The one-stop shop

Players from every sector of the retail financial services business are pushing into one another’s turf. Add to that the emergence of online brokers, and the once-safe realm of the planners has become hotly contested ground.

It remains to be seen how successful the crossover competition will be in snatching the planners’ traditional market from them. But planners we surveyed from Canada’s 15 national firms said they are indeed seeing increased competition from all sides. “There is definitely more competition,” says an Ontario-based planner with FundEX Investments Inc. “The brokers have become more aggressive. Banks are more underhanded. In general, this is a field that has been exploding.” Thanks to the tech scare, however, the competition from discount brokers has receded.

The banks have become particularly aggressive in getting in on all aspects of the retail investment business. TD Bank began the charge into selling third-party mutual funds a couple of years ago, but such pushes have accelerated since then. Bank of Montreal and TD have both also started to sell their bank-owned funds through the independent channel.

But the most decisive move has been in the branch-based advisory force at CIBC. The bank has a dual-licensed sales force designed to sell mutual funds alongside traditional banking products. More important, it envisions an advisor who can offer a full-range of credit and investment products — true one-stop shopping.

This move to turn once-humble branch-based sales forces into full-fledged advisors is pressuring traditional financial planners from below. But at the same time, traditional full-service brokers have started diversifying their practices, too. No longer do they just sell stocks and bonds to their clients — they have become substantial players in the investment fund and insurance businesses. Full-service brokers are positioning themselves as sources of financial planning, attacking planners on another front.

Planners agree they are facing a huge challenge to their livelihood, with both bankers and brokers assaulting their traditional markets. However, most of them insist they have what it takes to survive. “Generally, there is increased competition, but as far as my business goes, it comes down to service and being referable,” says an Ontario-based planner with CMG Worldsource Financial Services Inc. “The banks can never compete with that level of service.”

Maybe so, but banks do have all the tools to make it work. Planners, on the other hand, are arguably the most poorly equipped to fight back: adding securities to their product menu means an expensive transition to Investment Dealers Association of Canada-level compliance; meeting clients’ credit needs is also a business that dealers cannot easily offer their clients directly; and for some firms, offering a genuine financial planning service would require a heavy investment of time and money in professional education.

Meantime, there’s the pressure to offer more flexibility in terms of client service delivery. Many clients want the option of using some of their advisors’ services online. Planners may profess their business is secure because they rely on referrals, but that argument works only as long as they can actually deliver superior service. If clients come to believe that planners are limited in products, compromised in their advice or hampered by a lack of technical sophistication, planners will be eaten for lunch by their bigger hungry rivals.

Enough consolidation?

Planning firms have responded to the threat. The past few years have seen the consolidation of much of the industry to stave off the cost pressures from bigger and better-capitalized rivals. It’s not clear yet whether consolidation will be enough for planners to survive in the long run. Some believe they will have to meet the banks and brokers head-on if they hope to survive.

Consolidators, such as Toronto’s IPC Financial Network Inc., have sought out alliances with rivals. In IPC’s case, it has allied itself with ING Canada Inc., which not only shores up its financial situation but also opens up ING’s product shelf to IPC’s sales force. It has also signed alliances with Sun Life Financial Trust Inc. on the banking side and Canada Invest Direct Inc. on the discount brokerage front.

The original planner consolidator, Assante Corp. of Winnipeg, is also pledging to roll out rebranded banking products to its sales force. It, too, has pursued a strategy of aggressive integration of its acquired firms, rolling out a unified branding strategy and streamlining its structure.

Still other distributers are looking at making the transition all the way to the IDA world. The appearance of products such as exchange-traded funds, which appear to do much the same job as mutual funds for far less cost to investors, has made it apparent to some planners they cannot provide credible, independent advice to clients if they can’t offer innovative new products because of limited licences.

The challenge facing the planners is big. The question is whether they can hope to win. A planner with Manulife Financial Corp. in Ontario notes: “It’s always been competitive, there’s nothing wrong with that.” Indeed, there isn’t anything wrong with competition from the consumers’ point of view. But it remains to be seen whether planners continue as one of the choices in the long run. “Everybody is competing for less business,” says a planner with Berkshire Investment Group Inc. in southwestern Ontario. “The number of fish is dwindling.”

All about advice

Ultimately, success in pulling those fish from the retail ocean will depend on the kind of advice offered to the client. As former Ontario Securities Commission commissioner Glorianne Stromberg said in a recent speech: “I believe that the ongoing strength of the industry will lie in its ability to move from a sales-based culture to a professional advice-based culture. The model that I see emerging is that of the life planner. This model will require more than just reliance on product-based financial planning skills.” IE