Insiders weigh in on broker defections

(June 8, 2004) A recent rash of broker defections and subsequent rumours of legal action has reignited a dormant debate in Canada’s financial services industry — just who owns the client?

RBC DS was stunned last month by the departure of Susan Latremoille, one of its star advisors from its Toronto office, who resurfaced across the street at Richardson Partners Financial.

The bank-owned brokerage alleges she built her book on the back of referrals from the Royal Bank. RBC DS has said if there are grounds for a lawsuit — almost certainly based on the lack of notice provided by Latremoille — it will obtain counsel and proceed accordingly.

Mike Miller, CEO of Richardson Partners, says he’s confident as long as the lines of communication are kept open with RBC DS, the Latremoille case can be kept out of the courts.

“At the end of the day, the clients have the right to deal with whichever advisor or firm they feel will be able to offer them the best relationship and array of products and services in the marketplace,” stresses Miller. “It has always been that way and it always be.”

Miller says “everybody” recruits competitively and has the right to competitive hiring. As long as it’s done professionally and properly — the departing advisor walks away without any of the firm’s property, for example — he says there should be no need for legal action.

“It’s when firms do it inappropriately and in an unprofessional way that leads to problems,” he notes.

Sandy Riley, chairman of Winnipeg-based Richardson Partners, says if his firm is guilty of anything, it’s of offering an attractive business model that appeals to a wide variety of advisors across the country.

“We have a strong entrepreneurial culture, a clean focus on the needs of affluent Canadians and ownership opportunities for advisors. That’s what’s attracting top quality people to our company,” he says.

But the Latremoille case isn’t the only one making headlines. Earlier this year, BMO Nesbitt Burns announced it was seeking $50 million in damages from Wellington West Capital, accusing the Winnipeg-based brokerage of illegally poaching six brokers in Alberta, British Columbia and Ontario.

Neil Gross, a partner with Toronto-based law firm Carson Gross Christie Knudsen, says any legal action regarding broker defections isn’t uncommon and generally doesn’t reach the trial stage.

“Lawsuits are often commenced for tactical purposes in an effort to either slow the movement of clients sufficiently and give the [suing] firm time to shore up client relations or to extract some sort of compensation from the receiving firm,” Gross explains.

He notes it’s frustrating for firms to take in a young person as a trainee and finance the development of their practice, “only to see the whole thing walk out the door.”

Dan Richards, president of Strategic Alternatives, a Toronto-based consulting firm to the financial services industry, says anyone who claims they own a client is “kidding themselves.”

“Clients will decide who they want to work with and that sets the context for any conversations on who owns the client,” Richards says.

Richards notes that historically there hasn’t been much impediment for advisors approaching clients with whom they’ve worked to join them at a new firm. Nor, on the other hand, have there been any roadblocks to keep firms from doing what they can to retain clients once their advisor has cleaned out their desk.

Brian Mallard, a Saskatchewan-based advisor and past chair of Advocis, says he wishes everybody would simply own up to the truth and quit the facade that they’ve only got the clients’ best interests at heart.

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“This is all about economics, this isn’t what’s good for the consumer. It’s about money and the revenue streams that are generated off the investment accounts,” he says.

Mallard says it would be “very presumptuous” of any firm to think they own the client relationship.

“People vote with their feet all the time. If I’m not happy with Sears, I’ll wander over to the Bay. I can’t imagine that Sears would say because I have a credit card with them that they own my business,” he says.

Mallard adds that the pace of defections from bank-owned firms to the independents will only continue.

“How do you keep them down on the farm once they’ve seen Paris?” he asks. “Nobody likes to work under the yolk of servitude. People want to be in business for themselves and have a certain degree of independence with their business and how they serve their clients.”

Geoff Kirbyson is a Winnipeg-based financial services writer.

06/08/04