Chapter 1 - WM in Canada Flashcards
What is the definition of Wealth Management?
- Widely used by various Canadian FI to describe an approach to managing the affairs of clients holding significant assets.
- The approach consolidates the broad range of FS the FI offer to their HNW clients
In an effort to better understand WM, the CSI and investor economist developed a…
“white paper” titled ‘Defining the WM Industry and Practice in Canada’
What does the “white paper” do? (3)
- Provides a picture of the WM client in Canada
- Describes characteristics of various businesses in the Canadian FS industry that serve these clients
- Concludes by describing the role of a wealth advisor and the competencies required to successfully serve their HNW clients
What is the common measure that defines whether an individual is a HNW client or not?
– is their net worth, usually, defined as a person or family with at least $1 million of investable assets.
What are examples of occupations of HNW clients?
entrepreneurs, professional service providers, senior business executives, and media, entertainment, and sports professionals. Included in this segment are wealth inheritors, wealthy immigrants, and wealthy retirees.`
WHat are investable assets defined as?
refer to liquid assets only, does not include real estate, equity in a private company, no consideration for short- or long-term liabilities that would offset the client’s assets.
WHat are the 3 WM service channels? WHat do these consist of?
a. Private WM
- Integrated PWM consist of: private banking, investment counsel, and personal trust services offered by the banks and other deposit-taking organizations. One of the fastest growing channels.
b. Full-service brokerage
- Dominated by large, bank-owned dealers.
c. Private investment counsel
- Mono-line firms offering only investment management. Some have broadened slightly into financial planning , trusts + estate planning.
What are the three WM business models? and which WM service channel is related to it?
- Full integrated
- The PWM model - Semi-integrated
- Full-service brokerage - Mono line
- Private investment council
What is the fully integrated model include? defined as? what products does it offer?
- Include: the major banks and other large FI that offer comprehensive range of PW services.
- PWM is the only dedicated, fully integrated channel, which offers clients:
- Credit and treasury products
- Discretionary investment management
- Trust and specialized planning services
- Estate administration
- Business succession planning
- Philanthropy strategies
- Concierge services
- No insurance features (however, bank act does allow for the banks to own insurance subsidiaries). Higher focus on discretionary investment management and other fee-based services.
What is the semi-integrated model include? Defined as? offer?
- Offer a limited range of HNW services. Includes, FSB firms, financial advisor firms, some foreign banks, and a few PIC firms that provide financial planning and trust services.
- Mainly revolve around investment management and investment planning. Goal is to compete on price and features.
What is mono line defined as? Offer?`
- Offer single set of services (like discretionary management). Include: PIC firms, family offices offering advice only, and other foreign banks.
- Most PIC firms only offer investment management (which is why they are ‘mono-line’).
- Primary PIC services offered:
- Most offer discretionary management through segregated accounts or pooled funds
- Seg accounts are offered to clients with assets above a certain threshold, commonly between $1 and $5 million.
- Many financial advisors have been losing market share because their clients prefer more sophisticated services.
What are the main trends shaping the future of WM?
demographic changes and technological trends
What are the four main generations current advisors will deal with?
- Born b/w 1925 + 1945 (the “silent generation”)
- Born b/w 1946 + 1965 (“baby boomers”)
- Born b/w 1966 + 1980 (“generation x”)
- Born b/w 1981 + 2000 (“millennials”)
WHat are the five main technological changes?
Robo-advisors
cryptocurrencies
AI
information availability
Technical literacy
Who regulates them.
The banks.
The bank act is the fed gov’t regulation of the banking sector in Canada.
Some activities, such as, activities carried out by bank subsidiaries are provincially regulated.
Who regulates them.
credit unions.
Are regulated by provincial gov’t.
Who regulates them and what do they regulate.
insurance companies.
GoC regulates life and health insurance sector under the insurance companies act. Prov.
Has the power to ensure the fed. Incorporated insurance companies conduct business in their respective jurisdictions are financially sound.
Who regulates them and what do they regulate.
trust and loan companies
Regulated by both provincial And federal Gov’t. Market conduct is regulated at provincial Level BUT the GOC regulates federally incorporated companies under the trust and loan companies act.
Who regulates them and what do they regulate.
MF companies.
The MFDA is the SRO that regulates all sales of MF in Canada (except Quebec). It regulates the operations, standards of practice, and business conduct of its members and their representatives.
The MFs themselves are regulated by prov.
In Quebec, the AMF (Autorite des marches financiers) regulate its MFs.
Who regulates them, who brings them all together, who regulates the industry, and what do they regulate.
Securities dealers.
- Governed by prov. Legislation regulating the underwriting, distribution, and sale of securities, with a major emphasis in the provincial acts on full disclosure.
The CSA brings all provs. And terr. Together in a harmonized approach to regulation of securities.
- Industry regulation is governed by IIROC.
What are the 8 key regulatory initiatives over the years?
Foreign account tax compliance act
Canada-US intergovernmental agreement
client privacy
Client relationship model 1
CRM 2
Client focused reforms
MF p-o-s disclosure
Future regulatory initiatives
What is the Foreign Account Tax Compliance Act? (FATCA) What is its main objective?
- FATCA, was enacted in 2010 by the US in its efforts to reduce tax evasion by US taxpayers holding financial accounts outside the country.
The main objective is to have all income earned by US taxpayers reported to the IRS so that the appropriate federal taxes may be collected. Affects ALL FFI globally
What occurred in 2014, when the Canada-US intergovernmental agreement was signed? What was the main objective? What problem did this solve for FI?
- In 2014, the gov’ts of Canada and the US signed an agreement that provides an alternative way of meeting US objectives to increase tax compliance under their domestic legislation.
Objective, Instead of each FFI providing the info on a US taxpayer directly to the IRS, all FFI will send it to the CRA who will then share this information to the IRS.
This approach also alleviates privacy concerns the Canadian FI have regarding the info. of their clients.
What did the Client relationship model 1 (CRM 1) do for the advisor-client relationship?
- In March 2012, IIROC released its CRM1 guidelines, developed by CSA, to provide greater transparency regarding the relationship b/w the advisors and their clients and b/w the advisors and their clients’ dealers. Involves, communication in plain language, disclosing COI, and taking greater care to assess suitability b/f making or accepting portfolio recommendations.
