Brokers’ complaints about the availability and pricing of fixed-income products are all over the map. One advisor will pronounce them “crappy” while an advisor from the same firm will lavish kudos. But their managers think they have a handle on the real problem: yields.
Yields are at a 46-year low and it seems the demand for fixed-income product has diminished along with yields.
“There is no lack of fixed-income products at any firm in Canada,” says Gary Reamey, head of Edward Jones Canadian operations in Mississauga, Ont. “But there is a lack of high-interest fixed-income products.”
Tom Monahan, head of Toronto-based CIBC Wood Gundy, agrees. “Brokers are not concerned about the lack of fixed-income products. Low yields is the bigger concern,” he says.
That is, no doubt, one of the factors driving advisors to income trusts. In this year’s Brokerage Report Card, in an effort to refine our asset categories, Investment Executive asked advisors what percentage of their books are in income trusts. While fixed-income investments make up about 23% of the average advisor’s book of business, income trusts make up 9%. But that number varies greatly from firm to firm with the average advisor at Canaccord Capital Corp. holding 20% of his book in income trusts while the average advisor at Edward Jones has 1%. Although there are no direct comparisons to last year, it would seem from the numbers that money that went into fixed-income in past years is now finding its way into income trusts.
It is not surprising, then, that Edward Jones advisors awarded their firm the highest score for availability of fixed-income products, an average of 8.8, while Winnipeg-based Wellington West Capital Inc. had the highest score of 9.1 for pricing of fixed-income products.
On average, advisors scored their firms higher across the board for pricing of fixed-income products. Among those surveyed, CIBC Wood Gundy, Vancouver-based Raymond James Ltd. and Toronto-based RBC Dominion Securities Inc. made the most notable gains in the category with average scores of 7.1, 7.8 and 8.2, respectively.
Generally, lower marks emerge when brokers are asked to rate the availability of fixed-income products. “Good products are hard to find and hard to feel good about,” says one RBC DS broker in British Columbia.
Other advisor comments tend to be more divided on the fixed-income offerings of their respective companies. Although one Edward Jones advisor in B.C. says the fixed-income inventory is too limited, an Ontario-based broker says the company has a huge inventory, “and what we don’t have, they get.”
At Montreal-based National Bank Financial, an Ontario broker calls the offering “really crappy,” while a broker in B.C. says the lineup is “improving constantly.”
Similarly, at Raymond James, although the company’s scores for pricing improved significantly this past year, up from 7.0 in 2003, advisors there say the offering “is not as tight as it could be.” The firm scored 5.2 for product availability, a big drop from 7.2 in 2003.
Meanwhile, a broker at Toronto-based First Associates Investments Inc. in Ontario says his firm’s offering is “absolutely the best.”
This comes despite the fact that the firm ranked lowest overall for its fixed-income products with an average score of 4.6, down from 7.5 in 2003.
“That really surprises me,” says Stuart Raftus, president and COO of First Associates. “I am very disappointed to hear this because 2003 was a year of strategic change in our fixed-income department.”
In addition to hiring specialists in the area, the company devoted capital to building its fixed-income inventory, and invested in an online, real-time fixed-income trading system. “I can assure you next year we are going to have a much higher rating,” he says. “We’ve done a tremendous amount of work in this area. The availability of fixed income has, frankly, never been greater.”
At TD Waterhouse Investment Advice, executives are positive about their offering, despite negative comments and lacklustre scores from brokers. “Our investment advisors have access to a relatively complete inventory of fixed-income products and services,” says Bill Hatanaka, executive vice president of Toronto-based TD Wealth Management which oversees TD Waterhouse.
“We have some top-tier fixed-income money managers and that has served us very well over the last couple of years with the current interest-rate environment,” he adds.
Advisors see it differently. TD rated
fourth-lowest in the category with an average score of 6.4, down from 7.3 in 2003. “It’s really, really bad,” says one Ontario broker. “There’s really not a big bond department,” agrees a colleague.