Charting a course to IIROC

Reams of paper. Thousands of “sign here” stickies. A fully stocked drawer of pens. A generous supply of office supplies isn’t all you’ll need to make the switch from the Mutual Fund Dealers Association of Canada (MFDA) platform to the Investment Industry Regulatory Organization of Canada (IIROC) platform. But it is absolutely essential.

Advisors who’ve come out the other side of the transition agree the seemingly endless flow of forms, awaiting their clients’ signatures and their own, are a daunting and time-consuming part of the process. But they’re also quick to champion the benefits of a platform that allows them to sell a wider range of products to a wider range of clients as they position their practices for the future.

“I deal with affluent clients in the $500,000 and up range of investable assets,” says Don Proteau, senior financial planner at Assante Wealth Management in Vancouver. “When I got a new referral, they typically had a broad array of investments, which included listed securities. Just to be able to receive the accounts in kind, I needed the IIROC licensing.”

Proteau had experienced the flexibility of hybrid licensing under the British Columbia Securities Commission for the first 15 years he was in business. His branch chose to go with the MFDA after that organization was created in 1998, but he always planned to return to full licensing. The opportunity presented itself in 2006.

“If you plan on being a financial advisor for longer than five years, you need to grow your business, and the easiest way to grow your business is to have a full securities licence,” Proteau says. “I would point to the example of the growth of the exchange-traded fund (ETF) market. If you don’t have access to those . . . then you’re tying one arm behind your back.”

Direct access to ETFs was a primary reason Bruce Cumming, financial advisor and president of Cumming & Cumming Wealth Management in Oakville, Ont., moved to IIROC in 2008. He’d become disenchanted with mutual funds because of their relatively high MERs and liked the idea of building comparable mixes of assets, including ETFs, which would save his clients an easy 100 basis points each year.

“To put a million dollars into mutual funds, even on a no-load basis, that’s $10,000 a year in trailer fees and $25,000 a year in management fees. Now I can use a basket of stocks, bonds or ETFs at a much lower cost for the client,” he explains. “It was undoubtedly the right move. I probably should have made it several years earlier.”

Paul Bourbonniere, financial advisor and principal at Polson Bourbonniere Financial Planning Group Inc. in Markham, Ont., emphasizes he didn’t make the decision to switch to IIROC in 2008 because he believes in stock picking.

For him, it was a question of providing the right level of service to his clients. Like Proteau, he was welcoming new clients who held existing securities positions. In addition, he had clients with stock purchase plans, which in some cases meant half of a client’s portfolio was invested in one stock – and as an MFDA advisor he couldn’t advise them on that significant chunk of their holdings.

“We wanted to be able to provide comprehensive advice regardless of what assets were in their current portfolios,” Bourbonniere says. “It’s tough to say, ‘We’d love to help you there but we’re not licensed to.’ That’s somewhat restrictive and it’s foreign to the concept of full service.”

That said, he adds, “It isn’t an automatic win. I think you have to look at your business structure and who you’re working with.”

An intense process

For Robert Abboud, financial advisor at Raymond James Ltd. in Orleans, Ont., the impetus to join an IIROC dealer in early 2010 came from a commitment to eliminating any perceived or real conflicts of interest in his practice. That meant being licensed to sell any product so it would be clear he wasn’t deterring clients from solutions he wasn’t able to sell. It also meant following through on a five-year plan to move to a fee-based platform.

“It is easier to go to a fee-based platform with an IIROC dealer than an MFDA dealer,” he says. “So not only did we move from MFDA to IIROC, which is a big move, but we also made the switch of about 95% of our book to fee-based, which is a huge transaction on its own. We decided to do it all in one shot. If you’re going to pull the band-aid, make it quick.”

Motivated by the desire to progress through the process as quickly as possible, Abboud began the year with a solid week of on-site assistance from a transition specialist provided by his new IIROC dealer. He didn’t schedule any client meetings that week – it was all about understanding the documentation and learning new systems.

“We prepared paperwork day and night [for one week], and then we started meeting clients every hour, on the hour, for the next two weeks. It was a very, very intense process,” he says.

In preparation for those client meetings, Abboud personally called each of his 130 client households to explain why he was changing dealerships and what would be required of them. Even before that, he had tested the waters with his top 10 clients to make sure they were on board. When he spoke to those clients, he told them he wanted to be able to offer them any product that suited their needs, including those that might be developed in the future, and that he was also moving to a fee-based platform that wouldn’t cost existing clients any more than they were paying before.

“Because I’ve been doing this for 13 years, the bulk of my book is what I already have, not what I’m going to have, so I certainly don’t want to lose any clients along the way,” he says. “We made sure it wouldn’t cost them anything. Their commitment was paperwork and receiving pounds and pounds of mailings during the transfer.”

