A new report indicates tens of billions of dollars in impact in terms of direct, indirect, and induced economic activity
Few people, if any, would question the role that the investment-fund industry plays in supporting the retirement of Canadians. But as highlighted in a new report shared by the Investment Funds Institute of Canada (IFIC), that captures only a portion of the role it plays in the country’s larger economy.
In an Economic Footprint Assessment of the Canadian investment-fund industry, the Conference Board of Canada noted that investments managed by Canada’s funds industry have swelled from below $100 billion in the early 1990s to $1.71 trillion as of May this year. The current figure is reported to account for some 38% of all privately held financial wealth in Canada.
But the industry is also a major contributor to Canada’s economy, said authors Robyn Gibbard and Nigel Russel. Aside from employing financial advisors, fund managers, and other support staff across the country, it purchases services and goods from other Canadian businesses.
“Canada’s funds industry is significantly larger than that of most other developed countries when measured against national output,” they said. In a ranking of 20 countries based on funds industry assets to GDP ratios in 2016 — the most recent year for which complete data was available from the World Bank — Canada ranked sixth at 97.84%.
“The top three countries on this list (Ireland, Singapore, and Hong Kong) are clear outliers,” the report noted.
Assessing the industry’s direct impact on the Canadian economy in 2018, the report noted that the industry collected $28.5 billion from MER fees paid to fund managers and fund dealers, and $2.1 billion from fees that fund dealers charged directly to their clients.
“From that $30.6 billion in total revenues, the funds industry directly contributed $9.7 billion in gross value-added economic activity to the Canadian economy in 2018,” the report said. That economic activity, measured at both the dealer and fund management levels, includes money spent on labour compensation, the amount earned in profits, taxes paid to governments, and fees paid to regulators.
Labour compensation was reported to make up 86% of the funds industry’s GDP, as compared to the national average of 48% of GDP accounted for by labour income. “Including benefits, the funds industry pays just over $100,000 in total labour compensation per full-time equivalent worker,” the report said.
“[T]he industry also supports a plethora of other businesses in the economy,” it continued. With that taken into account, the authors said, the economic impact associated with the funds industry would total $27.4 billion in 2018 — enough to support 199,000 full-time equivalent jobs. The indirect impact spans a wide range of industries, the largest of which was a cumulative $3 billion in purchases from the professional, scientific, and technical services sector.
The final component accounted for was the induced effect, which the report explained as the spending that trickles out into other areas of the economy after employees and shareholders of the funds industry get their salaries and shares of profits. With that taken into account, the report said, the industry’s total economic contribution in 2017 amounts to $37.1 billion, enough to support 260,000 full-time equivalent jobs.
“[E]ach dollar of revenue in the sector leads to [$1.81] of value-added economic activity as it ripples through the entire economy,” the report said.