Wealth management firms and their advisors are facing rising inflation, regulatory and insurance fees, as well as increasing costs for technology investments.
Despite these pressures, IG Wealth is reducing its total advisor practice fees by approximately 15%, said Brent Allen, head of strategy and business operations with IG Wealth Management.
Specifically, the dealer plans to reduce its mandatory monthly technology fee by about 30% (or $120) as of Feb. 1, 2024, and will absorb costs related to digital research and development. IG will also drop the requirement for non-client-facing team members to be nationally licensed, saving those practices the associated costs. IG Wealth’s payout ratio ranges from 40% to 70%.
“Regulatory fees have continued to go up,” Allen said, adding that advisors with higher assets under management must pay more for their errors and omissions (E&O) insurance. “We’re starting to see pressure [on advisors] as clients become more high-net-worth.”
Allen also observed that pressure has increased generally: “The overall costs have not gone down for advisors to run their practice. Advisors are experiencing many of the similar inflation pressures as any other Canadian business.”
Dealers commonly charge financial advisors back-office fees that allow for secure access to systems, emails and compliance, and may offer software or packages. Licensing costs and E&O insurance are often charged to the dealer but paid by the advisor.
Amid a challenging cost landscape, other firms also are puzzling out how to balance significant overhead costs with advisor support.
For Carte Wealth Management Inc. president Maria Jose Flores, that has meant regularly assessing elements such as the firm’s compliance, back-office, accounting and rent costs. The dealer also negotiates discounted fees for advisors, where requested, with its technology partners.
One of Carte Wealth’s goals, she said, is figuring out how it can increase advisors’ take-home pay, given that both industry fees and the cost of living are rising.
Carte Wealth’s payouts range from 60% to 80%. The dealer charges monthly back-office and email administration fees, which Jose Flores said have remained static over the past five years.
“We’re very sensitive to [those] fees,” she said. The dealer also makes its website and marketing packages optional for advisors.
Another independent dealer, Sterling Mutuals Inc., revamped its back-office systems and cybersecurity measures over the past two years, leading to fee increases.
Sterling’s monthly back-office fee increased by 15% (or $50) in 2023 and will rise by just under 7% (or $25) for 2024. Advisors received six months’ notice and “there wasn’t much pushback,” said founder and CEO Nelson Cheng. The fee includes many software tools and access to third-party vendors such as Equisoft and Fundata, data encryption and mandatory regulatory courses.
Sterling’s commission grid ranges from 60% to 80%, and there’s an annual cap on what advisors pay to the dealer. While no advisor — or dealer — likes fees, he said, “we’ve put our money where our mouth is” by negotiating and paying for access to Office 365 for all advisors, for example. More recently, Sterling implemented in-depth cyber testing and obtained ISO 27001 certification, which isn’t an industry requirement but improves security.
Cheng said he hopes for reductions in dealer and advisor regulatory fees as integration continues under the Canadian Investment Regulatory Organization.
But advisors must also pull their weight.
“If an advisor is not producing and you’re collecting fees, at the end of the fiscal year they’re going to end up with a debt,” said Jose Flores — and debt collection is expensive for dealers.
Over the past year, Carte Wealth severed its contracts with some indebted advisors, but not without first offering support. “[The advisors] were given plenty of time to decide whether they wanted to be in the business,” Jose Flores said.
Other firms’ insights
Two other dealers, Worldsource Wealth Management Inc. and iA Private Wealth, told Investment Executive their fees have remained the same over the past several years.
Worldsource offers two separate schedules under Worldsource Securities Inc. and Worldsource Financial Management Inc.
The Worldsource grid structures haven’t changed for decades, as “we’re sensitive to [advisors] feeling ‘fee’d to death,'” said Trish Nielsen, head of partnerships and business development. The dealer’s costs have increased over that period and “we’ve taken the hits internally,” she said, noting that the dealer will continue to review its fees annually.
For iA Private Wealth, where standard desktop fees also have remained flat despite rising costs, reviews could similarly lead to change.
Liz Lepore, iA Private Wealth’s vice-president of advisor and client experience and practice management, said advisors choose and pay for their own customer-relationship and financial-planning tools.
A standard fee will remain for the dealer’s systems, but tiered packages might work in the future where there’s “more data […] and more business insights we could give to advisors,” she said. “There’s a cost for that.”
However, Lepore said, “we have not changed the advisor desktop fees [for several years]. We have been crystal clear: until we advance the transformation [plan] enough for advisors to feel the value, [we’re] not going to touch that advisor desktop piece.”