The financial crisis has significantly deteriorated the wealth of Canadian households, and is set to have long-lasting impacts on Canada’s wealth management industry, Investor Economics president Earl Bederman said on Tuesday.
Speaking at the Advisor Dealer Forum in Toronto, Bederman said the wealth of Canadian households deteriorated by a substantial $260 billion last year.
“That event constituted a shock which will reverberate through the future development of the wealth market,” Bederman said.
Even though the market rebound in 2009 has reversed a large portion of the losses incurred by investors last year, the massive market decline will have long lasting impacts. In particular, the wealth of Canadians into the future will be smaller than it otherwise would have been “by a substantial amount,” he said.
Bederman said the financial crisis is also having significant impacts on the wealth management industry. Investor Economics has noticed a growing number of Canadians turning to discount brokerages to manage their own investments, rather than using financial advisors.
“There is an emergence and rapid growth in self-reliance,” he said, noting that this is partially being driven by investors questioning the abilities of their financial advisors after seeing their portfolios decline so significantly last year. The trend is also a result of increasing comfort with technology and dramatic price reductions at discount brokerages.
This trend is contributing to an imbalance in the industry, with the level of supply of financial advice currently outweighing demand, according to Bederman.
“Everyone in the advice channel should pay attention to these trends,” he said.
As discount brokerages reduce prices, financial advisors will likely be forced to reduce prices as well, he warned.
“The cost of advice is something that is under pressure, and inevitably, I believe it is going to come down,” he said. “That is a necessary outcome — a painful one for some — but a necessary outcome if we’re going to restore that balance in the marketplace.”
Going forward, Bederman also expects to see greater consolidation in the wealth management industry, which will result in fewer advisors and fewer advisory firms.
“Those are the kinds of things that need to take place to get demand and supply back into balance,” he said,
Bederman also expects to see the nature of advice shift, as it caters to the needs of the aging population.
Market decline casts long shadow over investors, advisors
With more Canadians turning to self reliance, the cost of advice is under pressure
- By: Megan Harman
- September 22, 2009 September 22, 2009
- 16:45