The rapid evolution of the U.S. registered investment advisor model was sparked by the 2008 global financial crisis and the widespread layoffs at large broker-dealers.JohnnyGreig/iStockPhoto / Getty Images
In the U.S., the wealth management industry is constantly in flux. News of new firms being formed, advisors moving, and multi-billion-dollar merger and acquisition deals dominate the headlines of trade magazines. With more than 17,000 independent firms, the U.S. market has become a hub of innovation and industry dynamism – qualities that remain largely absent in a Canadian market characterized by an oligopoly of large institutions.
But change is on the horizon. Canada is now seeing advisory teams break away from large dealers to launch their own entrepreneurial, independent firms. These early adopters signal a potential shift in the Canadian landscape that could put more control in advisors’ hands, fuel innovation and provide greater choice for Canadian investors. Advisors are becoming more aware of the opportunity to own their client experience, boost operational efficiency and build the legacy they’ve always envisioned.
Lessons from U.S. independents
The rapid evolution of the U.S. registered investment advisor (RIA) model was sparked by the 2008 global financial crisis. Widespread layoffs at large broker-dealers prompted many advisors to carve their own paths. These early pioneers learned quickly how to build successful, independent businesses by streamlining operations and focusing on client experiences. Firms such as Creative Planning began with tens of millions of dollars in assets and are now managing hundreds of billions and receiving funding at valuations of US$15-billion.
As a result, advisors have learned that their business’s potential value is significantly more than the 1.5 or 2 times recurring revenue that they could sell to a broker-dealer. Entrepreneurship proved to be a powerful tool for growth, with established firms using their success as currency to acquire others and scale even further.
Canada didn’t experience the same catalytic event in 2008. The market has been slower to evolve but we’re starting to see innovative, independent firms emerge. Many of these early-stage businesses are learning from the successes and strategies of their U.S. counterparts, building operational foundations that will drive their long-term growth and equity creation. These firms will likely be the winners in the years to come.
Technology’s role in supporting independent advisors
One of the key drivers of the U.S. independent advisory market’s growth has been the availability of advanced technology to support new firms. In Canada, the RIA market has been slower to mature, and technology options have lagged. Large, established players, encumbered by legacy systems, have been slow to invest in new tools that can enhance advisor efficiency and client outcomes. This has left a gap in the market for innovative, independent firms to step in and provide solutions.
However, in recent years, new Canadian platforms and software providers have offered streamlined solutions for advisors. As the independent market continues to grow in Canada, we expect even more enhancements to the advisor tech stack that will simplify the advisor experience and enhance client relationships.
The appeal of independence for Canadian advisors
Perhaps the most significant change underway is the growing awareness among Canadian advisors of the benefits of independence, including equity ownership, business control and a personalized value proposition aligned with their values.
Just last month, several hundred advisors from North America attended the Future Proof conference in the U.S., highlighting the increasing interest in the RIA model. Leading U.S. firms such as Diamond Consultants have reported an uptick in activity from Canadian advisors exploring the possibility of breaking away from traditional brokerage models.
A rising base of successful independent Canadian firms is creating a strong foundation for the next generation of innovators.
Still work to be done
Of course, challenges remain. Regulatory requirements for firm registration need to be simplified and the process sped up to encourage more business formation. There’s also a need for more tools to support advisors navigating the regulatory landscape. Simplifying and streamlining these processes, while maintaining robust oversight, is crucial for a healthy, competitive Canadian wealth management market. Early adopters are already using their expertise to scale their firms, and this knowledge advantage can help smaller players starting out.
For Canadian investors, the benefits of enhanced competition are clear. A more dynamic wealth market will develop new business models to meet the unique needs of different clients. Direct-to-consumer platforms such as Wealthsimple have shown that there’s an appetite for change. Now, the advisor market is poised to follow suit, offering clients more options and improving both the advisor and client experience.
Jeff Gans is chief executive officer and managing partner of Advisor Solutions by Purpose in Toronto.