In 2018, the collective wealth of high net worth individuals (HNWIs) in Canada was $1.1trn (£846m, €988m) , according to Capgemini.
This was a 6.4% decrease from 2017.
The HNW population also suffered a fall of 3.9% to 362,040 in 2018.
Despite this negative trend, the Canadian market is still very valuable and has seen a lot of M&A activity.
In 2019, Onex Corporation bought and privatised HNW investment firm Gluskin Sheff for C$445m (£255m, $336m, €303m).
In 2018, Scotiabank acquired both MD Financial Management for C$2.585bn and Jarislowsy Fraser for C$950m, while TD Canada Trust snapped up Greystone Managed Investments for C$792m.
Sean Lasko, senior investment counsellor at Manulife Private Wealth, told International Adviser: “The continued consolidation of wealth management firms is expected, with organisations looking for greater economies of scale to improve bottom line results.”
But, as the big banks and wealth firms are consolidating, the HNW space in Canada has been disrupted by the robo-advice sector.
This is something that the UK has been going through for several years and, in many ways, is still trying to adapt to the influx.
So, the question that needs to be asked is: Can robos hurt the big players in Canada’s wealth management industry?
“The big story in the Canadian wealth sector is the increased digitisation of wealth management offerings,” said Lasko. “Robo-advisers certainly have gotten the attention of the millennial generation, however, whether they can tap into to the high net worth market remains to be seen.
“With robo-advisers becoming more prevalent, lower income individuals that may have been neglected in the past are now finding an entry point to obtain financial advice, albeit with a more cookie-cutter approach.”
In a bid to fight back, wealth firms and financial planners need to show their value to clients.
This is a discussion point that has come up in the UK.
Kyle Richie, senior investment consultant at Richie Group Private Wealth Management, believes it is not so much about whether firms can “deliver value”, but more about how they market their value “relative to their competitor”.
“With the introduction of robo-advisers, advisers in Canada need to do more to justify what they are being paid,” he told IA.
“When it comes down to the day-to-day operations of some advisers, they are still in a more traditional transactional model.
“Overtime, that has been changing. I would argue we as an industry are getting better at overall wealth management than 15 years ago, and that has been driven by necessity.
“Because of that old model, if you are a simply transactional broker, you will have a tough time unless you have incredible returns.
“It is nice if you can do that but it is hard to be exceptional all the time, especially on the investment management side,” Richie added.
The ‘attack of the robo-advisers’ is not a negative for consumers in Canada, to a certain extent, because they have been given some access to the financial services market.
But the problem with robos is that investors are unlikely to have the knowledge or expertise to take care of complex finances.
Richie added: “I would say there is an advice gap. There are enough advisers in Canada to deal with that gap two-fold, certainly.
“The wealthy and the ultra-wealthy would have reasonably good advice and are willing to pay for it.
“With the rise of robo-advisers, consumers don’t understand the actual need for advice at the lower end of the spectrum of wealth.
“I would argue those are the people that really struggle.”
Chad Larson, director of wealth management and portfolio manager at MLD Wealth Management, told IA: “The do-it-yourself online investors, more so, have been rotating back to full-service advisers.
“As markets become more volatile, complicated products make their way into the market.
“More than ever, advice is needed.”
One way wealth managers and financial planners could benefit HNW Canadians is by helping them wade through their complicated tax affairs.
Recently, a RBC Wealth Management survey found 48% of wealthy Canadian citizens said tax changes was the biggest concern when it comes to preserving wealth.
“The Canadian tax system has undergone some changes in the past few years, which has reduced after-tax income for the high net worth bracket,” said Rob Tetrault, branch manager, senior vice president and portfolio manager at the Tetrault Wealth Advisory Group.
Tony Maiorino, vice president, director and head of RBC Wealth Management Services, said to IA: “There are a few tax issues on our radar right now, and on the minds of wealthy Canadians.
“Many HNW clients are paying high taxes on surplus investment assets. Canadians still have some common income splitting strategies; but, in recent years, available strategies, such as income splitting by private business owners, have been curtailed.
“Also, after a recent federal election, the federal government might introduce additional tax increases that will impact wealthy Canadians.
“In Canada, there is a general disposition, for tax purposes, of assets owned at death, unless they are transferring to a spouse. In many cases this results in a large tax liability at death, and potentially a liquidity crisis, that many HNW clients have not adequately planned for.
“HNW clients in Canada often miss cross-border tax considerations, in particular those who are US citizens or green card holders, or wealthy Canadians who own significant US investments; such as US stocks, real estate, and personal use property such as boats.
“For HNW clients with established trusts, there is a disposition of the assets in the trust for tax purposes every 21 years in Canada. Many HNW clients have not adequately planned for this event or considered the impact of common strategies to defer the tax.”
Issues like tax planning or competing with robo-advisers are not the only things on the mind of a wealth manager in Canada.
There are plenty of other areas, including dealing with regulators, which can be quite stressful.
Canada is the only G20 country that doesn’t have a national regulator – instead, it has baker’s dozen.
Manulife’s Lasko said: “A decades-long issue that’s been debated extensively in this country is the establishment of a single national securities regulator versus the current antiquated structure of oversight through 13 provincial and territorial bodies.
“Some provinces are on board with a national approach to regulation, while others are not. Time will tell if a national securities regulator ever comes to fruition in Canada.”
There was some progress made in 2018, when the Supreme Court of Canada ruled that draft legislation to create a national body did not exceed the government of Canada’s authority, overruling objections from both the provinces of Quebec and British Columbia.
When firms are looking to introduce products, Canada sometimes “gets missed”, Charlie Spiring, founder of Wellington-Altus Private Wealth, said to IA.
This is because “you have to get clearance from 13 jurisdictions, so it is slow and expensive”.
Spiring added that it is the end-consumer that really misses out.