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U.S. and Canadian flags fly at the Canada-U.S. border crossing at Thousand Islands Bridge in Lansdowne, Ontario. September 28, 2020. LARS HAGBERG/Reuters
Andrew Orbach and Gene Blacklock are contributing columnists to the Globe and Mail. They are co-founders of Delisle Advisory Group, an independent wealth management firm for high net worth individuals.
Much has been written about Canada's low productivity. The Bank of Canada calls this a national emergency and there is no question that the data shows we are losing ground. A key part of the solution depends on more entrepreneurs creating business across our economy. We have first-hand experience establishing asset management companies in Canada, as opposed to the United States.
The Ontario Securities Commission has a robust process for registering wealth management companies in the province, and its professionals are thorough. Given the fiduciary nature of such companies, which manage the accumulated wealth of their customers, a cautious approach is important. However, there are clear differences in processing times between starting a company in Canada and in the United States.
Processing time goals are 120 business days for the Ontario Securities Commission and 45 calendar days for the Securities and Exchange Commission (SEC) in the United States. This means that registering an investment consulting firm in Canada's most populous province takes four times as long as registering an independent company in the United States.
Our environment in Canada is much more complex due to our self-regulatory bodies, the Investment Regulatory Agency of Canada and the provincial securities commissions. A more streamlined approach provides significant efficiency gains.
The United States has a centralized regulatory framework for securities and investment management through the SEC, which oversees all aspects of securities markets, including mutual funds, investment advisors, and brokers. Canadian investment management companies must deal with regulatory requirements in multiple jurisdictions, but in the United States they primarily deal with the SEC.
Why is this important? In the United States, competition within the industry is the main reason for success. One of the factors contributing to Canada's productivity emergency is the market dominance of a small number of players in key sectors of the economy.
Canada's banks control access to most of the country's financial assets, with banks managing 75% of the $1.8 trillion held by customers in the largest wealth management channel, the full-service brokerage business. Canada's total financial assets are estimated at his $6.5 trillion, with the Big Six holding 63% of it.
With this market share advantage, there is no competitive incentive for banks to offer innovations in product selection, as there would be if there were more competitors in the market. Additionally, there are potential conflicts of interest within banks that provide multiple services to clients beyond investment management, creating incentives for investment professionals to provide even more services to clients across banks. .
This is in contrast to the fiduciary model of investment counseling firms. The growth of independent businesses is important. Competition benefits consumers and ultimately increases our nation's productivity. Competition gives consumers more choice, lowers prices, and ultimately forces competitors to innovate.
The U.S. independent wealth management sector represents more than 17,000 companies. By comparison, he has fewer than 400 asset management companies in Canada. The complexity of starting an independent company in Canada is a major deterrent for qualified investment professionals. The investment counseling industry has been shrinking rather than growing recently with Royal Bank of Canada's acquisition of Gluskin Sheff, formerly one of Canada's largest investment counseling firms.
In the United States, the independent wealth management channel represents the fastest growing segment of the country's wealth market. As a result, many other industries have benefited from the growth. 17,000 independent asset management companies have created hundreds of technology, custody and operations providers that would not exist without them. These companies operate on a fiduciary standard that puts the best interests of their customers first. This customer-focused approach and elimination of conflicts of interest has resulted in significant growth. The same is possible in Canada.
Canada's small businesses are a key driver of growth, and we must explore ways to encourage small business creation to address productivity challenges in every sector of our economy. Federal government statistics show that small business owners employ 67.7 per cent of the total private workforce, or 8.2 million people. Our economy depends on a vibrant entrepreneurial environment.
Competition drives efficiency, growth, and ultimately price improvements. When a market becomes concentrated, the opposite happens. Canada is a remarkable country with incredible potential. Demographic changes, a highly diverse and skilled workforce, abundant resources, and a stable and secure democracy have the potential to make it a world leader in the coming years. But we need to create more competition by supporting and encouraging entrepreneurs in all industries.
