Posts Tagged ‘Investment Products’
Wednesday, December 22nd, 2010
Conventional wisdom holds that in Canada advisors associated with financial institutions will gain an increasing share of the market — whether these be advisors working for the banks’ investment dealers or as branch based financial planners.
The proponents of this view point to the advantages of scale and the reassurance for investors and advisors provided by Canadian banks, particularly important in market environments such as those in the past couple of years.
In addition, the potential to tap into referrals to existing bank customers can help existing advisors accelerate their business growth and be a strong asset in recruiting new advisors.
A contrary view from south of the border
A recent white paper suggests a very different path in the United States.
Titled The Future of the Financial Advisory Business, it predicts declining share for bank affiliated brokers and strong growth by independent advisors.
The key question: Is this an area where Canada and the U.S. will fundamentally diverge or will some of the U.S. trends in this area migrate into Canada?
This white paper was written by Bob Veres, a highly respected observer of the U.S. investment scene. For many years editor of one of the major U.S. advisor publications, he is publisher of Inside Information, an online resource for the financial planning and investment advisory profession — the full report can be found on his site.
An overview of the U.S. scene
One big difference in the United States is a thriving segment of advisors called Registered Investment Advisors, commonly known as RIAs.
These advisors typically work as sole proprietors or in small to mid sized firms, are compensated on a percentage of client assets and have no in-house products; they can offer clients a full range of investment products and generally focus on managed money solutions.
The growth of this channel was accelerated by Charles Schwab’s launch in the early 1990s of a back office platform on which independent advisors could operate; today other large firms that offer similar platforms include TD Ameritrade and Pershing Advisor Solutions.
There are an estimated 29,000 RIA firms in the U.S. - this is also the fastest growing segment, it’s projected that by 2012 assets held by RIA’s will equal those held by large brokerage firms such as Merrill Lynch and Morgan Stanley Smith Barney.
Today, most of these RIA firms are fairly small — it’s estimated that only 4,000 (or about 15% of these firms) have assets over $100 million — and half of those have assets under $250 million.
The growth of the independent segment
There are a number of factors driving the growth of RIAs, not all of which apply in Canada:
- The negative image of Wall Street
One important difference between Canada and the U.S. is investor disillusionment with Wall Street firms.
In a recent survey, 46% of U.S. brokers said that their firm’s brand was not helpful in retaining existing clients or attracting new ones.
- Disillusionment by experienced brokers
The U.S. has seen growing defections by “breakaway” brokers, leaving established firms to strike out on their own.
In part, this is driven by the push from head offices to sell inhouse products and an increasing emphasis on higher end clients, penalizing brokers who have a mid market focus.
Tags: Advisor Publications, Advisory Business, Bank Customers, Bob Veres, Canadian Banks, Charles Schwab, Client Assets, Contrary View, Conventional Wisdom, Different Path, Financial Planners, Independent Advisors, Independent Financial Advisors, Investment Advisors, Investment Dealers, Investment Products, Investment Scene, Market Environments, Money Solutions, Sole Proprietors
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