Headwinds paint sobering future for Canada’s independent asset managers and their investors

The adversity from growing competition and more onerous regulations remains undiminished heading into another earnings season next week.

It wouldn\’t be much of a surprise to listen to that Canada\’s largest independent asset managers feel a bit vulnerable nowadays. Whether it’s forthcoming regulatory changes, growing competition from exchange-traded funds or even the steady pilfering of share of the market by the country’s biggest banks and life insurers, asset managers have been battling one headache after another over the past year.

As a result, they’ve struggled at times to keep up with other publicly traded companies during the current bull market run in stocks. But for their credit, some – certainly not all – of these have done a good job of defying the chances stacking facing them by finding ways to maintain and expand their client base as healthy equity markets drive favourable asset growth across the industry.

Five signs your advisor is taking too many risks

Hedge funds in the last 20 years happen to be able to achieve respectable annual returns more than 8% with less risk compared to broader market.

By contrast, the average investor, due to poor market timing and risk chasing, has achieved a disappointing annualized return of approximately 2% during the same period, according to a recent analysis by Richard Bernstein Advisors LLC.

We believe such poor performance could be attributed to a financial industry that\’s more focused on asset gathering than asset management. Keep reading.

Unfortunately, the adversity from growing competition and more onerous regulations remains undiminished heading into another earnings season in a few days. As a whole, the group, which varies from mutual fund giants for example CI Financial Corp. and AGF Management Ltd. to more boutique firms like Gluskin Sheff + Associates Inc., is anticipated to remain a segment of the Canadian equity market that is under fire in the months ahead.

\”We recently moved to a more cautious stance given a few near-to-medium-term headwinds,\” said Gary Ho, analyst at Desjardins Securities in a recent note, summarizing the myriad challenges facing the.

At the top of Ho\’s list is the uncertainty around new disclosure rules, which are being implemented by securities regulators. Called Client Relationship Model 2 (CRM2), the guidelines will eventually require advisers and asset managers to provide greater transparency about the fees and gratifaction of their products.

Investors generally will no doubt applaud a potential ban or unbundling of embedded trailer fees, but those investing in asset managers remain anxious about such a prospect after regulators recently postponed a study meant to address the problem by at least another year.

\”This delay will cast an overhang over the near term,\” Ho said. \”We still believe that businesses that have scale, own distribution and therefore are ahead of the curve on preparing advisors/clients for regulatory changes will be winners.\”


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