IFIC conference update: Working with the big banks

(September 28, 2005) Despite posing formidable competition within both the fund manufacturing and distribution networks, the major banks have insinuated themselves so deeply in the investment industry, that competitors on both sides feel compelled to partner with them, according to an industry panel at IFIC’s annual conference in Toronto on Wednesday.

“The banks are well positioned to benefit from the relationships that they already have,” says Charles Guay, president and CEO of National Bank Securities and Altamira Investment Services. He says the banks have successfully transformed themselves from transactional financial institutions, into wealth management centres.

Guay points out that the banks’ funds have been very competitive on pricing, not only tending toward lower MERs than similar independent funds, but often without a sales charge. This claim is underscored by the fact that banks’ funds are even being sold by independent advisors, their nominal competition on the distribution side.

“We have seen banks selling funds through [independent] advisors,” Guay says. “This is the real test. It’s really important to have a product that speaks for itself.”

Based on monthly statistics compiled by IFIC, at the end of August, the five biggest banks manage assets in excess of $178 billion, about 32.5% of total mutual fund assets in Canada. Compare that to $111.8 billion in 2000, or 25.5% of the national total.

“The banks realized that they were well below their natural share of the fund space in the mid-90s and I think [they] all have made a great effort,” said Robert Strickland, president of Fidelity Investments Canada. “They’ve learned to use their distribution models to their advantage over the last little while and the result of all that is that not only are their distribution channels being well served, but really advisors around the country have been well served as a result of a more competitive fund business.”

He says the banks have helped the entire industry, by making mutual funds the “savings vehicle of choice” in the public mind.

While the banks pose a formidable challenge on the manufacturing side, Don Reed, president and CEO of Franklin Templeton Investment Counsel says they offer an even greater opportunity as distribution partners.

“The banks are one of the channels that distribute our manufactured product,” Reed said, noting that his firm does not work directly with the public. “We consider ourselves partners with people who are distributing our funds. The banks are dealing with their own product, but they also have our products on their platform. It’s our job to get our products on the platforms of the banks, the financial planning firms and the insurance companies.”

Reed points out that Canada seems to represent a happy median between the U.S. model, where the banks play a much smaller role, and the European model, where the banks are by far the dominant players in a much smaller fund industry.

On the distribution side, the advisory industry seems a little less enthusiastic about the banks’ strong position.

“I miss the time when banks were an easy target. It was so nice to steal their assets — they had no idea what they were doing, but that’s all changed,” says Joe Canavan, chairman and CEO of Assante. “They are far more aggressive and proactive; their strategies are very sound and they have become the toughest competitors in the business, as well as great partners for us.”

But just as the banks’ massive marketing budgets helped raise the profile of fund investing, they are also working on ingraining the concept of advice for the masses. If the independent advisory channel can catch as much spillover as the fund manufacturers, they should find coexistence with the banks far easier to take.

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