Opinion: Private wealth firms are struggling

There have been a number of successful acquisitions of private wealth firms in Canada recently. These firms were attractive, not just because they had assets under management. Like any good stock, they demonstrated a consistent track record of growth and profitability. They were great investments.

That didn’t happen over night. It takes time and discipline to grow a business. A lot of private wealth firms haven’t yet turned themselves into great investments, or even good investments for that matter.

Seven reasons.

1. There aren’t enough professionals

Wealth advisors and portfolio managers available for hire in Canada are in short supply. There’s a lack of inventory to satisfy an insatiable demand for growth.

2. Not enough of them can sell

The really valuable wealth advisors and portfolio managers recognize that selling is a major accountability in both job functions. It is what makes the good ones indispensable to their employers.

But not all advisors and portfolio managers are effective salespeople. Indeed, many aren’t. This is a significant issue for wealth management companies struggling to grow. Being a great investment shop is important. But without a strong sales function to attract clients, the investment story is irrelevant.

What most firms fail to grasp is that wealth advisors and portfolio managers are not the only kinds of sales professionals available to them.

Salespeople come in many shapes and sizes, from inside and outside the wealth management industry. A smart one can raise assets, no matter their background. They can’t provide advice, but that’s an easy gap to fill.

3. Firms undervalue organic growth

Smaller firms tend to engage in merger and acquisition (M&A) activity as a substitute for organic growth. That’s understandable — M&A deals get a lot of attention.

It’s one of the most common mistakes business owners make. The risks are high, and the potential loss of revenue that can occur during deal negotiations can cause irreversible damage. It’s tough to make up for lost time.

Wealth managers who do not actively engage in sales, marketing and business development activity on an ongoing basis will shrink. They become unattractive businesses to buy. It’s a dead end.

A wealth manager that engages in organic business development and at the same time remains engaged in the deal flow has a better chance of growing and attracting investors. One should never be done at the expense of the other.

4. Marketing isn’t a priority

A lack of attention and respect for the marketing function is another common mistake.

Effective marketing strategies deliver a long-term return on capital. Social media has become key to growth.

Without a potent narrative backed by sustained brand awareness, no coherent value message can get across.  

5. Growth capital isn’t deployed

Investing in growth requires an unyielding commitment to the effective deployment of capital. The best wealth managers have grown by committing to multi-year asset growth and fiscal discipline strategies.

Business owners who lack commitment are almost certain to fail.

6. Compensation packages fail to motivate

It’s a highly competitive market. Compensation has to keep employees motivated and attract superior talent. It is the engine for all growth.

Good people are difficult to replace. Without them, firms can’t compete.

7. The competition in fierce

There are more than 400 registered wealth managers in Canada. No firm can afford to stand idle.

Because it’s so expensive to launch a broker-dealer firm, wealth advisors and portfolio managers are opening private wealth firms. More registrants only add to an already crowded market.

Wealth management leaders wear many hats. They need to think like sales leaders. The need to identify problems quickly and develop strategies to solve them. And they need to challenge themselves and their fellow leaders constantly — would an outside firm invest in us?

When all parts of a firm are coordinated, it becomes an efficient growth machine. It is attractive to both outside investors and purchasers.