'Regulations will consolidate three tiers of clients'

Proposed regulatory changes will see firms consolidating the client segment they target.

That’s the view of Ian Russell, president and CEO of the Investment Industry Association of Canada, who believes the new, more stringent suitability and know-your-client rules put forward by the Canadian Securities Administrators will steer companies towards the bracket of investors that makes more economical sense.

Russell sat down with Wealth Professional to discuss the changing landscape of the industry and, in part two, he explained how he can see three broad tiers being cemented in the wealth industry: the high-net-worth clients of $500,000 and above; the affluent class of $500,000 down to $150,000; and the small investor of $150,000 and under.

He said that this will mean the independent firms who don’t wish to burden themselves with the complexities of suitability requirements, more complicated investment objectives and the wide product shelf for high-net-worth clients will find it more effective to focus on the affluents.

He said: “The client will still get the service and still get the range of products but the firms will be holding themselves out in dealing with that middle-income Canadian and will be able to run the business more economically.”

On the flip side, he said many firms will target the ultra-wealthy in the knowledge the extra revenue will offset the cost of more complex products and regulations.

He said: “Obviously, they are competing with the banks on that but the appeal there is obviously their cost structures are going to be higher; more complex portfolios, more compliance responsibilities, more range in the product and the shelf is going to be wide. But you are attracting higher fee-paying clients so the revenue will hopefully offset the cost.”

Then for the bottom rung of the tier – the $150,000 and down – there will be the robo-hybrid model. However, Russell said the “understated” option of self-directed platforms is often a better choice.

He said: “If you look at those platforms, I think there are nine of them, of which the banks all have one, they are more sophisticated. In fact, I would argue that they are more sophisticated than the online wealth platforms.

“And big banks have strapped on a robo model. They are hybrids so the advisor will provide advice to the client when needed so again there is a suitability requirement – know your client, know your products – but we’re down there with little investors so the obligations are pretty minimal comparatively.”

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