The independent segment in Canada is experiencing remarkable expansion. With significant and accelerating asset growth projected, it’s clear that the future belongs to independent advisory firms and their advisor partners.  

In the world of finance, risk is meticulously measured and weighted. 

For this reason, many advisors prioritize stability with the belief that ‘if it ain’t broke, don’t fix it.’ Yet, data shows a changing landscape, where the case for maintaining the current status-quo is weakening and significant value may be being left on the table.

Rapidly growing practices are embracing the independent model, and for good reason. By exposing their capital to a broader product shelf and eliminating intermediaries, these firms can offer more cost-effective solutions to their clients while capturing a larger share of the profits compared to their counterparts in the traditional channels. Acquatio’s research shows that independent firms are well-positioned to thrive in this evolving landscape.

It’s a win-win scenario. Let’s explore how this future of independent wealth management is unfolding in Canada. 

“By 2024, Assets Under Management (AUM) in Canada are projected to surpass $1.92 trillion.” 

Financial Advisory Market Growth in Canada

According to data from Statista¹, the overall financial advice industry is large and growing:

• AUM Consolidation: By 2024, Assets Under Management (AUM) in Canada are projected to surpass $1.92 trillion. 

• Market Expansion: Between 2024 and 2028, AUM is expected to maintain a steady growth rate of 0.52%. 

• Upward Trajectory: Over the past five years, the number of individual clients and AUM have risen by approximately 12% annually. This metric is forecasted to reach an impressive $1.95 trillion by 2028. 

Demand for advice, driven by high-net-worth clients and a preference for personalized investment strategies, should result in significant opportunities for the independent channel.

To gain further insight, let’s examine the developments in countries where the independent model has been firmly established and thriving for the past decade. 

Consider these statistics from our southern neighbour, the United States: 

• Significant RIA Firm and Headcount Growth: The Registered Investment Advisor (RIA) market grew by more than 11% in 2022. Advisor headcount expanded by nearly 8.6% in the same year, which is twice the annualized rate of the last 10 years (4.4%)².  

• More Billion Dollar Firms Than Ever Before: According to data from Cerulli Associates, the number of firms with more than $1 billion in AUA has grown from 436 in 2012 to 1,447 in 2021. That growth represents over 232% in just 10 years and signifies how the RIA channel has proliferated over the last decade³. 

• 1 in 3 Advisors Independent by 2027: Cerulli also states that although advisor headcount is expected to remain broadly flat, they estimate that independent and hybrid RIAs will be projected to gain the most market share, reaching as high as one third (31.2%) of the overall US market by 2027⁴. 

Independent Firms: The Unmistakable Trend 

Across all industries, businesses and clients are increasingly looking for more sophisticated, personalized, and tailored solutions. This trend is particularly pronounced in the wealth management industry, where individuals expect a customized approach to help them achieve their unique financial goals – something that independent firms provide. 

For example, market leaders such as Raymond James and Industrial Alliance’s Private Wealth subsidiary (iAPW) have reached $74 billion and $50 billion in AUA, respectively. Raymond James has stated its goal to reach $100 billion in the next two to three years and iAPW recently disclosed they added 39 advisors representing $2.3 billion in assets in 2023, not to mention the further $2 billion of expected assets resulting from the acquisition of Laurentian Bank’s securities arm.  Up and coming dealers such as Wellington Altus have hit parabolic compound growth rates of 50% over the past six years and plans to double their AUA to $50 billion by 2025.

Despite this remarkable growth, overall market share of independent firms remains low compared to the six largest banks in Canada which should therefore create a significant runway for future market expansion.

Independent dealers have been able to attract top performing advisors with state-of-the-art technology, broad product shelves which include alternative investments, sales & marketing support, equity ownership, and of course, grid improvements. Acquatio’s analysis indicates that these factors will continue to drive the growth of independent firms in the coming years.  

But what about the referral funnel?  

Bank advisors are often attracted to the safety of a proven prospecting funnel and branch network that only a large bank can provide. Yet, our research indicates that such referral channels come at a cost. Advisors need to be compensated with approximately 5% to 7% in annual AUM growth from referrals to offset the revenue loss from lower grid payouts. 

A typical bank grid structure, which pays 40% to 50% of gross revenue, shows that any AUM increase through referrals below this rate does not compensate for the higher payouts of 70% to 80% at an independent dealer, ultimately leading to a higher overall practice value. 

For instance, a bank advisor with an AUM of $100 million, who gains an additional $3,000,000 in AUM annually through referrals (an average increase of ~2% over a 10-year horizon), on a 50% grid, will find the value of their practice to be about 20% lower than that of an independent advisor on a 70% grid, all other factors being equal⁵.

“Therefore, unless you’re able to generate an additional 5% to 7% per year in bank referral AUM, it makes more sense from a valuation perspective to be an independent advisor.” 

The future of wealth management in Canada is undeniably tied to independent firms, and Acquatio is here to guide you through this transformative journey. 

With a deep understanding of the opportunities and challenges presented by this revolution, we empower advisors to navigate the complexities and thrive in the new era of independent wealth management. 

Are you ready to elevate your practice to new heights? 

References:

1. Statista “Wealth Management Market”. ↩︎
2. Cerulli Report “RIAs Lead Growth Over the Last Decade”. ↩︎
3. John Furey, Advisor Growth Strategies “The Future of RIAs” ↩︎
4. Cerulli Press Release “Independent and Hybrid RIA Channels Lead in Advisor Headcount Growth” ↩︎
5. Calculations assume a 10-year Discounted Cash Flow (DCF) analysis using an 18% discount rate.  ↩︎