Investment Industry Association of Canada

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1 Investment Industry Association of Canada Small Dealer Symposium Guy Armstrong Senior Consultant and Managing Director Keith Sjögren Senior Consultant and Managing Director, Consulting June 7, 2012

2 Presentation Agenda Influences on Wealth Management The Big Picture Full-service Brokerage - Assets Full-service Brokerage - Profitability Q&A 1

3 Trends Impacting Wealth Management Credit Wealth accumulation Management and payout of accumulated wealth 1980 s 1990 s 2012 Slower growth in personal financial assets. Wealth and incomes becoming increasingly concentrated. Age and economic uncertainty leading to an appetite for capital protection, income and liquidity. Debt reduction and avoidance a priority in all wealth segments. An unprecedented transfer of wealth from one generation to the next. Increase demand for advice driven by market volatility, complex products and retirement concerns 2

4 Assets

5 Online Brokerage Outpaces Full-service Assets in billions of dollars Full-service brokers Online/discount brokers $1,035 $1,025 4-yr CAGR $ $719 $ % % Source: The Retail Brokerage Report, Winter 2012, Exhibit

6 Deposits and Near-cash Represent 20% of Assets Industry asset mix December 2011 ($ billions) Dec 2011 Growth Assets Share 4-yr CAGR Full-service brokers $ % 2.3% Deposits % 15.0% Cash % 5.1% HISAs % 50.6% GICs % 8.9% Fixed income % -1.2% Cash equivalents 9 1.2% -18.6% Money market funds 7 0.9% -11.2% Bonds % 0.6% Fixed income ETFs 8 1.0% 64.4% Long-term investments % 1.6% Equities % 0.2% Other 3 0.4% 8.4% Source: The Retail Brokerage Report, Winter 2012, Exhibit 3.3b. 5

7 Rapid Growth in TFSAs Full-service Brokerage Assets by Tax Status and Type of Account 3.8% 3.1% RESPs 0.4% RRIFs 7.3% TFSAs 1.0% 43.0% 1-yr growth -2.6% RRSPs 23.8% Taxable 67.4% 3.1% Source: The Retail Brokerage Report, Winter 2012, Exhibit

8 The Majority of Full-service Assets are Now Fee-based Full-service brokerage business mix Fee-based 19.7% 20.5% 22.6% 22.5% 22.8% 23.1% 24.4% 25.0% 25.8% 28.2% Stand-alone funds Managed assets 57.2% 55.1% 52.4% 51.7% 49.1% Commission-based Source: The Retail Brokerage Report, Winter 2012, Exhibit

9 Advisor-managed and Fee-based Brokerage Lead the Way Assets in fee-based programs ($ billions) $202.9 $139.8 $ % Fee-based brokerage 51.9% 51.8% 18.3% Discretionary wraps 27.9% 23.8% 20.2% 24.3% 27.9% Advisor managed Source: The Retail Brokerage Report, Winter 2012, Exhibit

10 Independent Firms Flourish in Western Canada Asset growth (3-yr CAGR) Independent Firm s Asset Share - December 2011 Asset growth (3-yr CAGR) 11.9% 11.2% 14.5% 8.7% 10.2% 11.1% British Columbia Alberta Manitoba & 33% 27% Saskatchewan Ontario 19% 14% Quebec 21% Atlantic 7% 9

11 Independents Facing Challenges in All Regions One year asset growth rates to December 2011 Big-six Independents 10.9% 5.3% 2.5% 4.8% 3.1% 3.8% -5.0% -9.4% -19.9% -24.0% -32.9% -38.7% B.C. and Territories Alberta Manitoba and Saskatchewan Ontario Quebec Atlantic Source: The Retail Brokerage Report, Winter 2012, Exhibit

12 Alberta Leads in Average Assets per Advisor Average assets per advisor ($ millions) Canada: $77.3 British Columbia Alberta Manitoba & $68.1 $85.6 Saskatchewan Ontario $74.2 $78.8 Quebec $82.2 Atlantic $

13 Profitability

14 Independents Far Less Reliant on Revenue from Fee-based Programs Big Six revenues ($ millions) Independents revenues ($ millions) Equity Fee-based programs Investment funds Equity Fee-based programs Investment funds

15 Slow Recovery in Share of Mutual Fund Revenue Full-service brokerage share of total mutual fund revenues Total mutual fund commissions 21.4% 19.3% 18.7% Total mutual fund trailers 19.4% 19.8% 14.5% 14.3% 14.0% 14.3% 14.9% 6.9% 5.0% 4.7% 5.1% 4.9% Source: Insight Advisory Service,

16 Ontario and Alberta are Growing Their Advisor Ranks Geographic distribution of advisors 105 4, , ,774 3 yr change 1, B.C. and Territories Alberta Manitoba and Saskatchewan Ontario Quebec Atlantic Source: The Retail Brokerage Report, Winter 2012, Exhibit

17 Independents Experience Steady Improvement Annual revenue, expenses and net profit per advisor ($ thousands) Big-Six Revenue per advisor - national average $673 $780 $839 Grid payout expense per advisor (267) (311) (335) Expenses per advisor (excl. grid payouts) (327) (352) (370) Net profit per advisor $79 $117 $134 Independents Revenue per advisor - national average $399 $501 $539 Grid payout expense per advisor (186) (238) (254) Expenses per advisor (excl. grid payouts) (233) (264) (279) Net profit per advisor -$19 -$1 $6 Source: The Retail Brokerage Report, Winter 2012, Exhibit

18 Issues and Implications for Full-service Brokerage Issues Outlook Implication Slow Industry Growth Limited opportunity for revenue growth Consolidation wave likely to continue Demographic Changes Increase in upscale and affluent households Heightened concentration of wealth Aging client base Opportunity Heightened Demand for Advice Brokerage projected to outgrow other channels Capacity constraints leading to packaged solutions Opportunity Move from commission to feebased Shift to wealth management Reliable revenue streams Opportunity 17

19 Issues and Implications for Full-service Brokerage Issues Outlook Implication Competitive Pressure Bank brands may create competitive disadvantage Operating margins will remain under pressure Deposits Gaining Share Volatile markets may increase focus on liquidity Limited revenue flows Increase in Self- Reliant Investors Search for low cost solutions Growth in use of online brokerage Technology driven service 18

20 Q&A

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