Bro­ker­ages are lead­ing the way in en­cour­ag­ing ad­vi­sors to drop the small­est clients from their books of busi­ness


The in­creas­ing costs re­lated to holis­tic wealth man­age­ment and the greater reg­u­la­tory bur­den are lead­ing fi­nan­cial ser­vices firms — led by the bro­ker­ages — to en­cour­age or im­ple­ment poli­cies for ad­vi­sors to drop their small­est clients from their books of busi­ness.

“Y our lit­tle clients don’t earn you much, but take a sig­nif­i­cant amount of work to keep them ac­tive”

to­day, canada’s fi­nan­cial ser­vices sec­tor is deal­ing with the con­flict­ing re­al­ity of fo­cus­ing more on holis­tic wealth man­age­ment and build­ing long-term re­la­tion­ships with clients while deal­ing with the mount­ing costs of run­ning a com­pli­ant busi­ness. Clearly, some­thing has to give.

Thus, some firms are be­gin­ning to im­ple­ment cut-offs — the dol­lar amount of in­vestible as­sets be­low which fi­nan­cial ad­vi­sors can­not serve a new or ex­ist­ing client. To gauge the preva­lence of this trend, In­vest­ment Ex­ec­u­tive added a sup­ple­men­tary ques­tion to this year’s Re­port Card se­ries that asked ad­vi­sors if their firms are en­cour­ag­ing them to drop their small­est clients.

Ad­vi­sors at some firms re­ported the im­ple­men­ta­tion of such a cut-off; other ad­vi­sors re­ported that their firms en­cour­age them to cease serv­ing small clients with­out nam­ing a spe­cific as­set thresh­old. Nev­er­the­less, many ad­vi­sors in all dis­tri­bu­tion chan­nels, re­gard­less of whether they were af­fected by this trend, ex­pressed their con­cern about what they be­lieve will soon be a sec­tor­wide phe­nom­e­non.

The re­sults of this year’s Re­port Card se­ries re­veal that, so far, this trend is most preva­lent in the bro­ker­age chan­nel — and mainly within the bank-owned bro­ker­ages. No­tably, 58.4% of ad­vi­sors at bro­ker­age firms re­ported that their firms en­cour­age their bro­kers to drop th­ese clients. How­ever, only 14.6% of ad­vi­sors at mu­tual fund and full-ser­vice deal­ers, banks and in­surance agen­cies com­bined re­ported that their firms take this ap­proach.

Most ad­vi­sors whose prac­tice is through bro­ker­ages ei­ther un­der­stood or were thrilled about the myr­iad rea­sons firms im­ple­ment th­ese cut-offs. Profitabil­ity is a big rea­son ad­vi­sors were quick to cite when they ex­plained their firm’s de­ci­sion to fo­cus on wealth­ier clients. With the sheer amount of work re­quired to main­tain each client’s ac­count, ad­vi­sors ac­knowl­edged that they could af­ford to keep only so many clients sat­is­fied.

“The bot­tom line is your lit­tle clients don’t earn you much, but they take a sig­nif­i­cant amount of work to keep them ac­tive and rolling,” says an ad­vi­sor in Al­berta with Toronto-based TD Wealth Pri­vate In­vest­ment Ad­vice (TD Wealth PIA). “A $4-mil­lion client doesn’t take 40 times the work. It’s an ef­fi­ciency thing.”

“Twenty-five years ago, if you had a $50,000 client, it was OK,” adds an ad­vi­sor in Bri­tish Co­lum­bia with Toronto-based Sco­ti­aMcLeod Inc. “But now that I have to do the plan­ning and quar­terly re­views and things like that, the money has to make sense for my time.”

Ad­vi­sors also cited the reg­u­la­tory work­load as yet an­other key fac­tor why drop­ping the small­est clients from their books of busi­ness makes sense.

“Reg­u­la­tory costs are the same whether your client is big or small,” says an ad­vi­sor on the Prairies with Mon­treal-based Na­tional Bank Fi­nan­cial Ltd.

In ad­di­tion, as the needs of high net­worth clients have be­come more com­plex, so have the time con­straints that ad­vi­sors’ face in serv­ing this client seg­ment’s grow­ing needs.

