Rapid growth of the RIA (Registered Investment Advisor) channel over more than two decades, has reshaped the U.S. wealth management industry and sustained an astonishing stretch of M&A activity. As RIA deal multiples inch toward the stratosphere (or whatever comes after that), private equity investors are watching the Canadian industry with interest, wondering if a similar shift toward independence is just around the corner.  Every few months, headlines like “Why the RIA model could still catch on in Canada” and “It’s time for Canada to develop its own version of the RIA revolution” grab attention.

Canada has a meaningful independent market for advice today, accounting for roughly 40% of advised assets.  However, most of these assets are held at CIRO-regulated dealers that are outside the sweet spot for mid-market investors, or less appealing targets for many PE funds.  The closest RIA analogue – independent, ICPM (Investment Counsel/Portfolio Manager) advisory firms focused on discretionary portfolio management – account for <5% of the total advised market, compared with estimates of >30% for RIAs in the United States.  

Are we on the cusp of an RIA-like boom in Canada?  For now, we believe the landscape more closely resembles a fallow field than fertile ground for private equity investors seeking to execute buy and build strategies.  Occasional deals will get done, but the forces driving a shift to independence are not strong enough to overcome forces of friction working against them.  Let’s unpack these forces across several areas…

1. Custodial and operational infrastructure – a big source of friction

Canada’s lack of expansive custodian support provided by the likes of Schwab, Fidelity and Pershing for U.S. RIAs is a key factor limiting the potential for a breakaway movement north of the border.

National Bank and Fidelity operate scale custody businesses in Canada, but they offer one (critical) piece of the puzzle rather than a comprehensive platform and toolset to run a wealth practice, along with hands-on transition support for advisors choosing independence.  By comparison, small RIAs working with U.S. custodians can select all-in-one service and technology bundles plus add-ons that simplify their setup and operations.  Meanwhile, larger RIA firms have flexibility to pick and choose as they mature; for instance, they benefit from hundreds of integrations with FinTech software providers to curate their own tech stack.

Coupled with a more efficient client account transfer system (known as ACATS), U.S. custodial platforms also simplify book portability.  By contrast, assets at Canadian dealers are effectively custodied with the dealer and repapering is a more painful process that constrains advisor movement. 

2. Compliance and regulatory environment – another source of friction

It takes significantly longer for an independent advisory firm to set up shop in Canada compared to the U.S., and Canadian firms face a higher ongoing compliance reporting and administration burden.  Investment and mutual fund dealers face particularly high compliance costs, owing in large part to requirements for trade-by-trade supervision across heterogeneous advisor practices.  Smaller independent (ICPM) investment counsel firms regulated by provincial securities administrators can simplify compliance through standardized portfolio models, but they still face more onerous firm supervision requirements than the U.S. and frequently depend on manual processes to meet them.  In the U.S., less prescriptive or evidence-heavy requirements coupled with SaaS-enabled solutions like “RIA in a Box” (now known as Comply) help reduce the scale and sophistication needed to start a small firm.

3. Client preferences – helping, but not much

On balance, Canadians across all wealth tiers tend to shop around less, place more trust in institutions, and value the stability or simplicity of working with a single large firm, as compared with their U.S. counterparts.  They are implicitly willing to navigate potential conflicts of interest, accept recommendations based on suitability vs. best-interest standards, or pay via embedded commission structures so long as advice remains reasonably objective, product shelves appear reasonably diverse, and service is good.  Importantly, banks have also raised their game by investing heavily in the people, resources and tools required to deliver comprehensive wealth advice with greater quality and consistency.  While several multi-family offices have emerged in the past decade and attracted clients seeking fully objective guidance, affluent families and business owners aren’t driving a mass movement toward independent advisory firms.

4. Advisor preferences – helping, but not enough 

Given that most clients will stick with a capable advisor who switches teams, advisor channel preferences are a determining factor in the overall shift toward independence.

In the U.S., breakaway wirehouse teams and IBD (Independent Broker-Dealer) advisors supported the formation and growth of thousands upon thousands of RIAs over the last two decades, most of them under $1B in assets.   Analogous movement in Canada from large investment dealers to startup ICPM firms remains uncommon, closer to the dynamics of the RIA industry 20-30 years ago.  Founders at these firms are usually wired more like professional fiduciaries seeking a home to deliver fully independent advice than growth-oriented entrepreneurs seeking to scale a business.  As such, they tend to focus less on recruitment, offer limited transition support, and invest less in automation to create ready-to-scale operational or compliance processes.  Moreover, fewer advisors at investment dealers are ready to embrace a fiduciary role or take on full responsibility for their end-to-end business operations.

