Everyone’s A Partner: Wellington West’s Charlie Spiring spells out success in the independent channel

When the four pillars of the financial services industry collapsed in 1987, the banks bought the premier brokerage houses — and continued to buy. By the late 1990s, it seemed there might be no mid-tier left either, as firms such as Newcrest Capital, Midland Walwyn, First Marathon, Richardson Greenshields, Schwab Canada and Levesque, Beaubien Geoffrion were all absorbed into bank firms.

Is there a limit to “bigness” in the broker business? Can a renascent mid-tier capitalize on it? Wellington West CEO Charlie Spiring thinks so. Scot Blythe interviewed him at the end of October, during Wellington West’s “The Best is Yet to Come,” partners conference.

We interviewed you in 2003 about Wellington West’s prospects. How has your firm done since then?

We’re just nosing through $7 billion this quarter. We started the year at $3.8 billion. Before that we were just south of $2 billion.

Where is the asset growth coming from? Recruitment?

The bulk is coming from recruitment. Our sales are probably 15% of that. We’re having good growth, but we’re getting 80% to 90% from recruiting. And it’s from all over the Street. We’re looking inside the banks’ hip pocket and seeing unhappy advisors who, for some reason or another, aren’t fitting into the bank model. When you’ve got something as big as what the banks have, it’s not for everybody. That’s our strength.

People have said if the banks could merge, they would be more competitive. But I’m not sure that works on the brokerage side?

That would be a dream come true for us. Whenever they put a bank or two together, we’d be pretty opportunistic. I’m sure ourselves, Richardson, and some others would have some fun finding disenchanted brokers in that environment.

Are you also recruiting from other independent firms?

Yes, very modestly. I would say that 15% to 20% of our business comes from the independents, including Desjardins, Raymond James and so on.

How many mid-size firms can Canada sustain?

I think it’s easy for a half dozen to be pretty good at it. Some people suggest as high as 10, but it’s getting harder to get started. We started at a time when nobody was doing this. The mid-tier sector effectively opened up to us. There’s some players there — Canaccord, Raymond James, Richardson Partners — but the marketplace is very open for someone to differentiate themselves and come up the middle.

When you’re recruiting, how have you dealt with the legal issues?

Well, we’re pretty careful. We’ve had two lawsuits against us — Scotia and Nesbitt. Scotia has dropped theirs. It was frivolous. Nesbitt has hit the hardest of the banks out there. We’ve now countersued them on some of the stuff. It’s a lawyer’s dream. It actually disappoints me when I look at how Nesbitt handles it. They’re trying to sew up competition through the legal mechanisms, through spending money. There’s no question they can outspend us. There’s also no question they will not intimidate us. In fact, we’ve made proposals to Nesbitt: “If you don’t like how we’re doing it, tell us how to do it, because we do it very much the same way as you.” As you saw in the last court case, the court said: “We’re going to allow Wellington to put in your [BMO Nesbitt Burns] practices.”

What brings brokers over to you?

Here, everyone’s a shareholder. They think like a shareholder; they act like a shareholder; they have fun like a shareholder. It’s really a very different culture. What’s missing in the industry is that brokers want to have a say. At Wellington West, we’ve created mechanisms for them to have a say. First of all, you have direct access to the CEO because he’s a producer — that’s me.

But we’ve created the advisory council for management. Ten top producers in the firm, probably 10 of the top 20, have a very strong say and they put this conference [The Best is Yet to Come] on, effectively. It wasn’t management driving it. It was management supporting it. Right down to the sales assistant level, we’ve created an active advisory council for sales assistants. They get a say in how to change the operation, right down to the bowels of the firm.

We think as executives and advisors in that we know what’s going on. It’s really our associates who do the heavy lifting and tell us how to improve, how to save money, how to re-prioritize, how to create electronic documents. So we’re getting a ton of efficiencies that no one else is getting. It’s so counterintuitive, because the industry expects the banks to have those things. What we’re finding is that the banks aren’t listening. So in our firm we listen, we care, we nurture and we share ideas.

What’s your value proposition for advisors?

Our payouts are higher because we’re pretty lean. Advisors also get shares. We’ve got 300 shareholders. We’re actually like a public company, with rights offerings for employees who want more stock. We have a good, liquid market in shares, and it’s valued quarter-to-quarter based on EBITDA, assets under management and discounted cash flow. We’re worth a quarter billion right now and we split our stock 200 for one.

There’s more to what you do than just advising. What is the value of the other parts of the firm to advisors?

We’ve changed our firm from what I called a one-headed monster to a six-headed monster. Our IDA platform is still the biggest part of the company. Then there’s the capital markets team with Greg Thompson. There’s a star-studded group that has opened with much less fanfare than Genuity but they’re getting more deals than Genuity. We share each deal with them and we respect them and like them, but we’re winning a lot.

With our retail base attached on the side, they’re getting a lot of horsepower. Is this new issues, secondary offerings? It’s trading stuff for our clients, it’s research on deals. If you looked at us last year, the biggest non-bank deal that went down was Huntingdon REIT for $100 million. We led that. We ended up bringing in Westwind and Desjardins as partners. Arctic Ice [Arctic Glacier Income Fund], the same thing. We did the wholebought deal, brought it back to TD, partnered with them. We created innovation, moved fast, did a bought deal and that was a $50 million deal. It was very good for our clients.

And the other heads of the monster?

There’s David Christianson at Wellington Total Wealth. That’s a 100% fee-for-service business. David is probably the most underpaid worker in the world for all the services he does. He’s really holding the ethics bar high. There’s the Pro-Ice division. Grant Skinner did the accounting for 26 to 30 high-net-worth hockey players. We manage a lot of assets on the side because they had a mishmash of assets. We’ve taken that. That’s the glamour end, a small part of our business.

As a growing firm, what threats do you face?

There’s always the threat that the banks will treat their clients and their brokers right, service them properly, pay them properly, and do the right stuff. We worry every day, are we as capitalized as we should be? Let’s put excess cash with a three-year bear market as the worst thing that can happen and that’s how we will capitalize ourselves.

The other part is the compliance check, which can cause us a lot of heartburn. If you’re a partner, there’s a lot of skin in the game if they screw up. If somebody was ever doing something bad, a partner who has currency in it would report it. Our culture doesn’t allow it.

So how do you manage compliance?

I think it’s worse at some other shops. When you have 20 to 200 brokers, you always deal with the lowest common denominator. So our philosophy is let’s raise the lowest common denominator. Because we have 100 advisors, it’s pretty easy to stay on top of it and do a good job. It’s the paperwork and documentation. That’s just a given. But you can keep that stuff up.

Compliance is all reactionary. We’ve been very proactive to make sure compliance is there, but it’s just a commonsense way of business. Enron happens and all of a sudden we have these governance rules we have to put in. It’s the good guys who pay the price for that. So we’ve been very pro active to make sure that compliance is there, but not in the way of common-sense business.

How big do you want to get?

We want to grow by $5 billion a year, which means our average recruit will have almost $100 million. So at 50 a year that means we’re up 300 to 350 advisors. Our average right now is just over $70 million — a touch higher than the banks’ average. Our average broker is way above the industry standards. We never want to be 2,000, but 300 or 400, that would be a wonderful number.

Our goal is to be very good at what we do. We’re not a very good trading firm. Wellington has chosen not to spend the money on that. If you’re a bright young person with lots to do, we’re not the best. We take on one or two projects that we beat to death and get great results with.