‘“The time and de­mands of clients don’t al­low us to serve a large num­ber of clients,” says an ad­vi­sor in At­lantic Canada with Toronto-based BMO Nes­bitt Burns Inc. “The ex­pec­ta­tions of high net-worth clients are high, which al­lows us to serve only a num­ber of them.”

But while most ad­vi­sors with bro­ker- age firms rec­og­nize the ra­tio­nale for this trend, a vo­cal con­tin­gent were un­happy with the pres­sure they face to drop their small­est clients — es­pe­cially as that prac­tice alien­ates a younger gen­er­a­tion of in­vestors. In fact, many ad­vi­sors vividly re­called the days when some of their largest clients were just start­ing out.

“Ev­ery client who is above the $250,000 thresh­old once had less than $250,000 [in in­vestible as­sets],” says an ad­vi­sor in On­tario with Toronto-based CIBC Wood Gundy. “So, if we’re drop­ping [clients be­low that thresh­old], we’re not giv­ing them a chance to grow.”

“Peo­ple have to start some­where,” adds an ad­vi­sor in Al­berta with TD Wealth PIA. “The ear­lier they’re trained to make proper in­vest­ments and to do it prop­erly, the bet­ter they’ll be in the long run.”

Greg Pol­lock, CEO of the Fi­nan­cial Ad­vi­sors As­so­ci­a­tion of Canada (a.k.a. Ad­vo­cis) echoes this sen­ti­ment. Al­though he rec­og­nizes the reg­u­la­tory and com­pli­ance bur­den be­hind the de­ci­sions, he says Ad­vo­cis doesn’t en­dorse ad­vi­sors drop­ping small clients from their books.

“At the end of the day, [that prac­tice] is go­ing to lead to fewer clients hav­ing ac­cess to ad­vice,” Pol­lock says. “And we all know that the more ad­vice that [clients] re­ceive, the wealth­ier they’re likely to be. [Drop­ping small ac­counts] works against that larger goal of try­ing to make all Cana­di­ans in­de­pen­dent in man­ag­ing their fi­nances.

“In the longer term,” he adds, “[clients who are just start­ing out] are go­ing to stay with th­ese ad­vi­sors as long as th­ese ad­vi­sors are con­tin­u­ing to serve them well. That’s not only go­ing to serve the clients well, but it’ll serve the ad­vi­sors well.”

There are ad­vi­sors in the other dis­tri­bu­tion chan­nels sur­veyed for the Re­port Card se­ries who wel­come the op­por­tu­nity to work with clients who no longer qual­ify to work with ad­vi­sors in the bro­ker­age chan­nel.

“I get those [clients who have been cut from other firms]” says an ad­vi­sor in On­tario with Lévis, Que.-based Des­jardins Fi­nan­cial Se­cu­rity In­de­pen­dent Net­work. “I don’t ever want to make some­one feel less than ad­e­quate be­cause their busi­ness is smaller. I think that those peo­ple de­serve at­ten­tion.”

“The rich peo­ple are fine,” says an ad­vi­sor in On­tario with Win­nipeg-based GreatWest Life As­sur­ance Co.’ s Gold Key dis­tri­bu­tion net­work. “The peo­ple who are start­ing out are who re­ally need our help.”

Still, many ad­vi­sors feel the wind of change — and many worry they’ll face the same re­al­ity in a few years’ time be­cause of the reg­u­la­tory cli­mate, with its em­pha­sis on in­creased com­pli­ance and the po­ten­tial elim­i­na­tion of em­bed­ded com­mis­sions.

“It’s com­ing,” says an ad­vi­sor in On­tario with Water­loo, Ont.-based Sun Life Fi­nan­cial (Canada) Inc. “A lot of it has to do with if they get rid of em­bed­ded trail­ers. I’ve be­gan tak­ing steps to­wards that.”

“We’re watch­ing for that,” says an ad­vi­sor in On­tario with Oakville, Ont.-based Man­ulife Se­cu­ri­ties. “This [trend] will be a tip­ping point for a lot of peo­ple.”

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