AGF Management chief executive Blake Goldring is shown in 2008.Yvonne Berg/The Globe and Mail
It isn't all AGF Management Ltd.'s fault. Really.
Ever since the wealth manager slashed its dividend in December, there's been laser-like focus on its downward slide over the past decade. AGF did this to itself, many people say. Just look at its net redemptions, its fund manager departures, its management upheaval.
But the company's woes also stem from seismic shifts in the industry. When AGF was at its prime at the start of the century, Canada's wealth management landscape looked dramatically different. Back then, the big banks were merely one part of a competitive group that included independents like AGF and AIC Ltd. (bought in 2009 by Manulife Financial Corp.); today the banks dominate the industry – particularly when it comes to mutual funds.
Consider that roughly a decade ago, the banks' own long-term mutual funds made up about 25 per cent of all new mutual fund sales. By March 2013, that market share had soared to 57 per cent, thanks to acquisitions of wealth management firms as well as more in-house investment offerings that are increasingly being pushed through the Big Six banks' 6,000 brick-and-mortar branches across the country.
For firms like AGF that are trying to turn the tide, it's getting harder to do so because the banks' broker networks are becoming tougher to crack. Historically, independents were happy to pay retail advisers a 'trailing fee' in order to get their funds noticed. There's a good chance securities regulators will outlaw such fees in coming years. If that happens, should a Bank of Montreal broker, for instance, have the option to sell one of her own funds versus an external company's, the in-house option just makes the most sense, all other things being equal.
Add to that the fact that the banks are now pushing even harder into wealth – something they've been very clear about. Canadian Imperial Bank of Commerce has made it a goal to boost its percentage of total earnings from wealth management; BMO recently struck a $1.3-billion deal to buy a wealth manager; and Royal Bank of Canada has talked about a strategic shift away from lending and into savings and investments.
Even more troublesome: life insurers such as Manulife Financial Corp. and Sun Life Financial Inc. are pushing into wealth management in a big way. These huge financial institutions already have scores of clients to whom they can cross-sell their investment products.
Now, let's be clear about one important fact: some independents can survive this onslaught. CI Financial Corp., for one, stands out as a wealth management star over the past few years, thanks to good investment performance and strong brand equity.
But the underlying trend can't be ignored, and for the independents, the fight will only intensify.
Tim Kiladze