Criteria that you should consider when trying to understand what makes a company one of the top firms across the country.
(Originally posted in 2021)
There is more to being one of the top wealth management firms in Canada than just managing a lot of money. Although there are typically great advisors at every company, not every firm type is created equally. There are criteria that you should consider when trying to understand what makes a company one of the top firms across the country. The most important of which are: is the firm aligned to its clients or its products? and what conflicts of interest exist? By understanding these two questions, you can determine who the top firms in Canada are. Join us as we review the five most common types of wealth management firms and help you determine how to find one of the top ones.
At the beginning of our list, there are insurance only firms. These firms are focused primarily on selling insurance-based options such as segregated funds and permanent life insurance policies. They are very limited in their ability to offer investments outside of those available to insurance companies and are typically incentivized by high commission products. This creates a scenario where they do not have access to all of the best options for every client situation, which aligns them with the products, not their clients. The fees at these firms are often very high, and services can be limited. This does not mean that these are bad firms. It means that you will need to ask more questions to ensure you have all of the information when making a decision.
Robo advisors are relatively new in Canada and have only begun to gain traction over the past several years. A robo advisor is a digital investment company that uses technology to design personalized portfolios for its clients. Robo advisors are aligned with their clients from an investment-oriented position, but they have limited investment options. Either you agree to the asset mix they offer or not. You do not get to adjust your portfolio. If you do agree, then these firms are a good option for anyone looking strictly for portfolio management. Robo advisors use technology to scale their operations and keep their fees low. The result of this is that there is less human interaction. Although fees at robo advisory firms are low, their services do not include comprehensive planning.
Within Canada’s big banks, there are several different tiers that Canadian investors can access. For this article, we are going to focus on the private wealth arms within the banks that are registered with the Investment Industry Regulatory Organization of Canada (IIROC). These firms can sell almost everything from individual stocks and mutual funds to hedge funds and options contracts but are limited to those approved by the bank. These firms also allow their advisors to set up what are known as team practices. A team practice is a situation where each team within the firm can use its own philosophy to service its clients.
There is also a significant difference in advisors within the same firm, and finding one of the top advisors within these firms can be challenging. It requires that you have a clear understanding of what each one offers, what bias influences their decisions, and what you want from the process.
Alternatively, you can choose to work with an independent firm registered with IIROC. Again these firms can sell a broad range of products but have even greater freedom when it comes to selecting from those options. The total option list available to an advisor at an independent firm is still limited, as they can only use the products that have been approved by the firm but may have more variety across their offering than you would find at the banks. Much like the IIROC advisors at the big banks, independent IIROC advisors are also permitted to set up team practices. However, their independence creates more alternatives and options, making finding the right person within one of these firms more challenging.
Finally, there is another class of independent firms that is not only aligned with its clients and has access to nearly every investment option available in the market but also has a fiduciary responsibility to act with care, honesty, good faith, and always in the best interest of its clients. These firms are known as independent Investment Counsellor Portfolio Manager (ICPM). Most ICPM firms take a holistic financial planning approach and focus on the management of investment portfolios for individuals, estates, trusts, charitable foundations, corporations, pension funds, and endowment funds. These firms do not have team practices. Instead, they have a fiduciary responsibility to do what is in the best interest of their clients.
When looking to find the best wealth management firms in Canada, make sure you know how the firm is registered and use that information to align what you want with the correct firm. We hope that this helped you understand how to identify the best wealth management firms in Canada and know what to look for when comparing different options.