Canadian advisors found to be optimistic, mindful of risk

For the first time, Morningstar Research Inc. has extended its Voice of the Advisor research survey north of the US-Canada border. In a survey of Canadian financial advisors the research and financial services firm sought to understand the state of advisors’ sentiments, hopes, fears, and actions in Canada. The survey interrogated advisors’ levels of AI adoption, their use of alternative asset strategies, and their overall feelings of optimism in this industry.

Joe Agostinelli, senior director of market research for Morningstar Inc., unpacked the survey results, highlighting tensions identified by the results and where they might offer instruction to advisors and advisory firms. One key area highlighted by the survey was a contrast between market optimism, felt by 75 per cent of respondents, and the market volatility that a plurality of advisors identified as the primary source of risk for their practice.

“Advisors feel comfortable with the environment we’re sitting in, they feel that there’s opportunity, they feel steady even though they’ve been through this kind of thing before,” Agostinelli says, citing survey results from similar Morningstar studies of US and Canadian advisors and investors. “It’s reasonable for advisors to be feeling pretty good about where they’re at, but even with that optimism market risk is still top of mind. Even though things have been steadily ticking up, there’s always this sense in the back of their minds that things could go downhill really quickly.”

Just as advisors are balancing optimism and risk on the market, they’re managing degrees of optimism and risk in technology as well. The survey asked Canadian advisors about their use and adoption of generative AI, and Agostinelli notes that Canadian advisors stood out from their US counterparts in their willingness to use generative AI. That includes the use of AI for marketing and content creation, but also for research and due diligence, or even financial planning and modelling.

The survey asked Canadian advisors to identify where they thought AI would have the most benefit for their practices. Agostinelli explains that they have hopes for this technology beyond just communicating more efficiently. Onboarding and other onerous information gathering processes, for example, have been cited as areas that could be significantly eased via an AI platform. Investment research and product diligence, too, were called out as potential use cases beyond the current applications in the industry. While a small cohort of advisors see generative AI as a potential threat, the vast majority of Canadian advisors surveyed were more supportive of its potential promises.

The survey also found a degree of tension in how advisors use and want to use their time. Canadian advisors surveyed spent 42 per cent of their time on average dealing with client matters. 31 per cent of their time was dedicated to investment strategy and 26 per cent was dedicated to operational and strategic work like brand promotion and interactions with wholesalers. Despite investment management taking up less than one third of advisors’ time when asked about where they add value to their clients, three of the top four areas identified were financially focused. Agostinelli sees this result as highlighting a potential area of opportunity around adding products and investment solutions that reduce the labour load involved on the investment side so greater value adds can be found on the emotional and relationship side of an advisor’s work.

One of the areas of expanding investment responsibility is in the addition of alternative strategies in client portfolios. The survey found that 73 per cent of respondents expected that their clients’ allocations to private investments were going to increase over the next twelve months. An additional 20 per cent of advisors noted that they plan to get into private assets in the next 12 months. Agostinelli notes that there is a high degree of opportunity in that space, with the caveat that advisors and clients need to level set on what they expect from their investments in private assets.

While the survey offers a wide range of insights and takeaways for leaders in the advisory space, Agostinelli highlights one key set of findings for advisory firms. Client expectations, the survey discovered, are changing rapidly. 52 per cent of respondents found that clients now expect a higher degree of service, largely around faster and more effective communication. 40 per cent also said that higher levels of portfolio service are being demanded. If firms want to capture more clients, he sees meeting these expectations as a significant area of opportunity.

“Just enabling advisors to be more proactive, but also just more immediately able to address the needs of their clients, I think that's going to go a long way,” Agostinelli says.