Integrated Wealth Management Advice for Affluent Canadian Families: Part 1 – A Brief History

By Mark Barnicutt on April 5th, 2016

The combination of Canadian aging demographics and rising affluence for certain wealth segments is causing the delivery of integrated wealth management advice – across financial disciplines – to quickly become a major concern for investors, and a growing strategic imperative for wealth management firms, large and small. 

The question, though, is: how best to deliver integrated wealth advice to affluent families so that the best interests of the family are preserved?

In this blog series, I will review the dominant approach of large wealth management firms, as well as a new approach to the integration of wealth advice. To put proper context to all of this, though, this initial post will to go back in time a few decades to where wealth integration strategies began:

Family Wealth Management Phase 1: Consolidation

Thirty-years ago, the wealth management industry was structured very differently than it is today. Specifically, there wasn’t really a wealth management industry, as we had the regulatory separation of the core wealth management service providers, which was then known as the ‘Four Pillars of Finance’:

  1. Banking
  2. Investments
  3. Insurance
  4. Trust

When I started my wealth management career in the late 1980s, the regulatory rules had recently changed, and so began the consolidation of the Four Pillars – a strategic game that has persisted for the past twenty-five years, not just in Canada but in many of the developed countries around the world.

As we know, in Canada our largest financial organizations – particularly the banks – have been the clear winners of this consolidation game when measured by metrics such as market share, revenue, and profits. 

This is what I refer to as Wealth Management Phase 1: Consolidation, which lasted from the late 80s until the late 90s.

Family Wealth Management Phase 2: Integration

Then, in the late 90s, with the growing affluence of Canadians, the wealth management strategy conversations begin to shift to what I refer to as Wealth Management Phase 2: Integration

It was one thing to have all of the Four Pillars under one single corporate brand, but how do you now deliver a holistic wealth management experience for families that integrates the advice from each of the pillars?

The benefits to such an integration strategy were touted as:

  • For the Client Family: The convenience of having all of their wealth management services under ‘one corporate roof’, without the need for the client to attempt to integrate the advice from different service providers.
  • For the Wealth Management Firm: The ability to ‘cross-sell’ products and services to clients, which leads to higher family client retention rates, and increased revenue and profitability per family client. Large wealth management firms affectionately refer to this outcome as, ‘Sticky Clients’!

The Historical Challenges with Wealth Management Advice Integration

In my experience, since the start of this advice integration strategy in the late 90s, the biggest challenge facing large financial organizations has been getting the professionals within each of the Four Pillars to ‘play nicely together in the same sandbox,’ as each pillar was more concerned about preserving their own revenue and ensuring that they ‘owned’ the client relationship.

Additionally, the outliers to this integration strategy have been the large financial organizations’ full-service brokerage divisions, primarily because this business model has been historically positioned as what I refer to as a ‘Franchise Model’, vs a ‘Corporate Model’.  Specifically, the top revenue producers at the full-service brokerage divisions have typically brand-positioned themselves as ‘The Smith Group with ABC WealthCo’ vs ‘ABC WealthCo’, and they have always viewed that they own the client, and they will determine what services are provided to their clients (not some large financial organization – even if they sign my pay cheque!) This isn’t a unique problem for large financial organizations, as it’s challenging to integrate the differing cultures of Franchise Models with Corporate Models in any business.

Present Day: Large Financial Organizations Start to Achieve Advice Integration

Having said this, in recent years (since 2010), I’ve noticed that Canada’s large financial organizations have started to make material progress in addressing these advice integration challenges through changes to organizational structures, compensation programs (which drive behaviour), and branding. 

For instance, in recent weeks, one large financial organization announced the creation of one dominant, wealth management brand across all of their wealth management legal entity business lines (i.e.: full-service brokerage, investment management, trust, etc.), with minimal sub-branding by traditional pillar business lines. 

As a result, these large financial organizations are continuing to increase their dominance within the Canadian wealth management industry, and their growing revenues and profits are a testament to this.

So – how have clients faired with the integration of advice within large financial organizations? Stay tuned for my next post in this series!