Many advisors leaving Canada’s bank-owned dealers have been late-career advisors with large books seeking more autonomy, big payouts and greater familiarity offered by larger (e.g. >$10B) independent, CIRO-regulated dealers.  For mid-career advisors focused more on growing than monetizing their book, differences in value proposition across wealth platforms are frequently not enough to overcome tangible and intangible switching costs.

5. Technology advancement – helping, but not enough

Technology has become a leveler of sorts, in that modern, easier-to-integrate, SaaS-based technology solutions lower the price of entry, reduce complexity and enable more variable cost structures.  It is less cost prohibitive to build out a modern tech stack, and nimble wealth firms can curate digital experiences without the burden of legacy technology systems often found at bank- or insurance-owned dealers.  However, firms under $5-10B still lack the resources and expertise typically needed without the benefit of U.S.-style custodial infrastructure.

6. Platform economics – a source of friction for private capital

If the independent ICPM model isn’t taking off, why wouldn’t investors follow – and fund – the flow of advisors toward independent, CIRO-regulated dealers in Canada?  In short, it’s challenging to create win-win economics for advisors and private equity funds in the current environment.  Heavy competition for the most productive advisors has pushed dealers to pay richly (through transition payments, commission grids or equity grants) for large, established books that are not guaranteed to grow, and remain portable down the road.  In addition, dealer economics don’t scale well given the high fixed compliance/supervision costs noted earlier, coupled with lower levels of practice standardization, substantial clearing and settlement costs, regulatory capital requirements, etc.

Similar dynamics have played out in the U.S., where private equity flowed more freely into the RIA channel and more selectively into the IBD channel (where deals have typically involved scaled platforms with tens of billions of assets under administration).

By contrast, RIA platforms, even those in the $500M to $1B range, have the capacity to generate solid margins, consistent cash flows, and more scalable economics.  Likewise, independent investment counsel firms in Canada have the potential to scale better than broker-dealers – even if they aren’t always set up to do so.

Where does this leave us?

Taken together, these forces create a markedly different equilibrium in Canada.  It’s harder for small, independent teams to set up shop. Advisors are less likely to switch teams. Business model economics are less appealing for equity investors, and there isn’t a target-rich environment of $500M to $5B firms to fuel roll-up strategies.

Conceptually, the independent investment counsel model aligns with the U.S. RIA model and feels like it “should” represent a viable pathway for private equity investors north of the border.  Among the few hundred PMAC (Portfolio Management Association of Canada) firms, at least a handful will tick some of the right boxes – entrepreneurial leadership, industrial-grade advisor transition support, pathways to develop junior advisors, investments in automation, incentives that motivate growth, etc. – but few, if any, firms will show up ready to scale.

A patient equity partner willing to put in effort and capital to strengthen an existing platform could be rewarded over a longer time horizon.  However, lower confidence around growth trajectory, M&A opportunities, and exit options or multiples makes for a less compelling risk-reward profile.  

Looking ahead, at least a few catalysts could change the current dynamics and accelerate the shift toward independent models in Canada.  For instance:

• Custodian platforms: A more expansive and advisor-centric custodial offering akin to the U.S. could be a game changer. For now, that doesn’t seem to be in the cards.
• Industry “plumbing”: An ACATS-like account transfer mechanism in Canada would reduce friction in the system and shift the equilibrium to some extent.
• Regulatory change: CIRO’s near-term objective to consolidate investment and mutual fund dealer rules should increase advisor mobility within part of the market.  Long-term shifts in oversight models, compliance standards or compensation rules could reshape the wealth industry in a way that supports an RIA-like shift.  
• Digital and AI capabilities: We hear that AI will change everything, everywhere (if not all at once).  Over time, agentic models will reshape advice and service delivery in a way that has much broader implications for the wealth industry, including the potential to increase the scalability or market reach of smaller independents.

For now, the prevailing soil, light and water conditions are not ideal to cultivate a large crop of RIA-like firms in Canada – and it’s difficult to anticipate a material change over the next couple of years.  As such, mid-market investors are well-served to keep reading the headlines with a critical lens and temper their optimism unless or until they observe more fertile conditions for growth.