As the Big Six grow their wealth businesses, they are increasingly in a position to push multi-service offerings. Should mutual-fund guys be worried?
Third in a series on what the Big-Six banks’ aggressive expansion into the wealth management segment will mean for the industry.
As the Big Six grow their wealth businesses, they are increasingly in a position to push multi-service offerings. For some advisors, that may make holistic services a key to survival.
Cross-selling of services has long been a strategy of banks and for good reason: by providing a client with investment products, insurance, a car loan, mortgage, and almost everything else, revenue per head is amplified. As their advisory businesses expand, they can be expected to push this advantage, arguing that they can provide full-spectrum services under one roof.
This could mean trouble for advisors with narrow offerings, says Murray Callaghan who runs the fee-based Callaghan Wealth Management in Campbell River, BC. Callaghan already provides holistic advice – including investment, insurance, tax and estate planning – so he doesn’t see the banks as a challenge for him, but he added “if you were one of those guys who were just selling mutual funds, I’d be worried.”
Indeed, the mutual fund segment has been one of the most clear examples of consolidation in the industry. According to data from the Investment Industry Association of Canada, the number of Mutual Fund Dealers Association Member firms has fallen from 180 in 2006 to just 113 as of end-April 2013.
John Kason, an advisor with Global Securities in Prince George, BC, says that he views holistic services as a defensive measure against bank and credit union attempts to poach clients.
“I’m a full-service advisor so I’m a broker as well as an insurance advisor, and I have mortgage brokers that I can refer to," said Kason. "So I can build a lot of fences around my clients but it’s a battle to get new clients and defend against financial institutions that everybody has to use as deposit takers.”
Still, for Marc Lamontagne of Ryan Lamontagne in Ottawa, the independent advisor may have some advantages over those in the bank channels. An independent can build expertise – or relationships with other experts – that advisors locked-in to a bank may not be able to compete with, even if his or her institution can provide full-spectrum services.
“The banks tend to compartmentalize their advice; when you see a bank planner you are really getting some simple financial advice because that’s how they’re paid – by selling investments, which the banks own too – a bank advisor wouldn’t be able to sell insurance but instead would have to refer you to an in-house insurance specialist,” said Lamontagne.
“Independents have an advantage in that you can be the insurance or tax specialist as well as being an advisor.”
In addition to building a competitive edge in a consolidating industry, recent studies have shown that advisors who provide holistic services have a greater rate of revenue per client and a much stronger rate of client retention.