Sign up for the new Globe Advisor weekly newsletter for professional financial advisors on our newsletter sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.
Toronto-based independent fund giant CI Financial Corp., which has been actively expanding its registered investment advisor (RIA) network in the United States, is forging ahead with plans to launch similar partnerships in Canada.
The move is expected to be a catalyst for the creation of more similar style firms in Canada, which is just catching up to the explosive growth of RIA businesses south of the border.
CI recently rebranded its Stonegate high-net-worth division into a partnership called CI Private Wealth. In January, the firm bought Toronto-based family office Northwood Family Office Ltd.
“Those two businesses will be collaborating together to form what I think will be Canada’s first RIA business model,” CI chief executive officer Kurt MacAlpine says. “And I expect that that will continue to grow over time.”
CI is among a growing number of firms in North America pursuing the independent, fiduciary fee-based business model – either on their own or as part of their overall offering – to meet growing investor demand for broader financial planning services.
Mr. MacAlpine says this increased need for more sophisticated financial advice – particularly as company pension plans become less common, people live longer, and their assets and family situations become more complex – is driving the rise of the RIA model.
“Given this money in motion opportunity, and the need for financial advice, there’s a variety of different business models that are popping up to service it,” he says.
“With a fiduciary standard, a focus on comprehensive financial planning with a team-based approach deploying experts to every single step of the equation, I just feel like [the RIA] model is differentiated enough that it should generate some good success in Canada,” Mr. MacAlpine adds.
The RIA business model, an official designation in the U.S. and more of a framework in Canada, enables advisors to operate on their own while providing a legal fiduciary obligation to clients.
Why RIAs have taken off in the U.S.
The popularity of the RIA model has also led some traditional firms to create similar services, intensifying competition to manage investors’ increasingly complex and comprehensive wealth management needs, according to a recent report from Boston-based investment research firm Cerulli Associates Inc.
“To unlock the RIA channel’s success formula and protect against advisor movement to independence, broker/dealers are increasingly developing independent affiliation options, promoting financial planning, and creating more opportunities for advisors to conduct fee-based or fee-only business,” the report states.
It shows that 93 per cent of advisors surveyed in the U.S. expect to generate at least half of their revenue from advisory fees by next year.
There were about 17,650 RIA firms in 2020 managing roughly US$6.6-trillion in assets, up from 16,565 firms overseeing US$2.3-trillion in 2010, according to Cerulli.
The competition is “eroding the key differentiators that RIAs have relied on historically and is chipping away at their value proposition,” says Marina Shtyrkov, associate director of wealth management at Cerulli and co-author of the report.
Ms. Shtyrkov says RIAs are being forced to up their game to stave off competition, which is challenging given that many are small businesses with limited resources.
Consolidation is one way RIAs are looking to stay competitive, Ms. Shtyrkov says, pointing to CI as an example.
CI says it has acquired 28 RIAs – 23 directly and five through affiliated RIAs – in the U.S. since January 2020. The company has set up its RIA businesses in the U.S. as a private partnership inside the public company. There are about 170 partners in the U.S. so far. CI says it intends to establish a similar partnership for select firms in Canada.
Mr. MacAlpine says the business model is intriguing to many advisors.
“Instead of being a sole proprietor in which you’re generating commissions, tapping into somebody else’s technology and brand, ours are designed for people to come and be equity owners in the broader partnership,” he says. “It’s just a very different approach to structuring.”
CI will continue to operate other business models, Mr. MacAlpine says, including its robo-advisor and commissions-based services, “recognizing that different advisors have different preferences for how they serve clients.”
Providing more services and new technology
Reggie Alvares, executive vice-president, advisor and information services, at Investment Planning Counsel Inc. in Toronto – the parent company of mutual-fund dealer IPC Investment Corp. and investment dealer IPC Securities Corp. – says the RIA model is the “next level” of advisory services and a style his firm has been adopting as more clients and advisors demand it.
He says some advisors want to be more independent and provide more services, while more clients are looking for “a new type of relationship” as their wealth management needs become more complex.
“We can’t call ourselves an RIA, but we are following the principles and the culture of what an RIA represents,” he says.
For example, Mr. Alvares says advisors and portfolio managers are focused on client outcomes and have a range of investment solutions they can offer them.
The company has also introduced a new technology platform that supports advisors and portfolio managers in not only managing client portfolios, “but enhancing efficiency into their practice,” he says.
Access to wealth management technology empowers advisors to go the RIA route, including turnkey asset management programs (TAMP) that help with tasks such as account setup, documentation, and discretionary portfolio management.
Jeff Gans, CEO of TAMP provider Purpose Advisor Solutions in Toronto, says the company has more than doubled its assets over the past year and plans to double it again in the coming year.
“We’ve seen our pipeline of advisors more than double,” he says, with books ranging from $150-million to more than $1-billion.
More advisors are looking to “take back control of the client experience,” he says, and be more entrepreneurial.
“It’s just about choice,” he says. “The banks are standardizing compliance rules, product platform and how clients get serviced to minimize risk ... which is okay, but for a lot of advisors, that standardization doesn’t work.”
For more from Globe Advisor, visit our homepage.