Canada Regional Outlook: A Place for Everything, and Everything in One Place

Mike Thomson

Trends and challenges in the Canadian Wealth Management Industry for 2021

The year ahead promises modest growth in the Canadian Wealth Management space as the COVID-19 pandemic affects various customer groups differently. For a swath of already affluent Canadians, an early year shock to portfolios in 2020 has since given way to an equity market recovery buoyed by low rates and generous government spending. As a result, we expect continued low- to mid-single digit growth for financial assets in the high-net-worth ($1M+) and mid-market ($250K-$1M) client segments, while the mass-market segment (<$250K) stays mostly flat.

Key Trends Impacting the Canadian Wealth Management Market

Asset growth in the self-directed/online brokerage space is primed to outpace all other distribution channels, albeit from a lower base. These platforms offer a blend of simplicity, usability and low cost that attract investors from all Wealth segments. In fact, some providers in the channel have begun offering specialized services for higher value clients, including preferential margin rates and access to private products. Underscoring the channel’s promise, Canadian fintech Wealthsimple closed a funding round late in the year on the back of success in its self-directed platform. The deal pegged the company’s value at over $1 Billion – “unicorn” status, in start-up speak.

For Wealth Management providers, 2021 will not be without challenges. Large incumbents, most notably the “Big 5” Canadian banks that hold a sizable portion of Canadian wealth (The Investment Funds Institute of Canada (IFIC) and Strategic Insight, 2019), will need to fortify their defenses against a growing set of challengers seeking to chip away at their leads. Banks have long benefitted from Canadians’ tendency to want investment advice from their primary bank (Wealth Professional, 2019). However, advances in innovative technologies and the prospect of regulatory change to level the playing field for smaller providers represent a significant threat.

For their part, Canadian clients in lower Wealth segments are increasingly looking at high-net-worth and family office propositions and asking “why not me?” This means a level of financial stewardship, including personalized recommendations, outcome-oriented multi-asset solutions covering both sides of the balance sheet (including tax), and ‘white glove’ servicing previously reserved for the ultra-rich.

To deliver the above at scale, providers will need to invest in and deploy seamless, omni-channel ecosystems akin to what tech giants do so well already – client patience for legacy, siloed delivery where every financial product is a new log-in screen is wearing thin. This means investment accounts, but also loans & deposits, insurance and other products are all in one place, and delivered through one unified front-end. Intergenerational wealth transfer and advisor exits will create a high-degree of “money in motion” in the coming years (Investment Executive, 2019) – only those who do the above effectively will be the beneficiaries of these flows.

What’s the risk to incumbents? As regulators begin exploring open banking to improve choice and outcomes for Canadians, smaller players, fintechs and non-finance tech companies with little technology debt are seeing their window. Aggregation layers pulling together all manner of financial products across providers to deliver a ‘one-stop-shop’ experience – think Amazon’s marketplace, but for financial services products – threaten to relegate incumbents to being product fulfilment vehicles only. Losing the client relationship in this way will impact efforts to grow share of wallet – a critical driver of revenue and profitability.

That said, it is not too late for established incumbents to design and deploy strategies and operating models that support consistent front-end messaging and experience, while aligning operations and back-office processes and triaging as necessary. Key to this will be acquiring and partnering to launch new capabilities with speed, requiring firms to get comfortable opening to APIs while ensuring client data security is at the forefront.

Against this backdrop, 2021 will need to be a year of foundational building for established Canadian providers. Those that can cut through internal complexity and re-invent themselves in the coming 3-5 years stand to win, while those that cannot risk losing ground and a steeper hill to climb in the future.


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About the Author

Mike Thomson
Associate Director, Asset and Wealth Management Consulting North America

Mike is an Associate Director at Alpha with over a decade of financial services experience centred in Wealth and Asset Management spanning front-office strategy, client experience, digital, operations, M&A and regulatory. He has helped clients to deliver large-scale technology and operations transformations to achieve outcomes related to profitability, efficiency and growth. Mike is a CFA Charterholder.