Why are Canadian investors more likely to break up with advisors?

Canadian wealth advisors might want to brace for an exodus of clients in a few years.

According to the 2023 EY Global Wealth Research Report, Canadian investors are nearly twice as likely as their counterparts in the US to switch wealth management providers over the next three years.

For firms and advisors with a stellar reputation, this could represent a golden opportunity to add new assets to their book. It also poses a risk for advisors and firms who have failed to live up to their clients’ expectations of service.

What’s driving disappointment among Canadian clients?

There are many possible reasons why a client would choose to switch wealth providers, and the cause of the Canada-US divergence in client intentions is certainly up for debate. But Grant Hicks, president at Advisor Practice Management, suggests one broad trend has been a driving force.

“I think Canada has more active money management than passive, and the shift from active to passive really started to accelerate over the last couple of years,” says Grant Hicks, president at Advisor Practice Management. “We saw that shift probably five years earlier in the United States.”

Hicks maintains that in the Canadian wealth space, it’s harder to distinguish advisors who do comprehensive planning for their clients and those who just manage people’s money. While clients in the US can expect most RIAs in the country are outsourcing money management to focus on real advice and planning, Canadian clients have less certainty.

“Here in Canada, clients are left to wonder ‘Is this advisor doing money management and comprehensive advice for me? Or are they outsourcing the money management piece? And how would I find that out without interviewing a whole pile of people?’” Hicks says. “They say they do both. But are they actually doing both?”

Planning beyond box-ticking

Hicks estimates less than 10% of advisors obtain and review a copy of their clients’ tax returns every year; the majority, he says, are hindered for compliance reasons or simply don’t include it as part of their practice. He says clients get disillusioned once they realize their current advisor is not providing them with comprehensive planning, which includes seven areas of their financial life: tax, estate, investment, risk, insurance, debt, and cash flow.

That’s not to say financial planning should be a box-ticking exercise. Beyond knowing their goals, he says comprehensive planning must include deeper discussions of their values and their lives. According to EY’s Global Wealth Report, Canadian clients are even more likely to switch wealth providers or advisors if their current advisors don’t share their values.

“With comprehensive planning, a lot of non-financial issues come up … they become a big part of the conversation and planning to help clients move forward,” Hicks says. “At that point, advisors are understanding them at a deeper level than they've ever been. They had their money managed before, and now they’re taking things to a deeper level, and that takes time – time their previous advisor did not give or did not have with them. So the difference becomes very obvious.”

Given the uncertain economic backdrop, aggressive tightening of interest rates by central banks, and the prospect of a recession in the near term, investment returns aren’t as easy to come by. In this type of environment, Hicks says the advisors who’ll thrive aren’t the ones who rely primarily on logic. Rather, those with a human touch are more likely to come out ahead.

“Wealthy Canadians engage emotionally first, and logically second. And that’s how the best advisors engage as well,” he says. “Behavioural management is such a big factor in financial services that a lot of American firms are hiring experts to help their advisors get that right. Fears of inflation, economic challenges, market uncertainty – all of those are emotional. And you have to address that before clients can get comfortable having conversations.”