Competition to heat up in HNW sector, says researcher

(August 27, 2004) Competition will soon become fierce in the financial advice industry, especially in the high net worth sector, as growth in the wealth market slows, according to one prominent researcher.

“Over the next ten years we are going to experience slower growth,” says Goshka Folda, senior consultant and managing director at Investor Economics. The research group bases their findings on a number of factors, including the demographics of the Canadian population, income growth, the ability to save, interest rates and inflation.

“We do not believe the explosive growth that the financial services industry saw, the double digit growth throughout the 1990’s, is going to repeat in the near future,” she told an audience at the Strategy Institute’s wealth management summit this week in Toronto.

“Our belief is that the entire household balance sheet is going to grow at about 6 to 7%,” she says. “And you know what that means — the slower growth means there is probably not enough opportunity for everyone.”

Folda points to convergence within the industry as another source of increased competition. As bank branch advisors expand their offerings beyond in-house products, their shelves start to look more and more similar to independent advisors.

In the past, there was a tendency for entry-level clients to start with a branch-based advisor, but eventually “graduate” when their assets reached a level that was more attractive to independent advisors. Even if they stayed with their bank-based account, their account would usually be moved from the branch level to the bank’s brokerage service.

Today, Folda says clients are staying with their branch advisor as their assets continue to climb, posing a challenge to advisors who used to benefit from the graduation trend. In fact, she says the trend may reverse, with retention potentially becoming the biggest challenge to growth, as clients seek the best “value for money” advisor. With a better handle on their overhead, the bank-based advisor holds an advantage.

But the higher end investor will demand superior service as well. A more holistic approach will be needed to attract and retain these preferred clients, as they seek to maintain their wealth.

“We don’t think that Canadians are going to try to stay away from risk instruments for the simple reason that we need growth,” she said, pointing out that advice and risk management will become ever more important.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com