Earl Bederman, president of Toronto-based Investor Economics Inc., painted a positive picture of the future of the full-service brokerage business for attendees of the annual conference of the Investment Industry Association of Canada in Banff.

At the end of 2007, the full-service component has $700 billion in assets under management that he believes will grow to $2.5 trillion over time. But, he says, although the industry will move forward, there will be change. The players and products will shift; there will be consolidation, vertical integration and ongoing pressure on profitability.

From a macro point of view, demograhics are a driving factor of the markets. As the population ages the emphasis will move from saving to “dissaving,” as clients move from wealth accumulation to the payout of wealth. But because people are living longer, there will be a long period in which money needs to be managed, he says.

Investor Economics sees equities as the primary — and growing — component of investment portfolios. At the end of 2007, equities made up 45% of $2.5 billion in household wealth or “share of wallet.” Bederman sees that growing to 58% of $5.5 billion by 2016.

“We’re confident of our high relative weighting of equities in the structure of wealth,” he says. “In a low-inflation, low interest-rate environment, people are not inclined to abandon these instruments.”

Bederman also painted a picture of a retail client who is not only looking for money management but also risk management. “There is an implied degree of volatility build into the business,” he says. “The need for advice will continue to grow. But the nature of advice is undergoing a change.”

The challenge for the industry will be figuring out what resonates with the client.

As for the nature of the advisors’ business, he sees a growing reliance on fee-based rather than transaction-based, although the core of the advisors business is still based on commissions. But, he says, fee-based brokerage and discretionary management is going to “grow rapidly.”

The predictability and stability of fee-based revenues is a benefit to the firms and advisors, as overall industry profitability is in decline.

And that leads to industry consolidation, vertical integration and ongoing pressure on markets. So, while the brokerage industry will grow overall, the players and the products will change, Bederman concludes.