Not so long ago, Canada’s financial advisers had it made. They chatted up clients, sold them fee-laden mutual funds, collected fat commissions, and still made it to the golf course in time for a 4 o’clock tee-off. It was good while it lasted, but lately the party has turned into a bloodbath.
Over the past five years, thousands of advisers have been axed. The bank-owned brokerages have been hacking away at their teams for a while, and more recently, Investors Group, the country's largest independent network, laid off more than 1,000 people from its consultant network.
Advisers with millionaire clients are still doing fine. It’s the ones who managed smaller portfolios who are getting the boot. There has been some hand-wringing over who will provide financial advice to regular Canadians as the adviser ranks thin out, but I think we’re better off.
Just over 10 years ago, when I was working as a journalist at a personal finance magazine, I was asked to look at the quality of advice you got if you had a smaller portfolio. I donned a hidden microphone and set up meetings with five advisers, telling them I had $150,000 to invest.
One of the meetings was with an adviser I'll call Brett. He was a 30-something consultant for Investors Group who was just starting out. He seemed desperate and fast-talked me into a portfolio that was completely inappropriate for my risk tolerance.
Then he lied to my face. He wanted to put me in a basket of pricey mutual funds, and when I asked about fees, he said there were none. He somehow failed to mention the management expense ratio, a fee built right into the funds that would suck up about $4,000 of my money every year. Nor did he mention the deferred sales charge (DSC) I'd pay if I sold the funds within a few years.
Since my meeting with Brett, there has been a dramatic shift in the industry. There’s a proposed ban on DSCs, embedded mutual fund fees are under pressure, and new regulations have forced investment firms to be more upfront about what you’re paying.
To survive in this new environment, Investors Group had to change—and boy, has it. In this revealing feature from the October issue of Report on Business magazine, you’ll find an exclusive peek inside its transformation from a firm focused on regular Canadians to a firm targeting the wealthy.
The company, which just rebranded as IG Wealth Management, hired Jeff Carney as its brilliant new CEO, and he’s doing an impressive job buffing up its corporate image. One of the first things he did was fire the under-trained salespeople like Brett.
Good for Investors Group, but what about their clients? Canadians with portfolios smaller than $500,000 will be less of a priority (those with $10,000 or less will be shuffled to a call centre), and few other firms will accept them.
Luckily, investors have a slew of new options. There are now low-cost robo-advisers such as Wealthsimple (owned by the same holding company as Investors Group) and low-fee, off-the-shelf portfolio products, such as those offered by Tangerine. Investors can still go to their banks and plunk their money into balanced funds too. If they need more complex advice, they can hire a fee-for-service financial planner by the hour.
It’s true they’ll get less face time with people like Brett, but that’s a good thing. For too long, investors have been paying unreasonably high, hidden fees for advice they often weren’t getting. Bring on the robots, I say—they don’t offer advice, but at least they don’t lie. (firstname.lastname@example.org)