Taking true wealth advice to the masses

Tech platform firm Agora Dealer Services is on a mission to help small independent dealers go toe-to-toe against larger firms

Taking true wealth advice to the masses

To advocates and proponents, the surge in online investing over the past 12 months has represented the fulfilment of technology’s promise to democratize access to financial services to the mass market. But Paul Morford, chief executive officer at Agora Dealer Services Holding Corp, has a very different assessment.

“There’s a difference between wealth advice and access to product, and that kind of democratization has been just about access to product,” he told Wealth Professional. “What Agora is doing is providing the equivalent of an airline selling a business class seat for an economy price. What a lot of these platforms are selling people is an economy seat on the cheap, but the plane has no pilot.”

Democratizing Advice

While online brokerage platforms have successfully lured users with promises of low fees and no-commission trading, low-value account holders are essentially self-directed investors: they’re able to make trades, but don’t get the benefit of professional advice. A years-long trend of fee compression and rising regulation in the Canadian wealth industry, meanwhile, has made servicing lower-value accounts difficult or economically impractical for the large majority of firms.

“From the very beginning, our purpose has been to help ensure everyone gets meaningful advice,” Morford said. “A lot of the advice and services at the higher end of the wealth spectrum – portfolio overlays, tax minimization, cash flow management, and so on – are now being made available through technology-based platforms and processes. Why wait till you have a high-net-worth account to be treated like that?”

Driven by their commitment to help the Canadian mass market, Agora is focusing their efforts on mutual fund dealer firms. According to a 2020 report by the Mutual Fund Dealers Association of Canada (MFDA), its membership provided services to more than 9 million households across Canada as of 2019, with 81% having $100,000 or less in financial wealth. Because of those modest account sizes, the MFDA represents a mere $685.1 billion of Canada’s $4.4 trillion in financial wealth, despite having a large number of actual clients.

From a technology vendor’s perspective, servicing the mutual-fund space is a challenge. While many firms registered with the Investment Industry Regulatory Organization of Canada (IIROC) are giants with extensive advisor networks – partly due to widespread consolidation that happened during the ‘90s – the MFDA has a much more fragmented footprint of small firms spanning the country.

“What we’ve been able to do at Agora is help small independents compete against the larger institutions out there,” said Jeff Thorsteinson, chief operating officer at Agora. “We look at their workflow, we look at their adoption of technology, and we work with them to identify pain points and figure out solutions.”

Easing the Regulatory Pressure

For many mutual fund firms, years of regulatory pressure on commissions has been a point of particular concern. The implementation of CRM2 in 2017 was followed by furious debate over the use of embedded commissions and deferred sales charges, with the overwhelming perception that advisors are better able to align their interests with clients by charging fees for their services.

Now the writing is on the wall for the vast majority of DSC-dependent advisors. The Canadian Securities Administrators (CSA) has declared a near-national prohibition on fund companies paying upfront sales commissions to dealer firms effective June 1, 2022, with Ontario being the lone holdout province.

“A lot of MFDA dealers currently don’t have the ability to shift from a commission-based to a fee-based model,” Thorsteinson said. “Agora delivers that for them as part of the solution.”

Even more profound changes are coming. In October 2019, the Canadian Securities Administrators (CSA) released the client-focused reforms, a sprawling collection of rules designed to ensure that the interests of investors are protected. Originally slated for implementation in 2020, the CFRs have been rescheduled for a two-phase implementation this year, with relationship disclosure rules set to take effect in June and KYC/KYP rules to become effective in December.

As Morford tells it, he and Thorsteinson were already deeply contemplating the CFRs years ago, when they were still part of the fabric of discussions surrounding CRM1 and CRM2. They were part of the motivating considerations behind Agora’s launch in April 2019, and are now a major piece of the firm’s discussions with dealer firms.

“Speaking with financial advisors, I'm discovering that there are few that are really, I'd say, completely aware of what's going on in terms of client-focused reforms,” Thorsteinson said. “Part of our conversations is to create awareness of what is happening because there's some really big decisions that advisors need to make as a result of what's coming.”

Those decisions, in large part, revolve around how to continue providing exceptional advice and client service while still complying with the stiffer compliance standards represented by the CFRs. To the traditional advisors whose days are already dominated by reports and other administrative tasks necessary to stay up to code, it might seem like an impossible challenge. But by delegating high-volume, low-value tasks to technology, they can free up time for more meaningful tasks that can have a big impact on mass- and mid-market clients’ financial lives.

“We’ve been able to provide onboarding technology with digital signatures, systems to reduce human error, tools to streamline advisors’ workdays, and paring back account costs to very, very low levels such that everybody can have a nominee account in their book,” Thorsteinson said. “These are all things that create affordability and scale for advisors in the MFDA space to thrive.”

The Canadian wealth industry is in a state of radical flux at the moment. Advisors are at the centre of a confluence of trends involving regulatory reform, client expectations, and the COVID-19 pandemic, just to name some. To deal with these issues means enhancing their productivity, a challenge to which technology lends itself particularly well.

Of course, change is never easy. Between the attachment to legacy systems, the comfort of old habits, and the perceived costs of the new, Morford said there are still pockets of resistance coming from small and mid-sized dealers. While no one is questioning the why of prioritizing clients’ interests, the how is where a lot of the friction and heel-dragging comes in.

“That's why we were born. We’re weaving in wealthtech, regtech, all of that, in a new platform. Small and mid-sized dealers can empower themselves with technology, and it doesn’t have to cost as much as the total rebuilds that banks have had to do in the past,” Morford said. “Our whole message is for MFDA members to embrace client-focused reforms. They create significant challenges, but we also see them as opportunities for firms serving small and mid-market clients to become leaders and champions.”


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