New survey finds tighter regulation, investment in new technology and enhanced marketing efforts have Canadian asset managers perched in the catbird's seat.
Canadian asset managers are "ahead of the curve" compared to their counterparts in other countries and regions and weathered the bleak economic climate of the past several years much better in large part to the comparatively strict regulations placed on financial services firms.
That’s the word from Aite Group, a Boston-based financial services research and consulting firm, which surveyed 21 Canadian asset managers overseeing more than $600 billion in assets in the spring and summer of 2010.
The report said the combination of tight regulation, a conservative business environment and a fiscally prudent government were key factors in helping Canadian asset managers -- and their clients -- emerge relatively unscathed from the global economy strife that bankrupted several prominent banks and investment houses in the U.S. and around the world.
"The Canadian asset management business is in good standing, and firms have recently completed or launched new projects to enhance investments and operations," author Denise Valentine, a senior analyst at Aite Group, said in 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 placing a greater emphasis on interactive marketing programs and techniques, investing in software and social media platforms to attract and better serve clients and continuing to manage costs across the board.
While most U.S.-based financial advisors and broker-dealers are already dreading a cavalcade of new regulations inspired and derived by the Dodd-Frank Wall Street Reform Act, some consultants and forward-thinking industry pundits believe the additional oversight could present an enormous opportunity for advisors and firms to differentiate themselves from the pack and attain the same level of sustained growth enjoyed by their Canadian peers.
But Valentine was quick to point out, Canadian asset managers will most likely be forced to adjust their fee rates in the face of increasing pressure from competitions both in the U.S. and abroad in the next few years.
"Canadian asset managers charge much higher fees than those in other countries and regions," she said. "That's an issue. Going forward, people have more choices and Canada has recently changes some of the rules to allow more choices for individual investors.
Valentine cited Morningstar's 2009 Global Fund Investor Experience report which found that the expense ratio, essentially the fee charged to investors, for a Canadian equities fund ranged between 2% and 2.5% compared to between 1.5% and 2% for the average global equity fund. For fixed-income funds, Canadian assets managers take an average rake of between 1.25% and 1.5% compared to 0.75% and 1% for the rest of the world.
"In [Canadian managers'] favor, if that's what you like, is that they're conservation 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."
According to the survey, 43% of Canadian asset managers said growing their total assets and achieving good investment performance and meeting client objectives as the most critical issues facing their organizations today. Another 33% cited risk management, compliance and regulation as their No. 1 concern while committing to a strategic business transition and attracting and retain new staff checked in at 29% and 24%, respectively.
The report added that because most Canadian banks and insurance companies are actively working to grow their wealth management and investment divisions, new technology platforms long on security and interactivity -- both with their customers and internally-- will be critical to build on the momentum these firms have already achieved.