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May 2020 BROKERAGE REPORT CARD Fee-based compensation
INVESTMENT EXECUTIVE
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key for advisors
Firms share their plans for both fee-based and discretionary platforms
advisor in Alberta.
Stuart Raftus, executive vice presi-
dent and chief administrative officer at Canaccord, has seen “considerable growth” in his firm’s fee-based asset pro- grams. “We are investing heavily in new technology to support our managed asset programs,” he says.
On the other end of the spectrum, Quebec City-based Industrial Alliance Securities Inc. (iA Securities; rated 6.9 in the fee-based model category, down from 7.5) and Toronto-based BMO Private Wealth Canada and Asia (rated 7.0 in the category, down from 7.8), were the two firms trailing their peers.
An iA Securities advisor in Ontario says the firm needs a more accessible platform: “They could give us better operations sys- tems. The systems we navigate are ter- rible.” Others noted that banks were in a better position, with one iA advisor in Quebec saying, “[We’re] too late in the game.”
“If I need things, there’s a lot of lay- ers I’ve got [to] go through,” says a BMO advisor in the Prairies.
BMO executives provided no com- ments regarding fee-based compensa- tion and programs. iA Securities, however, said in a statement emailed to IE in March: “Approximately 63% of all our revenue at iA Securities is generated from our fee- based platforms. We have seen significant growth in [those] platforms over the past three years.”
When it comes to discretionary port- folio management, offering efficient technology and timely back-office sup- port is paramount. Wellington-Altus also received the highest rating in this category (9.7), followed by Canaccord (9.1), but advisors still have suggested improvements.
“When I came over, I didn’t like [the] trading platform,” says a Wellington- Altus advisor. “I went to the board and we worked together.”
Says a Canaccord advisor in the Prairies: “I’ve seen the other models. The system [here] hinders the ability to do it
n BY SWIKAR OLI
fee-based revenue is growing, say
firms in the 2020 Brokerage Report Card. At the same time, more firms are expand- ing their discretionary management programs.
More financial advisors in this year’s Report Card reported collecting fee- and/ or asset-based revenue compared with last year’s (77% vs 74% in 2019, and up from 61.2% five years ago). More advisors also said they have their discretionary portfolio management licence (47% vs 42.1% a year ago, and up from 29.4% five years ago).
Further, the performance ratings for both “firm’s support for advisors operating within a fee-based model” and “support for discretionary portfolio management” increased year-over-year, each by 0.2 to 8.6 and 8.5, respectively. The importance rat- ings also rose for both categories, jumping significantly (by 0.5 or more) in the case of discretionary management.
But firms aren’t meeting all of advisors’ expectations on this front.
With both sets of ratings rising, satis- faction gaps (the amount by which the importance of a category exceeds its per- formance) remained. The gap for the fee- based model category stayed at 0.5, as it was a year ago, while the gap for the dis- cretionary portfolio management category doubled to 0.6 from 0.3 a year ago.
Still, in the fee-based model category, the ratings for five firms increased signifi- cantly, while two firms saw their ratings slip significantly.
The former group (in order of largest to smallest ratings increase) consisted of: Vancouver-based Odlum Brown Ltd.; Toronto-based ScotiaMcLeod Inc. and CIBC Wood Gundy; Calgary-based Leede Jones Gable Inc.; and Vancouver-based Canaccord Genuity Wealth Management (Canada). Winnipeg-based Wellington- Altus Private Wealth Inc., a newcomer to the Report Card, had the top rating for the category, at 9.7, with advisors prais- ing their managed account options and fee structure.
Leede Jones tied for the second-highest rating in the category, at 9.2 (up from 8.7 in 2019), with advisors’ only criticism being that the software could use an update.
For Leede Jones, the number of fee- based advisors “is increasing all the time,” says president Bob Harrison. “And the new [advisors] that we’ve got, we’re training them to do fee-based — eventually discre- tionary. The programs we’ve got are pretty extensive.”
Canaccord was rated 9.0 vs 8.5 a year ago. “The firm is evolving and focusing [on] improving their fee-based support. It’s rapidly improving,” says a Canaccord
well.” But another Canaccord advisor in B.C. says the firm is working on advance- ments: “It’s [become] a prime focus in the last three to five years. My biggest issues used to [be] tech and marketing.”
Advisors also desired technical support and guidance at Toronto-based TD Wealth Private Investment Advice (rated 6.6, up from 6.5 a year ago).
