Canada's big six banks always cast long shadows on this country's financial services sector, but they especially loom large in Investment Executive's 2017 Report Card - and not for the better. This is happening at a time when investment advisors are experiencing significant growth in their individual practices and the industry is in the midst of significant change.
There's increasing dissatisfaction among advisors who ply their trade with Canada's bank-owned dealers, most notably BMO Nesbitt Burns Inc., ScotiaMcLeod Inc. and, to a much lesser extent, CIBC Wood Gundy. (All firms are based in Toronto.)
Advisors at these firms cited several reasons for their unhappiness with their firms this year, from the "firm's strategic focus" to the lack of communication between advisors and management. A standout issue in 2017, however, was corporate culture: many advisors at bank-owned dealers noted the growing difference in work environment at their brokerages vs the national and regional independents.
Case in point: advisors with bank-owned firms rated their firms, on average, at 7.3 in the "firm's corporate culture"category, much lower than the 8.7 average rating that advisors with the independent firms gave their dealers in the same category. Most advisors at bank-owned brokerages lamented the fact that they're being treated less and less as entrepreneurs and more and more like bank employees.
"We've gone from being bank-owned to bank-run," says a Nesbitt advisor in Atlantic Canada. "That takes away from the entrepreneurial spirit within our business."
Advisors' concerns over corporate culture and other matters spilled over into other ratings on the Report Card's main table - and not always for the better.
For example, Nesbitt and ScotiaMcLeod saw their ratings (excluding the "IE rating" and "overall rating by advisors") drop by half a point or more in 21 and 17 categories, respectively.
Advisors at both brokerages don't believe that management listens to their suggestions or concerns. ScotiaMcLeod advisors, specifically, complained that their firm just doesn't care about advisors - particularly in light of the brokerage's restructuring last year by parent Bank of Nova Scotia, during which 7% of ScotiaMcLeod advisors and their assistants were let go.
"[The parent bank] doesn't [care] about us. Morale is the lowest I've seen in 17 years," says a ScotiaMcLeod advisor in Alberta. "The culture has been eviscerated at this point; it has been destroyed."
In contrast, Toronto-based and bank-owned TD Wealth Private Investment Advice (TD Wealth PIA), stepped up its efforts this past year after a dismal showing in 2016, in which the firm's ratings dropped by half a point or more in 20 categories.
Specifically, TD Wealth PIA advisors said they believe their firm is paying attention and has refocused its efforts to do what's best for the business and advisors. As a result, they rewarded the dealer with improved ratings of half a point or more in 28 categories, as well as in the IE rating and overall rating by advisors, this year.
"Our strategic focus is undergoing a quantum shift," says a TD Wealth PIA advisor in British Columbia. "I'm all in; I'm on board."
Regardless of how advisors feel about their firms' efforts, advisors, individually, are doing well. Specifically, the average advisor's book of business hit a new all-time high of $129.7 million thanks in large part to positive stock markets.
As for the advisors themselves, they're a little older, with an average age of 51.3 years, up from 49.6 years of age in 2016. Similarly, advisors are more experienced, as they've been in the industry for an average of 22.5 years, up from 20.5 years last year.
Thus, advisors surveyed for this year's Report Card have been around long enough to see plenty of change. To that end, advisors were asked for their thoughts on a couple of current trends.
Survey participants were asked, in a supplementary question, if their firms encourage advisors to drop the smallest clients from their books of business. The result: 58% of advisors said there is pressure, whether that's to: drop small clients altogether; direct them toward other, lower-cost advice channels, such as a less experienced advisor, robo-advisor or bank branch; or no longer accept compensation from those accounts.
"[My firm] has programs to redirect smaller clients to other advisors within the system," says an advisor on the Prairies with Montreal-based National Bank Financial Ltd. (NBF).
Survey participants also were asked about their opinions on how regulatory trends are affecting their businesses. For example, advisors remain hopeful that the second phase of the client relationship model (CRM2) reforms will lead to improved client account statements - although many admit that project still is a work in progress.
"[Client account statements] are difficult to read," says a Wood Gundy advisor in Quebec. "And although there have been changes, clients still complain."
Advisors were asked in another supplementary question whether they're in favour of the Canadian Securities Administrators' recent proposal to introduce a "best interest" standard. The result: 71% of survey participants who responded to that question said they support the initiative.
"Of course we should be working in the client's best interest," says an advisor in B.C. with Vancouver-based Odlum Brown Ltd. "We're trying to elevate this industry to a profession."
One way advisors are doing that is by enhancing and embracing new skills and support services. For example, advisors at the six firms for which there were enough responses to produce a reasonable sample in the survey gave the "support for discretionary portfolio management" an overall average importance rating of 9.4 - tied for the third-highest in this year's Report Card. This indicates that more advisors are looking to use these platforms and are appreciative of firms dedicating more resources to this line of business.
"The team we have on our discretionary platform is fantastic. They're very transparent and understanding," says an NBF advisor in B.C. "They're reachable, they make sense; they work with you; and they continually provide training."
HOW WE DID IT
For 25 years, Investment Executive's (IE) annual Brokerage Report Card has sought to reflect investment advisors' views about their firms and the brokerage industry. To do that, the Report Card has evolved over the past quarter-century - and the 2017 edition is no exception.
In recent years, the advisors surveyed for the Report Card have been asked for their insight into issues and industry trends in supplementary questions added to the Report Card.
This year, IE research journalists Latifa Abdin, Sophie Allen-Barron, Charles Bossy and Jennifer Cheng asked 561 advisors at 12 brokerage firms if they're in favour of the Canadian Securities Administrators' proposal to introduce a "best interest" standard to the regulations governing the client/registrant relationship. Survey participants also were asked if their firms encourage advisors to drop the smallest clients from their books of business.
In addition, this year's Report Card will include, for the first time, additional online content in the form of two slide shows. One slide show will break down the average advisor's statistics for each firm included in the Report Card. A second slide show will chart the firms' IE ratings over the past decade.
Despite continued changes to the Report Card, there are many aspects that remain the same year in, year out. For example, advisors surveyed this year rated their firm in 33 categories. And, just as in years past, advisors were asked to provide two scores in each category: one for the firm's performance; the other for the importance of that category to the advisor's business. Advisors gave a rating between zero and 10, with zero meaning "poor" or "unimportant" and 10 meaning "excellent" or "critically important."
And, just like in previous years, the ratings on the main table reflect advisors' concerns or praise for their firms. In some cases, firms may see a significant change in their ratings year-over-year.
For example, a rating in green indicates that a rating has increased by at least half a point from the previous year, whereas a rating in red indicates that the rating has decreased by at least that same margin.
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