Wealth Management: Banks 1, Everyone Else 0

After reading an interesting article in the Globe & Mail entitled “How the Big Six Won the Battle Over Wealth” it prompted me to comment. As someone who is in the industry and obviously has a vested interest in how all the different players fair, it was an eye opener, but not a shock.

We all know how powerful the banks are in Canada , and how they completely changed the trust and investment dealer businesses in the 80’s and 90’s by swallowing up most of their competitors. Now they are doing the same thing in the wealth management business – just going about it in a slightly different way. In the wealth management business, just as with a traditional bricks and mortar business, there are manufacturers and then there are distributors. Manufacturers would include the AGF and Mackenzie’s of the world that have mutual funds to sell, and distributors would include Assante and the banks. Banks are in an enviable position of being both a manufacturer and a distributor. They have their own mutual funds they sell, and they sell them primarily through their huge branch networks across the country. It is that distribution advantage that is making them clean up and is contributing big (and steady) profits to their bottom line. According to the Globe and Mail, which got their data from the Investment Funds Institute of Canada, in 2003 banks made up 25% of the sales of long term mutual funds in Canada. In 2013 their sales now represent 57% of the market.

Where does that leave the independent mutual fund manufacturer and distributor? As with any market where there are a few players with large market share there will always be room for smaller niche companies to emerge and thrive, but they better offer a compelling product/service that is discernibly different. The interesting thing about us at BFP, and associated with Assante for the sale of mutual funds, is the banks although they are a competitor of ours in some ways, they are also a partner. We have the choice to sell the banks mutual funds (and do) exactly the same as how they are sold at the bank branch level. However, for us the bank’s funds are just some of the funds in a very large shelf of products that we choose for our clients, whereas at the bank branch level you are unlikely to be offered independent mutual funds when their own funds will contribute more to the bank’s bottom line.

One example of an investment company that is one of our favorites and is thriving, thank you very much, despite having the 800 pound gorilla (okay, 5 800 pound gorillas) lurking around is Edgepoint Wealth Management, who we are proud to call one of our favored suppliers. Edgepoint was started in 2008 by a few former investment managers from Trimark who wanted to run a truly independent wealth management company. We were attracted to Edgepoint initially because we liked their philosophy on managing money and their track record, but became even more intrigued once we began to learn more about the Company and their unique characteristics such as: they hardly have a marketing budget and those cost savings are passed on to their investors through lower fees, they invest their own money in their own funds (as do we!), they view what they do as buying a collection of great businesses at reasonable prices, they keep it simple by having very few funds, and they will stay a private company and not have to cater to outside shareholders. Performance has been exceptional, but they like every other money management firm will eventually go through a period when they underperform, but we feel that with their philosophy of managing $ and their ability to attract the best in the business by being part of a truly independent business, they will consistently produce superior long term results for their investors – and that is what we think is the ultimate measure of success.

Paul Bajus - CLU, CFP, CHS - is the Director of Director, Pensions and Corporate Wealth Management for BF Partners. Learn more about Paul.