The firm continued to bring up the rear in the discretionary management cat- egory, partially due to backlogs in advisors waiting to join the discretionary program. However, one TD Wealth PIA advisor in B.C. notes that training software had recently been overhauled for the better and that “continual evolutions will help us compete.”
Another TD Wealth PIA advisor in Ontario says new technology has “saved us time with trades, but I’d like to see a little more training, seminars [and] pres- entations for troubleshooting.”
Dave Kelly, senior vice president and head of TD Wealth Private Wealth Management, says the bank’s fee-based and discretionary platforms “have been, and continues to be, where we focus.” He says the bank-owned brokerage has tri- pled spending in this area in the past two years, “mostly around making sure we have support infrastructure for advisors to aid [in] their transition to fee-based or discretionary.”
With more of the industry shifting toward fee-based compensation and dis- cretionary portfolio management, firms should continue to review their resources for advisors in these areas. IE
Firms aren’t meeting all expectations when it comes to support for a fee-based model
Definition of fee- and/or asset-based revenue
Fee- and/or asset-based compen- sation refers to arrangements through which financial advisors are paid based on a percentage of the assets managed. These fees include
trailer fees. Advisors were given four other revenue options: fee for servi- ces, transaction-based compensation, deal-based compensation and branch management override.
Many firms appear to have improved their account statements
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For example, an advisor with Vancouver-based Odlum Brown Ltd. who does support the reforms says, “I think there's a regulatory overburden. [The CSA is] trying to weed out bad guys but that burden is put on advis- ors and clients.”
Commenting on regulation in general, several advisors with firms across the country said they wanted the industry to tighten entry criteria.
“I think [regulators are] too focused on putting things like risk tolerances and objectives [on] paper when they should be more focused on ensuring advis- ors are of higher quality,” says an advisor in Quebec with Quebec City-based Industrial Alliance Securities (iA Securities).
The purpose of the CSA’s reforms is to raise the standard of conduct for financial advisors, with added proficiency and title
amendments still to come. For now, though, firms can enhance client disclosure.
The good news? It appears many firms have recently improved their client statements, with some advisors indicating that they may have rated client account statements poorly had they been asked the same ques- tion a year or more ago.
Says an advisor in Atlantic Canada with Montreal-based National Bank Financial Inc.: “If you’d asked two years ago, I would have said a five [but] they’ve overhauled the whole platform.” (The firm’s ratings for “client account statements” and “online account access for clients” did not change signifi- cantly year-over-year.)
“If you’d asked me last year, it wouldn’t be the same [rat- ing] because we’ve rolled out new accounts [statements], bringing [them] up to snuff,” says an advisor in Ontario with
Mississauga, Ont.-based Edward Jones. Another Edward Jones advisor in B.C. says the transition led to “some complaints from cli- ents” but that they were short- lived — and the firm saw slight upticks compared with last year in both client account categories.
Still, several advisors across the country pointed to issues with their firms’ documents.
“[Statements] aren’t easy to work with. What clients see isn’t well organized,” says an advisor in Ontario with Wood Gundy. The firm’s rating for “client account statements” improved significantly (by 0.5 or more) to 7.3 from 6.8 a year ago, but Wood Gundy remained one of the bot- tom three firms in that category.
“[Account statements] changed back in February. [They are] better than they were a year ago, [but I still] get some clients coming in saying, ‘I can’t under- stand this,’” says an advisor in B.C. with iA Securities. The firm
improved significantly in both client account categories, with the account statements rating in particular rising a full point year- over-year to 6.9, but it still came in last in both areas.
Comments from firm exec- utives also provided insight into how firms are preparing to embrace the CSA’s reforms.
Andrew Marsh, president and CEO of Richardson Wealth, says there’s “an underestimation of how significant these reforms are.” Even so, Marsh says, advis- ors who have adapted to clients’ changing demands will continue to do well under the reforms, and his firm is having “open
dialogue” with advisors.
Wayne Bolton, chief compli-
ance officer at Edward Jones, says his firm began preparing “well before the reforms were finalized.” He adds, “What will be impacted is the relationship disclosure document, which cli- ents receive at account opening. There’s going to be amendments that really are going to provide great clarity.”
At Toronto-based RBC Dominion Securities Inc., chief compliance officer Nick Cardinale says the brokerage will be holding training sessions for branch managers and invest- ment advisors on the reforms. IE
Despite improvements, several advisors across the country pointed to issues with their firms’ documents