, respectively. Some of IPC’s advisors said the firm focuses on investment- and product-focused training, rather than software training.
An Ontario IPC advisor says he feels that support “is not there unless you use their proprietary products,” referring to support for developing investment plans. In this category, advisors rated IPC 0.1 of a point higher year-over-year, at 7.8.
Among those who didn’t connect product sales to support, there was still dissatisfaction, leading many to use third-party options instead. One reason given was the apparent inefficiency of IPC’s technology, with several advisors saying they struggled for years and then switched to outside planning services. One IPC advisor in Ontario says, “[It] takes forever to input data.”
On the plus side, IPC was rated 8.4 for “quality of firm’s product offering” and 9.3 for “freedom to make objective product choices,” beating the overall performance average for the latter category. Even so, some advisors believed that the firm wants them to sell in-house products.
“[I have] freedom to make decisions, but if we choose Counsel products we are probably looked upon a little more [favourably],” one Ontario IPC advisor says.
Another Ontario advisor believes strongly that IPC provides support based on individual business choices made by advisors, saying, “I made it clear I wasn’t going to sell proprietary product, and I don’t get a lot of support from the dealership because of that.”
Alvares says in-house product accounts for only about one-fifth of IPC’s overall business. Further, the firm is reviewing its product shelf. Partly due to acquisitions over the years, “we find ourselves with a [massive] product shelf,” he says. “As we get into new regulation of KYP [know your product] and conflict of interest, it will be very difficult to run a shelf like this.”
As for advisors at Investors Group, which had the third-highest percentage of proprietary managed product sales, sentiment was more positive. Respondents didn’t feel as strongly that their support services, programs and compensation were tied to the use of in-house products, although they did say there was pressure on their investment choices.
When asked whether they’d recommend their firm, one Ontario Investors Group advisor says, “It depends what they’re looking for and where they’re coming from. They have to be interested in operating in the proprietary space.”
Several Investors Group advisors cited recent shelf restrictions, driven by regulatory change and KYP reforms. Says another Ontario Investors Group advisor: “They’ve tried to manage the product shelf. In doing so, you [now] can’t access some of the great things out there.”
Investors Group was rated lowest out of all firms in the two product categories: 7.0 for quality and 6.7 for freedom, compared to last year’s 8.0 and 8.6.
Brent Allen, senior vice president of distribution operations at Investors Group, says the firm’s focus “in the last number of years has been on our managed solutions,” with “80% of all new funds or flows going into managed solutions” and the shelf being reviewed by an investment committee. Since 2017, the majority of these funds have been sub-advised, he adds, since “no one investment firm can possibly employ internally all the world’s best investment talent.”
The firm has 12 national advisory councils and “product innovation” is one issue on which advisors are consulted, an Investors Group representative says in a statement emailed to IE.
On the opposite end, Mississauga, Ont.-based Carte Wealth Management Inc. was rated highest for “advisor’s freedom to make objective product choices” (9.7), while Montreal-based Peak Financial Group and Manulife came next (both received a 9.6). At Carte Wealth and Peak, no advisors indicated that they sold proprietary managed product and both firms confirmed it’s not on the shelf.
Says one Carte Wealth advisor: “I basically run my own business; they don’t have proprietary funds. I’m all about socially responsible investing.”
Similarly at Peak, one advisor says, “There’s no real pressure to sell any of their products because there aren’t [any].”
Some survey participants across multiple firms in the Report Card noted that having little or no in-house product was a reason to recommend a firm and label it as ethical.
One Peak advisor who recommended the firm says, “They’re a very ethical company; approachable and supportive of us. [We have] no proprietary products.” Meanwhile, a Manulife advisor in Ontario cited what they see as the company’s “strong and ethical nature” based on “freedom of choice for clients.”