With household savings among Canadians at a low level, and a growing trend towards informal and self-directed styles of investing, the wealth management industry must transform itself to make disciplined investing easier, cheaper and more engaging.

As the global economy shifts and living costs climb, Canadians are increasingly feeling the financial strain. A Scotiabank survey reveals that 24% of Canadians are experiencing significant stress related to their finances, including day-to-day expenses, emergency funds, and debt repayment.¹ Meanwhile, a 2024 Nanos survey indicates that 56% of Canadians believe the country is moving in the wrong direction to maintain a high standard of living, with 49% expressing pessimism about Canada’s future economic growth.²

The rising cost of living is a significant contributor to these financial pressures, as Canadians allocate more of their income to cover more expensive goods, services, and debt servicing. While the prime rate recently went down to 6.7% and inflation has dropped to 2.5%, there is no guarantee that this trend will continue or how far rates will fall.^3,4 A WOWA report projects that the prime rate will remain between 4.7% and 6.7% over the next five years (as of September 2024).⁵ 

Economic conditions have contributed to a concerning disparity in savings rates. Canadian households have an average savings rate of only 6.9%, compared to 15.4% in the euro area and even higher in Asian countries.^6,7 This growing gap highlights the increasing difficulty Canadians face in achieving their financial goals. 

Meanwhile, many are turning to non-traditional advice sources, self-directed trading, and riskier asset classes. A survey by the Office of the Investor found that 1 in 5 Canadians rely on social media, forums, and investment gurus for financial advice.⁸ Furthermore, an OSC survey revealed that over half of retail self-directed traders describe themselves as having moderate to aggressive attitudes towards risky investments.⁹

CHALLENGES FOR FINANCIAL INSTITUTIONS

The wealth management industry’s largest segments are challenged by both the low rate of household savings and the enthusiasm for self-directed investing. To confront these trends, the industry needs to make the experience of saving easier, more engaging and cheaper as well as finding new ways to encourage financial literacy. 

However, traditional financial institutions are grappling with several challenges due to outdated and fragmented technology systems, including:

• Disjointed client experiences: Multiple client portals and platforms lead to a fragmented user experience.
  
• Legacy applications: Outdated, complex systems are costly to maintain and update and make it difficult to innovate in terms of the investments offered and the customer experience.
  
• Manual processes: Inefficiencies involving manual data entry and operational tasks across multiple systems make it difficult to respond rapidly to clients, or to cut operating costs in ways that could allow more flexibility on fees and charges. 
  
• Disparate data: Unstructured data spread across various systems hinders effective analysis and decision-making, makes it more difficult for advisors to work efficiently, and prevents the scaling up of a more personalized, data-driven wealth management experience.

These issues are preventing many firms from delivering a cohesive and modern financial experience to their clients and advisors, despite evidence of customer demand. A CFA study revealed that 66% of investors trust their investment firm because of increased technology use.10 Additionally, a Roubini ThoughtLab survey found that 82% of investors want their advisor to stay at the forefront of technology.¹⁰

As frustration and unmet expectations grow among frontline advisors and their clients, the potential for a flight of assets (and advisors) is becoming problematic for firms.

TURNING CHALLENGES INTO OPPORTUNITIES

“The biggest risk is not taking any risk... In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” Mark Zuckerberg

To address the challenges, financial institutions may need to embrace large-scale technological transformations and the challenges that come with them. Otherwise, they risk being left behind as competitors capture market share. 

They should look to turn obstacles into opportunities across two key dimensions – revenue growth and cost efficiency. In terms of revenue growth, the aim should be to: 

• Enhance client and advisor experiences. Invest in modern platforms that offer integrated solutions for financial planning and client management.
  
• Increase asset retention and growth. Implement strategies that strengthen client relationships and boost assets under management.

Cost efficiency is important not only to strengthen profitability but also to give firms more flexibility over fees and charges. The areas of focus here include: 

• Streamlining operations: Simplify middle- and back-office functions to reduce servicing costs.
  
• Updating technology. Invest in scalable and resilient technology to lower capital expenditures and maintenance costs.
  
• Adapting to regulations. Develop agile systems to respond effectively to evolving regulatory and compliance requirements.

FIVE ACTIONABLE STRATEGIES FOR FINANCIAL INSTITUTIONS

For clients that are willing to embark on a game-changing journey, below are five key topics to address as firms redefine wealth platforms:

1. Unified platforms. Develop integrated portals and workbenches for advisors and operational staff to create seamless/collaborative client and frontline experiences.
   
2. Flexible technology. Implement platforms that are scalable, stable, and secure to support business growth and client needs.
   
3. Process digitization. Utilize exception-based processing and generative AI to enhance efficiency and provide natural language services.
   
4. Data integration. Establish data-driven processes and a ‘single source of the truth’ to generate reliable, real-time insights.
   
5. Educational tools. Create tools that deliver real value to advisors and clients in helping them to achieve their financial goals.

LOOKING AHEAD

As the financial landscape evolves, so must the institutions that inhabit it. Embracing technological advancements and adapting strategies to meet changing client expectations are crucial to remaining competitive. 

Wealth managers need to review their strategic vision. Is it bold enough to propel their firm into the future? Is their current operational and technology infrastructure able to support their ambitions? In our experience, firms must be ready to embark on the challenge of a transformative journey to prepare a new foundation for the future.

We will be discussing these challenges and opportunities in depth with industry leaders at our upcoming Wealth Management Transformation Panel Discussion on October 30, 2024 in Toronto. Interested in attending? Fill out the contact form below to express your interest. Stay tuned for key insights from this event, which will be featured in our follow-up blog later this year.

¹ https://www.scotiabank.com/corporate/en/home/media-centre/media-centre/news-release.html?id=4078&language=en 
² https://nanos.co/wp-content/uploads/2024/03/2024-2554-Coalition-for-a-Better-Future-Feb-Populated-Report-with-tabs.pdf
³ https://www150.statcan.gc.ca/n1/daily-quotidien/240820/dq240820a-eng.htm
⁴ https://www.bankofcanada.ca/rates/daily-digest/
⁵ https://wowa.ca/interest-rate-forecast 
⁶ https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3610011201
⁷ https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Quarterly_sector_accounts_-_households&oldid=636647
⁸ https://www.ciro.ca/office-investor/avoiding-fraud-and-protecting-your-investments/finfluencers-investing
⁹ https://www.osc.ca/sites/default/files/2021-04/inv_research_20210421_self-directed-investor-survey.pdf
¹⁰ https://www.advisor.ca/industry-news/industry/the-future-is-now-for-wealth-firms/