In the 2019 report card on Banks, the Big Six’s collective performance in the four main product-focused categories has remained fairly static year-over-year.
Their performance average for “quality of firm’s product offering” slipped by only 0.1, to 8.5, while “products and support for high net-worth clients,” “bringing new investment products to market” and “freedom to make objective product choices” all rose by 0.1. All four categories also remained critically important to the branch-based advisors surveyed, and received importance ratings between 8.9 and 9.6.
And yet, shifts appear to be occurring within the product space.
Each year, the banks’ advisors are asked to break down their assets under management (AUM) by the types of products they sell. The 2019 Report Card found that mutual funds made up a much smaller portion year-over-year (27.7% vs 45% in 2018).
Conversely, the use of both proprietary managed products (in-house wrap products) and third-party managed products (external wrap products or accounts) increased substantially, to 37.2% from 23%, and to 5.6% from 2.9%, respectively. The use of GICs remained strong, at 21.9% vs 21% in 2018.
Looking at the banks individually reveals variance in product strategy and focus. Advisors from Montreal-based National Bank of Canada (NBC) and Toronto-based Bank of Montreal (BMO) said they still focus on selling mutual funds (55.9% and 43.9%, respectively, although GICs also played a large part for both sets of respondents).
On the other hand, most advisors surveyed from Bank of Nova Scotia, Royal Bank of Canada (RBC), Canadian Imperial Bank of Commerce (CIBC) and Toronto-Dominion Bank (TD) said they mainly sell proprietary managed products, with mutual funds or GICs second (all four banks are based in Toronto). Mutual funds accounted for between 9.5% and 36.7% of these advisors’ AUM, and GICs between 7.5% and 34.9%.
The performance ratings of each bank for the four product- focused categories fell across a broad range. For the category “bringing new investment products to market,” for example, RBC was rated highest, at 9.1, vs 8.8 in 2018, while TD was rated lowest, at 6.9, vs 7.3 in 2018.
Overall, CIBC and RBC outshone their peers when it came to advisors’ product support – with the former edging out the latter in the freedom and product quality categories, and both tying at 9.3 for the high net-worth category. TD was rated lowest in all four product support categories.
CIBC “definitely ha[s] a strong suite of investment products, and they are always changing them to ensure they are kept up-to-date and available,” says a CIBC advisor in Ontario, commenting on the new investment product category. CIBC advisors rated “bringing new investment products to market” an 8.9, vs 8.8 in 2018.
CIBC advisors rated the freedom and product quality categories even higher, at 9.3 and 9.6, respectively, the same ratings as last year. “[It’s] not about selling a product; it’s about doing what’s right for the client,” says a CIBC advisor in Ontario.
Still, advisors suggested improvements. Another CIBC advisor from Ontario says the bank has “come out with mutual fund solutions” but could “be more competitive in the fee structure.”
As mentioned previously, RBC led in the new investment products category. The bank is in “constant movement to remain competitive in the market,” says an RBC advisor in the Prairies.
Says an RBC advisor in Ontario: “They’re responding to the changes [with] new mutual funds. We also partnered up with BlackRock for the ETFs” – a partnership announced in January 2019. (An executive at RBC says that branch-based advisors sell ETFs indirectly via the bank’s indexed products and actively managed portfolios.)
Still, RBC was rated 0.1 lower year-over-year in the quality category, with one advisor in Atlantic Canada saying, “They evolve the existing products rather than new.”
At TD, many advisors criticized their bank’s ability to bring new investment products to market. “Our product lineup isn’t where it needs to be for high net-worth clients, for example,” says a TD advisor in Ontario. “We’re restricted to our mutual fund space,” says another TD advisor in Ontario.
TD advisors rated the new products category lowest of the four product categories.
David Terry, vice president and head of TD Wealth Financial Planning, says that while the bank “operates under an open architecture model, we do restrict that to typically mutual funds and fixed-income products” within the branches. If a client is best served with a third-party mutual fund provider or investment manager, he adds, “we’re absolutely open to bringing them on the shelf.”
TD improved significantly (by 0.5 or more) in the freedom category, with a rating of 8.0 vs 7.5 in 2018. “We don’t have too much of a restriction on third-party funds,” says a TD advisor in Ontario.
On the securities side, “We have access to over 22,000 solutions. We’re not really limited,” says a TD advisor in B.C. The same advisor added that they need to justify their recommendations and that they personally “primarily” use the proprietary platform.
Highlighting the inherent challenges in this area, NBC was the only bank to improve significantly in bringing new products to market. NBC advisors rated the category an 8.4, up from 7.8 in 2018. One NBC advisor says they “like the fact that our products are transparent and managed well,” though another suggested that “corporate-class investments should be offered.”