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the future of financial advice

Various new technologies are making it easier for a single advisor to handle larger books of business than thought possible prior to the digital age.skynesher/iStockphoto

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It has been common knowledge in the investment industry in the past few years that the average age of financial advisers is well over 50. And with the number of advisers reaching retirement age long outpacing the number of younger advisers entering the industry – J.D. Power estimates just 11 per cent of advisers are under 40 – demographics are only part of the reason why the overall number of advisers looks set to decline.

Specifically, advancements in technology and lack of succession planning are combining to build a wave of consolidation that will leave larger books of business in the hands of fewer advisers.

John Cucchiella, president of SMEx Advisory in Toronto, who previously held senior leadership roles at top wealth-management firms, believes the shift is already under way.

“I do believe there are going to be fewer and fewer advisers out there,” he says. “I don’t believe that number is going to grow.”

The data support that view. In the U.S., statistics from the Financial Industry Regulatory Authority (FINRA) show the number of registered representatives – professionals allowed to sell securities, offer investment advice or both – has gone from 656,381 in 2006 to 612,457 in 2021. That’s a decline of 6.7 per cent or almost 44,000 fewer professionals.

In Canada, the combined membership of Canada’s two largest self-regulatory organizations – the Mutual Fund Dealers Association (MDFA) and the Investment Industry Regulatory Organization of Canada (IIROC) – declined to 108,061 in 2021 from 109,886 in 2018. That’s almost 2,000 fewer professionals in the space. Although not directly comparable to the U.S. data, it, nonetheless, suggests a similar trend is under way in both countries.

Mr. Cucchiella says ongoing “rollup strategies” are a major part of the explanation. Advisers are leaving the industry, retiring or being bought outright, while those remaining in the industry are amassing larger books of business.

“Obviously, that means the number of advisers is going to come down and their assets are going to end up in the hands of advisers who buy those practices,” Mr. Cucchiella says.

Advisers are keenly aware of this trend. In July, the CFA Institute published its latest “The Future of Work in Investment Management” report that included responses from more than 11,000 investment professionals around the world.

One in every 50 survey participants (2 per cent) said their role is “unlikely to exist” within the next five to 10 years. For those in a sales, trader or credit analyst role, one in every 25 respondents (4 per cent) said they expected their role to go extinct in the next decade.

Sam Febbraro, executive vice-president of advisor services at Investment Planning Counsel Inc. in Mississauga, says the rollup process has been going on at various levels of the industry for decades.

“There was a consolidation of, for example, mutual fund companies in the late 1990s,” Mr. Febbraro says. “Then, we saw a consolidation of dealerships and now there’s going to be a bit more consolidation at the financial adviser level.”

Various new technologies are making it easier for a single adviser to handle larger books of business than thought possible prior to the digital age, Mr. Febbraro says, making the industry more efficient overall and accelerating the consolidation process that was already under way.

Just one in 10 Canadian advisers (11 per cent) have a formal succession plan in place, according to a March, 2021 IPC survey conducted by Environics Research Group Ltd. That’s fuelling the growth of succession matchmaking services, such as those offered by Toronto-based Purpose Advisor Solutions Inc., owned by Purpose Financial.

‘More people’ serving clients

Jeff Gans, Purpose Advisor Solutions’ chief executive and managing partner, said in May that more than $20-billion worth of adviser practices have expressed interest in the firm’s matchmaking services over the past 12 months. That’s up from a base of between $10-billion and $15-billion.

While the growth of that part of his business implies a declining number of advisers in the industry, Mr. Gans is not convinced that the trend will translate directly to a decline in the number of professionals working in the financial advisory space at large.

“If you look at the number of advisors in terms of the person who has the client relationship, then, yes the absolute number is going down,” he says. “But, if you ask how advisers can build capacity, you’re going to see specialization and the building up of practices that involve different roles and responsibilities, such that the total number of people on a team required to serve a single client and meet their needs grows.”

In that sense, Mr. Gans says, you might actually have more people end up serving clients.

“For sure, the number of advisers is dropping,” he adds. “I just don’t know if that means the number of people serving clients is dropping as well.”

This article is part one of Globe Advisor’s three-part series on the Future of Financial Advice. Part two, on what steps advisors can take to navigate changes in the industry, will be published the week of Sept. 19

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