Five ways Covid-19 has permanently changed wealth management

This article appears in the March 2021 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.

Early in the pandemic, an aphorism from the last financial crisis gained new life and was soon being applied to problems from business supply chains to reshaping major economies.

“Never allow a good crisis to go to waste,” said Barack Obama’s then chief of staff, Rahm Emanuel, in 2009. He repeated the line in March 2020, and others have followed.

Advisory firms, asset managers and regulators have all been examining their responses to pandemic lockdowns that upended traditional business practices. Many are finding silver linings in how they quickly executed changes that might otherwise have taken years.

“The concerted effort to modernize is finally here,” said Kendra Thompson, partner at Deloitte in Toronto. “It really speaks to an awakening of an industry that’s been a bit too cautious about change.”

Clients, too, are thinking differently about retirement, work, where they live — and about wealth more broadly.

A year into a pandemic that we hope will finally be behind us at this time next year, here are ways the wealth management industry has changed — and how advisors can prepare for an uncertain future.

The post-pandemic workspace

A common refrain early in the pandemic was how wealth managers, with their feet to the fire, adopted more digital practices in a few weeks than they had in years. That initial scramble has matured into a year of operating remotely. How will advisor offices look when the pandemic is finally over?

Raymond James is consulting advisors and clients as it considers its post-pandemic plans. A client survey conducted in 2020 showed 48% prefer in-person meetings with advisors, said Sybil Verch, the firm’s executive vice-president and head of private client solutions. More than half said they’re willing to continue with phone and video calls — and that it doesn’t matter to them where their advisor works.

Advisors want flexibility and choice about where they work, Verch said. Some teams prefer a permanent office space where they can collaborate on a daily basis; others would like to work from home all the time.

Tech firms such as Shopify were among the first to state their intentions to permanently abandon office space. Some Bay Street firms appear ready to follow on a smaller scale, with office vacancy rates shooting up during the pandemic.

Raj Lala, president and CEO of Evolve ETFs in Toronto, used to be skeptical when someone asked to work from home.

“The first thing that would pop into my mind was, ‘Why don’t we call that a vacation day, because that’s probably what it’s going to be,’” he said.

“What this pandemic has taught me is that, in a number of cases, people on the team are more efficient at home.”

He said about one-quarter of his staff will likely become semi-permanent home workers, coming in maybe once a week for team-building purposes.

“If companies today are looking at their space requirements, I’m sure it’s significantly less than what they would have thought they needed a year ago,” he said.

Even advisors who want to keep working from home will likely keep one foot in a proper office, though, Verch said.

Registering a residence as a business location creates a number of regulatory headaches around storing files securely and identifying the residence as a business. A lawn sign might run into municipal bylaws as well as branding issues: firms may not be comfortable having their corporate logo on a home, she said. Advisors and their families might not be so keen, either.

A more likely scenario is a home-office split, which could transform the office’s purpose and appearance. A big advisor office where clients sit on the other side of the advisor’s desk, with an assistant’s cubicle outside, won’t be necessary if advisors are only spending part of their time there.

Verch said advisors and teams could work behind the scenes in shared pod-style desks, rotating days spent at the office. The main feature would be meeting rooms for clients. These could come in various styles, Verch said — living room, boardroom, etc. — to appeal to different client segments, and they would be equipped with green screens and other tech for hosting webinars and video conferences. Some of the cost savings on a smaller advisor office footprint would be spent on technology and swankier shared areas, she said.

She also noted that some teams are struggling with productivity and efficiency outside the office. Firms need to invest in support and training on how to manage teams remotely.

“Those who do a good job at managing advisors remotely will be the winners at the end of the day,” she said.

New business models

Working remotely, even if it doesn’t last for everyone, has broken down geographical barriers. This is already playing out in both advisor and client recruitment.

Raymond James recently hired two officers for its trust division. In the past, those positions would have been based in Toronto or Vancouver; these new officers are in Saskatoon and Ottawa. “We’ve got a better talent pool to draw on because we’re not limited in terms of geographic location,” Verch said.

Advisor teams are also thinking differently about recruitment. Raymond James advisors in three different cities recently hired a financial planner whose services they’ll share. “That would never have happened pre-pandemic,” Verch said.

Fiercer competition for clients will follow, as advisors are no longer restricted to prospecting in their own backyards.

“We’re seeing a lot more advisors having access to potentially any client across Canada — wherever they’re licensed by a regulatory body,” said Juanpaolo Mercado, vice-president of sales in Western Canada with Canada Protection Plan.

Advisors who previously appealed to the target market in their region now need to think nationally, Verch said.

“That’s going to create a better client experience, but it’s also going to force advisors to get really specific on their niche and their value proposition,” she said. “Those advisors who are resistant to change and technology run the risk of falling behind.”

Verch said most clients will likely continue to be served locally in the short term. After all, the Raymond James survey showed 48% still want face-to-face meetings. But that’s far fewer than she would have expected.

