Big Six eating increasingly large slices of AUM pie

The Big Six are aggressively boosting assets under management. Will the remaining pie be big enough to sustain independent operators?

Big Six eating increasingly large slices of AUM pie

Fourth in a series on what the Big-Six banks’ aggressive expansion into the wealth management segment will mean for the industry.

The Big Six have massive coast-to-coast footprints, visible storefronts and branch-level planners. Aside from credit unions and a handful of smaller operators, they also have a near monopoly on deposit-taking business and have already gathered almost every single Canadian as a client. In the fight for assets, that gives them some clear advantages over smaller wealth-management firms.

“Right now gathering assets is much harder than it has ever been in my career and I think that a number of advisors would agree on this,” said Daniel Popescu, president of Harbourfront Wealth Management in Vancouver.

Individual advisors have to struggle to gather assets by gaining individual clients one by one – something advisors at banks’ full-service channels also have do too. But on an institutional level the banks have an advantage in that they can add AUM simply by scooping up new businesses through mergers and acquisitions.

“Acquisition is the best way for them to grow rather than recruit one advisor at a time – which they are doing and some guys are getting big cheques, four to five million to move your business to one bank or another is regular practice,” says Popescu. ““The best way for them to grow assets is to gobble up smaller companies.”

Popescu is familiar with the independent, mid-tier and bank channels… and with being the target of an acquisition by one of the major lenders. He was a partner at Wellington West, which he and other partners sold to National Bank in 2011. He then spun-off Harbourfront from National and is now expanding nationally.

While it’s not a zero-sum game – so long as Canadians wealth increases, so too does the available pie of assets – the increased aggressiveness of banks means that they are gathering an  increased amount of that total.

All of the Big Six banks reported solid growth in AUM or assets under administration (AUA) in the third quarter. RBC’s AUM increased to $615.8 billion at the end of the period from $562.2 billion a year earlier. TD’s rose to $246 billion from $204 billion. Scotia’s increased $26 billion, or 24%, to $135 billion. Bank of Montreal’s AUM grew by $63 billion, or 13%, to $527 billion. CIBC’s AUA rose to $1.46 trillion from $1.377 trillion, though this amount includes assets administered through a 50/50 joint venture with Bank of New York Mellon. National Bank’s AUA rose to $247.1 billion at end-July compared with $232.0 billion at end-October 2012.

As well as acquisition, the banks’ nationwide store-front distribution and in-branch services, where they can refer customers to in-branch planners, give them a leg up in of organic growth.  But John Kason an advisor with Global Securities in Prince George, BC, also noted that the banks have an advantage as deposit-taking institutions. When a client makes a large deposit, the institution can immediately move to cross-sell products and services.

“As a financial advisor who’s been around 15 years and managing a healthy size book – $65 million – I get constantly frustrated that when I give my client a life insurance cheque they get a call the next day from the financial planning guys from one of the banks or the credit union,” said Kason.

“That is an ongoing challenge and frustration as an independent. The information flows very quickly from the deposit side to the asset-gathering side and the institutions are using their asset-gathering side to incentivize people in terms of their mortgages, insurance or lines of credit. That needs further investigation and better Chinese walls.”

The banks push into wealth management isn't new, but it may accelerate as other business lines – such as mortgage lending – slow.

In 2012, according to Investment Industry Association of Canada data, integrated firms – which includes but isn’t limited to bank firms – accounted for 85% of the industry’s operating profit, up from 75% in 2011. Institutional firms accounted for 16% of operating profit, down from 20% a year earlier.

The IIAC noted in that Canada’s 11 integrated firms had been performing well in AUM growth in the 2006-12 period, with AUM doubling over several years through acquisition and the shift of client assets. However, the 185 boutique firms have been “caught in a vice. “

“The commission revenue decline [among boutiques] reflects client migration to the integrated firm group as the integrated firms acquired retail boutiques … and as clients shifted accounts to bank-owned firms,” said IIAC president Ian Russell.