Now that the big banks reign over the Canadian mutual fund sector, financial advisor independence is more crucial than ever. Toronto-based Bank of Nova Scotia’s recently announced acquisition of DundeeWealth Inc., also of Toronto, has effectively doubled the big banks’ collective share of mutual fund assets under management in Canada vs the banks’ market share in 2000, according to the Investment Funds Institute of Canada’s latest numbers.

While it now seems inevitable that the banks dominate this business — after all, they have some key advantages over much of the rest of the sector, including cost-reducing scale, the resources for product innovation, marketing and money management, and large, captive distribution networks — the banks’ success was far from assured.

In fact, the banks were once considered fund-sector underdogs. Many were convinced that the banks would never be able to compete, because they were seen as being too large and too bureaucratic to thrive in the highly competitive world of asset management, in which independent, entrepreneurial types tend to lead the way.

Yet the banks have overcome those doubters. For one, they’ve nurtured some great portfolio managers. In recent years, a handful of managers at bank-owned firms have earned Investment Executive’s Fund Manager of the Year award, recognizing outstanding long-term investment performance.

The banks also have successfully capitalized on their superior distribution capabilities. And they’ve made some opportunistic acquisitions, too. Of these factors, distribution has perhaps been most important: the top six firms in the mutual fund sector, representing about two-thirds of sector AUM, are all companies that own distribution networks.

While truly independent fund companies still exist, they aren’t among the industry leaders anymore — and they haven’t been for some time. Now, more than ever, it’s critical that independence resides at the advisor level. Sadly, the overwhelming success of fund-management companies that own distribution networks suggests that often it may not.