Analyzing Canada’s millionaire market

The wealthy in Canada are growing in number, and their investment needs are changing accordingly, says Keith Sjogren, director of strategy consulting at Investor Economics. Speaking at an investment conference in Toronto on Monday, Sjogren discussed his company’s recent survey on Canada’s lucrative millionaire market.

The survey segments Canada’s high-net-worth clients into three groups: mass millionaires, comprising approximately 335,000 Canadians who possess between $1 million and $5 million in investable assets; penta-millionaires, 50,000 Canadians with between $5 million and $10 million in assets; and deca-millionaires, those 20,000 Canadians with more than $10 million. According to his research, Sjogren says the first group feels somewhat under-served by advisors, while the second group feels well-served, and the latter group feels over-served. “They’re just fighting off advisors and investment counselors. There is congestion on the Persian carpets of the deca-millionaires,” he joked.

With an estimated total of more than 400,000 people in Canada with more than $1 million, Sjogren sees this as a naturally attractive market for investment managers, full-service advisors and fee-only planners. He notes the bulk of Canada’s rich — 40%, or 160,000 — are located in Ontario, while the fastest growing group is in Alberta, at around 55,000.

More and more, wealthy Canadians want to be in partnership relationships with their advisors, and proportionately fewer are willing to hand over full delegation, says Sjogren. With more discussions talking place between clients and advisors, that naturally leads to a greater time commitment for advisors, as clients are more discerning and more apt to question how the firm is running their investment affairs.

Sjogren estimates the millionaire market will grow upwards of 7% annually. In terms of their investment objectives, Canadian millionaires are becoming more conservative, especially as they get older. Sjogren says this is not surprising and the average age of a millionaire is around 60. As the wealthy age, they naturally become more focused on capital preservation and generation of income.

When Investor Economics asked individuals how satisfied they were with their investment advisor, the responses were marginal with 60% of advisors passing the mark. However, the findings indicated that approximately 7% of Canadian millionaires actually change their primary financial advisor on an annual basis. “That’s around 30,000 people who changing their financial advisor each year,” says Sjogren. “One of the other things that we found is that it takes a long time. We found that Canadian millionaires don’t take decisions very quickly; so if they’re thinking about changing an advisor, they think about it and they think about it. And then when they decide who to move to, it takes a long time as well.”

Citing a recent remark from a friend who works in private investments in New York, Sjogren told the audience it took her six years to get a client to change from one investment counselor to another — despite the fact she knew full well they were dissatisfied. “It looks like a really attractive market, it’s a growing market, but it is difficult to dislodge people.”

In general, Canadian millionaires are using more than one type of advisor, led by full-service brokers at 64%, while investment counselors came in at 34%. But in terms of gain in market share over the last five years, it’s the latter group that has in fact surpassed both full-service brokers and financial planners. While 64% of wealthy people say they have a relationship with a full-service broker, only 37% actually identify that individual as their primary advisor. The same goes for the 34% of individuals that use investment counselors — only 22% actually identify that professional as their primary advisor.

Full-service brokers and investment counselors currently have access to $135 billion in discretionary assets, Investor Economics estimates. That number could jump to $434 billion as soon as 2014. “This is good news. We see the market growing in terms of assets; we see the market growing in terms of individuals who can make use of sophisticated investment programs,” Sjogren explains. “We actually project that the share of the total wealth market represented by discretionary assets is also going to increase. So the weight of increase of these types of assets is going to exceed that of the market as a whole.”

Private banking and private trusts are also on the upswing, Sjogren notes, although there are challenges for the industry, since most wealthy clients do not yet fully understand their respective roles in a comprehensive financial plan.

Filed by Heidi Staseson, Advisor’s Edge, heidi.staseson@advisor.rogers.com