Firms catering to independent advisors’ needs amid competitive marketplace

(August 3, 2004) When Henry Ford first came out with his Model T car in 1909, he told customers they could have one in any colour they wanted — as long as it was black. Flash forward to modern times where a similar situation existed in Canada’s financial services industry, as advisors had very little choice in the support and services they received from their firms.

But that has started to change over the past year-and-a-half, particularly since the IDA made an amendment to one of its bylaws, which was subsequently approved by securities commissions across the country, creating a “principal agent” relationship between an advisor and the firm.

Essentially, a principal agent can enjoy nearly all the benefits of being an employee advisor of a brokerage, such as access to research, expertise in tax and estate planning and back office functions, while running it as his own business, including paying employee salaries and rent for the bricks and mortar.

Warren Funt, the IDA’s Vancouver-based vice-president of member regulation for Western Canada, says an agent relationship can make for greater flexibility and some tax advantages for high-producing brokers in particular. He points out that firms such as Dundee Securities Corp., Raymond James Ltd. and Assante Corp. have been very active on this front.

“It’s meant to give greater choice to brokers as a group to organize their business,” says Funt.

The range of choice also continues to grow because firms are increasingly realizing that different advisors serving different types of clients can not be serviced with a one-size-fits-all package.

Different brokers can require vastly different levels of insurance planning or communications support depending on their unique circumstances, notes Mark Kinzel, executive vice-president of financial services at Investors Group in Winnipeg. He says firms have to be flexible in dealing with planners who have built their businesses in a certain way or risk losing them in today’s ultra-competitive market.

“If you can’t support the type of market they want to build their practice around, they won’t be that successful,” says Kinzel. “They’ll either have to change the market they’re going after or else they’ll go with a firm that can support them in that market.”

Joe Canavan, CEO of Assante Corp., says his Toronto-based firm’s goal is to build a platform that is customizable to every advisor, regardless of the size of his book. “Whether they have $70 million in assets [under management] or $170 million, we want to make sure they both feel good about the relationship with Assante,” says Canavan. “We want to be the place a true professional advisor wants to be. If we’ve built the platform we believe we have, advisors are going to want to be here for the rest of their careers.”

Canavan adds that while advisors have far greater choice than they used to in terms of their firms’ service offerings, Assante has made a number of elements — such as branding — mandatory.

“If an advisor says, ‘I don’t need that, I’m in Saskatoon,’ we tell them the benefits of it,” says Canavan. “If we have our chief strategist on CBC and then in The Globe and Mail a few days later, then we have an ad in the National Post sponsoring Big Brothers a day or two later, some clients are going to say, ‘I see you guys everywhere.’ That’s going to help in building a bridge between a client or a potential client and an advisor.”

Peter Kahnert, senior vice-president of corporate communications and marketing for Raymond James in Toronto, says one of its most attractive features of an independent model is the higher payout — up to 85% of commissions, compared to 50% to 55% for advisors in the branch network.

“It’s usually appealing to someone who has very entrepreneurial thinking and likes a self-managed business,” explains Kahnert. “They usually have a very seasoned business. For the client, the independent model doesn’t matter. They’re still being supported by Raymond James in either platform.”

Kahnert says since his firm received regulatory approval to launch its independent model in Canada 18 months ago, 65 of its 260 advisors across the country have opted for it. “It’s a frame of mind and a decision on how they want to build their business,” he says.

Funt is quick to note that when it comes to compliance issues, agents and employees are treated in exactly the same manner. “We have agreements between the firm and agent that essentially allows the firm to ensure there is compliance responsibility,” he says. “They have the ability to fulfill their compliance duties and we, as regulators, have the power to go after the agent as if they were an employee.”

Geoff Kirbyson is a Winnipeg-based financial services writer.

08/03/04