Digital tools are also lowering barriers to financial advice and allowing advisors to potentially take on more mass-affluent clients, Verch said. Rather than one-on-one meetings, advisors can do webinars that cover the general market and macro overview with groups of clients — answering anonymous questions from clients who can’t see the other participants. Delivering the general information to groups would allow for more efficient one-on-one meetings about specific needs, she said.

Technology adoption is also lowering barriers at the firm level, said Ian Russell, president and CEO of the Investment Industry Association of Canada (IIAC): “Firms are realizing that technology compensates for the competitive disadvantage of small size.”

The pandemic forced firms to invest in automating time-consuming front-end processes, Russell said. Normally a downturn like the severe bear market last March would have raised fears about more industry consolidation. Instead, the pandemic has contributed to pre-existing trends that boost the little guy.

Third-party entities are making it more attractive for advisors to set up independent businesses by offering tech tools for client documentation, compliance, product selection and custodial services.

“We’re seeing small firms doing well because, by adopting technology, they’re improving their productivity and their bottom line,” Russell said.

Product distribution

When was the last time you were in a room with colleagues for a pitch from a product wholesaler? And when is that likely to happen again?

The pandemic has upended a business built on face-to-face meetings over lunches, golf, road shows and large industry events.

Lala and his sales team at Evolve would normally be criss-crossing the country to meet with advisors. Instead the focus has shifted to video calls and webinars. The firm’s incremental costs for meals, entertainment, flights and mileage were down 90% from a year earlier, but there are challenges.

Evolve didn’t use video calls before the pandemic. In the past year they’ve done about 100 webinars with large groups of advisors, as well as smaller calls with specific dealers and branches.

Kevin Gopaul, president and chief commercial officer of BMO ETFs at BMO Global Asset Management in Toronto, said his sales team could get 80 or 90 people to attend a virtual conference before the pandemic. They recently had 1,000 attend a session about a niche thematic topic.

The lack of face-to-face time has fund companies reconsidering how sales teams are structured. BMO hired data analysts to help the sales team target advisors and identify service needs more precisely.

Lala hired a couple of junior salespeople to work the phones and video calls. He said larger fund companies have shifted further in this direction, relying less on senior wholesalers and their relationships with advisors at a time when sales are made virtually.

But where junior sales reps at the big manufacturers can “tuck in behind their brand” and still get advisors on a call, Lala said Evolve lacks the name recognition.

“Advisors are so inundated by the hundreds of fund companies trying to get their attention that they still want to talk to somebody they know,” he said.

For now Evolve is using a blended approach, with a couple of new salespeople working the phones and senior reps continuing to play a major role.

But the digital sales component is likely to outlast the pandemic, Lala said. “If advisors are going to work from their offices less, it’s definitely going to restrict the amount of time we have in front of them.”

When they’re at the office, advisors will likely prioritize meetings with their clients and their teams, and carve out less time for fund companies. Fewer will be present for the standard lunchtime branch presentations. While some travel will return, video conferencing will remain central.

Gopaul said the pandemic has also changed product demand. As advisors depend more on technology for work, they’re more receptive to tech companies as investments. This has led to growth in thematic products around tech and innovation (as well as genomics and health care — other top pandemic themes). “We thought it was a short-term blip but now it’s transforming everything we’re doing,” he said.

Flexible regulators

When the pandemic hit, regulators tried to make life easier for firms and advisors scrambling to establish secure remote processes. In the past year, companies have hosted virtual annual general meetings (AGMs), financial firms have submitted electronic documents rather than paper files, and regulators have conducted online disciplinary hearings.

Now the industry is waiting to see how many changes will stick.

The Investment Industry Regulatory Organization of Canada (IIROC) responded to the crisis by granting exemptions in areas where the pandemic made it hard for firms to comply with existing rules. By the fall, the self-regulatory organization had granted relief to dozens of exemption requests regarding supervision, client verification and wet signatures.

President and CEO Andrew Kriegler wrote in IIROC’s annual report that the regulator’s response demonstrated new ways of conducting business. “Over the coming months, we will work with all of our stakeholders to propose rule amendments to ensure that the efficiencies and improvements that have been identified are not lost.”

In the fall, when IIROC published best practices for virtual hearings, it suggested the practice had become accepted and may continue post-pandemic.

Other changes have taken place elsewhere. Late last year, the Mutual Fund Dealers Association of Canada (MFDA) said it would make permanent its pandemic policy allowing fund dealers to provide certain documents with electronic signatures. And Canada’s big banks and insurers obtained a court order allowing them to hold their AGMs virtually again this year.

Some firms are now asking regulators to permanently eliminate paper regulatory filings, allow e-signatures and make electronic delivery of investor materials the standard.

“One would have thought there would have been more inertia in adapting rules because there’s obviously an overriding concern about investor protection,” said IIAC’s Russell.

