The future of wealth management in the mass affluent advice channel

The financial landscape for mass affluent investors is evolving rapidly. With advancements in technology, a changing regulatory environment, and shifting investor preferences, the future of investment products for this market presents both challenges and opportunities. This white paper explores these dynamics, offering insights and recommendations for financial advisors.

Macro trends aside, the advice segment of the wealth management industry in Canada has slowly been transitioning from a transaction based, commission driven model to an asset based, fee for service model. We are steadily and increasingly moving from sales to advice while the old model drifts off into the sunset. The ramifications are enormous. It now takes more client meetings and time for advisors to provide the expected advice needed to close a sale, and compensation is no longer front-end loaded. In this new model, smaller clients do not generate the income needed to justify the time requirement. How an advisor’s time is spent is crucial to survival and growth. The question becomes — ‘How do advisors present a viable value proposition for the mass affluent market, which has ever-increasing options.’–

Prioritizing the mass affluent

Investment products tailored to the mass affluent are crucial for wealth accumulation, retirement planning, and achieving the financial goals of millions of Canadians. This group seeks advice, and a balanced, cost-efficient approach that combines growth opportunities with risk management. Many financial services firms are strategically focused on the more profitable High-Net-Worth (HNW) and Ultra-High-Net-Worth (UHNW) client segments and regulatory changes that have increased compliance costs, have the potential of limiting mass affluent access to advice and a broad non-proprietary product shelf. There is a tremendous need for this group to have greater access to independent financial advice and products. It is incumbent upon us to seize the moment and create new solutions by reimagining ways for advisors to deliver trusted advice to this massive market.

Defining the opportunity

Canada’s mass affluent segment is defined as households with investable assets ranging from $100,000 to $1 million. We must also take the mass-market segment ($10K to $100K) into consideration. With the right advice, they are the future mass affluent. In fact, according to IFIC’s 2023 IFIC’s 2023 Investment Funds Report there is currently $1.94 trillion currently held in mutual funds in Canada. The vast majority of accounts under $100,000 hold mutual funds, representing millions of Canadian households. This population deserves both high quality investment products and personalized financial advice to generate the outcomes that regulators, the industry, and investors advocate all desire.

Current trends in advice for the mass affluent

The current trend in Canada is toward less personal advice – steering this group to DIY, robo platforms and call centers who emphasize selling proprietary products to boost revenue and profitability. Independent advisors have been losing market share to banks and DIY options over the past 15 years. Regulatory changes make providing advice for this group less affordable and impractical as the costs of regulatory compliance overhead can’t be overcome by serving small accounts. As a result, more advisors are passing on the mass affluent as target clients. With dealers focused on the far more lucrative HNW and UHNW clients, attention and resources are no longer focused on addressing the hurdles these clients face.

If this trend continues, mass affluent clients will be left to fend for themselves or rely on canned, templated advice and product options as opposed to having access to holistic advice through the independent channel. This all flies in the face of surveys that tell us this market, including Gen Z, seek personalized advice. The “app and algorithm” as a solution only goes so far – human connection and professional insight are in demand.

The value of advice

I believe – and studies support the view – that investors are better off with advice. They tend to save more and have higher returns than those who go it alone. I rail against those TV ads claiming you would be 30% better off investing on your own. I am a strong advocate for connecting mass affluent investors to advisors. And an equally strong advocate for advisors, offering their trusted guidance to investors.

Is there a future for change-resistant advisors?

For established advisors, the motivation to change may not be immediately felt. Their current approach is working, so why change now?

First, the future value of an advisor’s business will be dramatically affected by current decisions. Although currently comfortable, these change-resistant advisors are leaving significant money on the table when they decide to sell their businesses. Advisors who have chosen to maintain the status quo could find that the value of the book of business could be 25-30% lower than books where the advisor has kept pace with the industry. There is a new generation of advisors who no longer believe that the old practice of fund picking to generate commissions is of value to clients and they are not interested in that as a career. Advisors who have evolved and created a value proposition focused on personalized client needs are likely to find that their business will have greater appeal to potential buyers of their book in the future.

Second, advisors have a duty to clients first. Are they doing their best for the clients who pay them? If they are not aware of and comparing new account types, considering managed solutions, and offering options, I would argue they aren’t earning their client’s business or the fees they pay. Advisors not only have regulatory and legal duty – but I would also argue they have a moral one too.

Considering options to move on from the status quo is important -for the present and the future. And research suggests that learning something new is good for the brain!

Informational purposes only
The information and ideas set out herein are only conceptual and describe views of a possible future. In particular, the whitepaper is being shared to outline some of the ideas of the writer and is provided solely for INFORMATIONAL PURPOSES and does not predict with any certainty as too how actual events will unfold. Please do not rely on this information in making business decisions because the development and functionality that becomes available remains subject to a host of factors not under the writer’s control. Further, the white paper may be amended or replaced from time to time. There are no obligations to update the Whitepaper or the Website, or to provide recipients with access to any information beyond what is provided herein.