Tighter regulation has been a major factor behind the success of Canadian asset managers, a survey says, which is a bullish sign for a U.S. industry about to go through a similar experience.
Canadian asset managers are "ahead of the curve" compared to their counterparts in other countries, and they weathered the bleak economic climate of the past several years much better, in large part due to the comparatively strict regulations with which Canadian financial services firms must comply.
That is the word from Aite Group, a Boston financial services research and consulting firm, which surveyed 21 Canadian asset managers overseeing more than $600 billion in assets last spring and summer.
The report said a combination of tough regulation, conservative business environment and fiscally prudent government were key factors helping Canadian asset managers — and their clients — emerge relatively unscathed from the global financial crisis that bankrupted prominent banks and investment houses in the U.S. and worldwide.
"The Canadian asset management business is in good standing, and firms have recently completed or launched new projects to enhance investments and operations," wrote Denise Valentine, a senior analyst at Aite and author of the report. "Canada may be ahead of the curve as the global economy begins to recover, but its asset management industry must continue to work to keep up with regulatory changes."
Those changes include greater emphasis on interactive marketing programs and techniques, investments in software and social media platforms to attract and better serve clients as well as continual cost management across the board.
Though most U.S. financial advisers and broker-dealers are already dreading a cavalcade of regulations inspired by, and derived from, the Dodd-Frank Wall Street Reform Act, some consultants and forward-thinking industry pundits believe the additional oversight could present an enormous opportunity for advisers and firms to differentiate themselves and attain the same level of sustained growth enjoyed by their Canadian peers.
But Valentine was quick to point out that Canadian asset managers will most likely be forced in the next few years to adjust their fees in the face of growing pressure from competitors both in the U.S. and abroad.
"Canadian asset managers charge much higher fees than those in other countries and regions," she said.
"That's an issue," Valentine said. "Going forward, people have more choices, and Canada has recently changed some of the rules to allow more choices [to] individual investors."
Valentine cited Morningstar's 2009 report, "Global Fund Investor Experience," which said the expense ratio — essentially investors' cost — for a Canadian equity fund ranged between 2% and 2.5%, compared to a 1.5% to 2% range for the average global equity fund. For fixed-income funds, Canadian asset managers collect average fees of 1.25% to 1.5%, compared to 0.75% to 1% for the rest of the world.
"In [Canadian managers'] favor, if that's what you like, is that they're [conservative] and they provide a fairly methodical, well-run shop," she said. "Not that Americans aren't, but there are far more money managers in the U.S., and they're not as rigorously audited as they are in Canada, mainly because there are so many fewer asset managers" there.
The survey said that 43% of Canadian asset managers cited total asset growth, achieving good investment performance and meeting client objectives as the most crucial issues facing their organizations. Another 33% cited risk management, compliance and regulation as their No. 1 concerns; commitment to a strategic business transition and attracting and retaining staff members were mentioned by 29% and 24%, respectively.
The report added that, because most Canadian banks and insurance companies are actively working to expand their wealth management and investment divisions, technology platforms long on security and interactivity — both with customers and internally — would be crucial for building on the momentum these companies have already achieved.