“The regulators have been incredibly accommodative and, at the same time, striking the balance between maintaining standards of investor protection.”

Investor advocates also noticed how nimble regulators could be when the circumstances demanded it. In a submission responding to the Ontario Securities Commission’s (OSC) priorities for 2022, the regulator’s investor advisory panel said there was now “clear evidence that the OSC can move very quickly and dynamically in response to industry needs and government directives.”

With the move to remote working likely permanent for a lot of advisors, Russell said many of the regulators’ accommodations will also be permanent. “Regulation hasn’t really impeded or created substantial barriers to the move to remote.”

Ideas about wealth

The pandemic has affected people in strikingly different ways. Clients have lost loved ones to the virus, or lost businesses or jobs. Others have put careers on hold to care for children. Others have had their vision of retirement upended. But even those untouched by the pandemic’s graver consequences have likely found themselves questioning the way they live.

“There’s been a lot of soul-searching,” Deloitte’s Thompson said. “It’s causing a lot of families to think about where they live, what they do with their leisure time, how they prioritize the decisions they make around family and work. And that’s fundamentally changing some of the paradigms we’ve used as an industry for financial planning.”

Over the past year, more Canadians have been talking about moving, changing careers, accessing government income replacement benefits or business loans, managing cash flow and taking advantage of low-interest debt.

This has reinforced the importance of financial plans and, in some cases, been a catalyst for creating them, said Maili Wong, senior portfolio manager and executive vice-president with Wellington-Altus Private Wealth in Vancouver.

“Covid really shook people to realize how important that is,” she said, pointing to business owners in particular.

Before the pandemic, millennials were mostly alone in seeking advice that responded to shorter-term horizons in an industry focused on retirement planning, Thompson said. Now other client segments are thinking differently.

“We really focused most of the underpinnings of our industry on accumulation for the next generation and for the long-term horizon. What we’re seeing is a number of boomers saying, ‘I’m finally retired and I can’t leave my home,’” she said.

After the pandemic, clients may be less likely to push dream vacations and other priorities into the distant future. Financial plans will have to adapt. “I fundamentally expect that those kinds of emotional situations are going to bleed into the ways that people think about money and about their estate,” Thompson said.

Advisors have weathered the pandemic’s challenges and the transition to new forms of advice well, she said, continuing to serve clients during a very difficult time. “They’ve proven that they can work in new ways and they’ve seen that their clients want to work in new ways.”

Catered webinars

Video conferences and webinars can feel like a chore to clients who are intimidated by the technology or who already spend too much time in front of screens. Some might need a carrot to entice them. In some cases, that carrot may look more like a charcuterie board.

Maili Wong from Wellington-Altus Private Wealth said she wanted to show clients her appreciation while also encouraging them to attend a Zoom webinar last summer.

“We created a special experience for them by providing a charcuterie board to enjoy with wine as they tuned in,” she said. “In a way it replicated the feeling of an in-person event even though we were meeting virtually.”

The bait worked: almost 100 people attended the live, invitation-only webinar, she said. Similar in-person events would usually draw about 70 or 80 people.

Raj Lala from Evolve ETFs has replicated lunch-time branch office meetings with advisors by ordering them lunch through an online delivery service during a video call.

“Everybody needs to eat lunch, and it’s a great way to get people engaged,” he said.

What next for the DIY crowd?

Canadians opened more than 2.3 million do-it-yourself investing (DIY) accounts in 2020, according to research from Investor Economics (almost triple the 2019 total). People working from home during the pandemic and a red-hot stock market no doubt contributed. The figure was cited in a February investor bulletin from the Investment Industry Regulatory Organization of Canada (IIROC) that sought to help those investors make informed decisions.

The fallout from the GameStop saga earlier this year is still unknown, but disenfranchised DIYers may provide an opportunity for advisors. Kendra Thompson, partner with Deloitte, said the severe volatility may call into question the sustainability of the direct investing service model. Some of those investors may decide they want a dedicated advisor.

Kevin Gopaul with BMO Global Asset Management said investors generally don’t leave the market once they’re in. Their needs are likely to change, though. “It’s going to be a golden age for investment advisors if they play it correctly,” he said.

Insurance

Even the insurance industry, which is notoriously slow-moving when it comes to innovation, has been nudged in new directions by the pandemic. In addition to adopting electronic signatures and other electronic tools for clients, insurers adapted standards for coverage when the virus halted medical exams.

Limits on non-medical coverage have more than doubled to around $2 million, depending on the client’s age and other factors.

Juanpaolo Mercado with Canada Protection Plan said that while a lot of carriers raised issue limits, the changes will be subject to review and may be temporary. Insurers will be examining actuarial tables and mortality rates to see whether the changes are sustainable.

“It wouldn’t be surprising as an industry if we ended up normalizing this and we see this persist well beyond Covid,” he said. “I think the trend toward higher non-medical limits will stay.”