How COVID advanced the wealth management sector

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Canada’s biggest investment firms are accelerating online services as they move to quickly adapt to clients’ postpandemic expectations, according to the head of Bank of Montreal’s wealth management operation.

Last March, as provincial lockdowns began to emerge across the country, Joanna Rotenberg, group head of BMO Wealth Management, expedited several digital projects that had been sitting in the bank’s technology pipeline.

Online capabilities such as e-signatures, document scans, simplified online applications and video conferencing all became necessary to do business once COVID-19 forced 6,200 employees – including 1,000 financial advisers – to work from home.

Ms. Rotenberg knew that clients were already feeling nervous about a global health crisis and it was going to take “all hands on deck” to educate investors about the impact the novel coronavirus was having on financial markets.

“When we realized there was a proliferation of information that we needed to disperse to a wider range of investors, we quickly moved from informing individual clients to providing larger scale Webex events or online mediums such as podcasts,” Ms. Rotenberg said in an interview.

Managing about $464-billion in assets, BMO Wealth includes several major subsidiaries of the bank: BMO Global Asset Management, BMO Insurance, discount brokerage BMO InvestorLine and BMO Private Wealth, which oversees BMO Nesbitt Burns and private banking. It also includes the assets from the bank’s U.S wealth management division.

Together, the businesses serve a wide range of clients, from do-it-yourself online traders to ultrahigh-net-worth and institutional investors.

“The coronavirus hasn’t changed any of the trends we were starting to see across the industry – such as the need for more financial advice or moving to digital services – but in many ways the pandemic has accelerated them,” Ms. Rotenberg said.

The need to enhance digital tools has increasingly become a priority for many investment fund managers who were affected by the drop in mutual fund fee revenues in recent months. In particular, Canada’s big banks feel added pressure, where mutual funds make up almost 50 per cent of wealth management revenues.

In March, the fund industry saw more than $14-billion in redemptions as falling markets drove down the value of overall assets in Canadian mutual funds. Total assets remain below pre-COVID-19 levels despite two months of positive fund sales.

While investors cashed out of traditional mutual funds, BMO InvestorLine, the bank’s online discount brokerage, saw significant increases in both new account openings and number of trades conducted. Both areas more than tripled in March compared with the same period last year. In addition, for the fiscal second quarter ended April 30, two-thirds of new accounts were opened completely online, compared with 40 per cent in the prior quarter.

The “record-setting” numbers prompted the bank to fast-track an upgrade to the online platform to prevent a bottleneck during surges in trading volumes.

At the same time, new investment dollars coming into the bank’s digital investing platforms – which also includes robo-adviser SmartFolio and portfolio manager adviceDirect – jumped by 40 per cent year over year.

Some of those assets include flows into BMO Global Asset Management’s exchange-traded funds business, which managed just less than $63-billion in assets as of May 31, the second-largest ETF provider in the country.

But unlike what is happening in the United States, where younger investors have flocked to mobile trading apps to conduct day trading, Ms. Rotenberg said the bank is seeing an influx of new investors who are entering the market for longer-term investing.

“While it’s only been a few months, we are seeing people who look at this opportunity to get into the market to buy and hold, rather than churn [their investments] daily,” she said. “That is an interesting adoption curve.”

One of the key differences from the U.S. she says, is a “growing desire” among Canadians for “hybrid advice” – a mix of being able to do your own online trading but also have access to a human financial adviser, a service the bank offers through its adviceDirect platform.

In the private wealth channel – which helps more affluent clients with accounts of at least $1-million – financial advisers and private bankers had to adapt quickly to ensure client connections continued despite not being able to meet face to face. Managing about $195-billion in assets for 162,000 client households, BMO’s investment advisers have seen a pickup in clients reconfiguring retirement plans and cash flow, as well as consolidating more of their assets under one roof.

Video-conferencing tools and document-share programs have been used to close “millions of dollars” worth of business with clients, Ms. Rotenberg said.

“If you had asked me a year ago if that would happen, I would never had said yes,” she added. “But the need for financial advice is greater than ever.”

The “what-ifs” of the pandemic have accelerated certain areas of estate planning. Clients are also discussing the impact that becoming sick would have on their financial goals, as well as the need for power of attorney forms, business succession plans and philanthropy.

“At the beginning of COVID, we were reaching out to every single client to reassure them on markets, trading reports and processing portfolio changes,” Ms. Rotenberg said. “Now, people are making different decisions with their lives and their careers, so it’s the perfect time to be helping them through these changes.”

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