If you’ve built up a trusting relationship with your clients, Proteau suggests telling them you’re switching from one platform to another isn’t likely to be a deal-breaker. He simply informed each of his clients he was upgrading his licensing so he could serve them better, and explained in broad strokes the differences between MFDA and IIROC.

“Clients would shrug and accept it,” he recalls. “Their hands got tired from signing all the forms, but I explained it was for their own good!”

Abboud held the first meetings covering the move paperwork with his largest clients. Three weeks into the process, he’d moved over about 65% of his practice’s assets and was expecting to be up to 75% by the end of week 4.

“The last three weeks have been a good 70 hours a week at least [and] we don’t think we’ll be complete for another two months,” he says. “The main part is to get the bulk done. People have to put their heads down and get ready to go at it hard.”

In the course of the transition, Abboud left 28 households with another advisor at his former dealer, the Independent Planning Group, because he saw the switch as an opportunity to part ways with a group of clients who didn’t fit the shape of the practice he was building.

“It’s reinvigorating,” he says. “Suck it up, get the intestinal fortitude going and even if you lose 10% or 15% of your clients along the way, you’re just going to gain back better, more qualified clients.”

Back to school

The paperwork is certainly one arduous part of switching to IIROC – as Cumming puts it, “If I signed my name once, I bet I signed my name 2,000 times!” But, of course, there’s the educational component too.

Proteau was one of the lucky few. Thanks to his history pre-MFDA, he got a grandfathered status and didn’t have to rewrite any exams. But he says the next person who tried to do the same thing had to start from zero like pretty much everybody since. Cumming, for example, has a string of letters after his name – CFP, RFP, CLU, CHFC, RHU, CIM, TEP, EPC and FCSI – and he has taken the Canadian Securities Course. But none of that exempted him from the IIROC-required licensing exams.

“I spent months at the office during the day and at home studying like crazy to be able to write all of those exams,” he says.

Bourbonniere adds, “It seems that there’s always a new quiz that you have to study for and obviously that reflects the increased rigour and the increased demands of knowledge in IIROC. That became a time constraint . . . but on balance you can’t be against professional development.”

Most advisors are busy enough as it is, and all those hours spent on administration and studying may seem like an insurmountable challenge. So one of the biggest dilemmas for advisors who decide IIROC is right for them is how to time the move. “It’s tough to say there’s an ideal time,” says Bourbonniere. “Everybody says, let’s do it when we’re not busy, and let’s do it when the markets are normal. Well, you can’t predict either of those circumstances; so if it’s right, take the bull by the horns and get it done.” Bourbonniere was relatively fortunate in that he transitioned between the spring and fall of 2008, and was fully up and running with his IIROC dealer, Dundee Securities Corporation, when the worst of the market turbulence hit.

Cumming, on the other hand, started his move during the first week of September 2008.

“Days after I resigned from the MFDA, the market began its collapse, and for 90 days I was frozen out of my clients’ accounts during the most tumultuous 90-day period recent investors and advisors had ever seen,” he says. He is grateful for the support provided by both his IIROC dealer, Dundee Securities Corporation, and his MFDA dealer, FundEX Investments, who worked directly with the small number of his clients who needed to withdraw funds or change their portfolios.

Looking back, Cumming says, “There were 90 days where I was studying like crazy, managing a business during the day, holding a lot of hands and scratching my bald head.” Even if you end up with timing as unfortunate as Cumming’s, Bourbonniere sees a silver lining in transitioning during a period of volatility. Thanks to the dealership change and various tax changes he needed to communicate to clients, he wound up meeting with investors much more frequently than usual leading up to the fall of 2008 and right through to the spring of 2009.

“Because we had so much face time with the clients, they felt that we were looking after them during the market downturn,” he observes. “I think it helped to control some of their anxiety.”

The rewards

In general, IIROC offers lower compensation rates than MFDA. So, to make the transition pay, advisors have to attract more assets under administration.

Abboud’s still in the process of transferring assets and says he already knows existing clients’ stocks and bonds, which he couldn’t manage as an MFDA advisor, will arrive in the coming months. In time, he expects to attract additional large-asset households to his practice.

“On the MFDA side, we were already getting nice-sized households – our average household is $350,000 – but the brokerage ones are typically larger,” he says. “It doesn’t mean the advice would be better or worse on either of the platforms. It’s a perception from clients.”

And, as advisors know, perception matters. Four years after he moved to IIROC, Proteau says with confidence, “I have clients today that I wouldn’t have been able to get as new clients without the full IIROC licensing; and I would say the number 1 reason is as clients become more affluent they’re just not satisfied with strictly a mutual-fund-only solution.”

While mutual funds remain a big part of Proteau’s business, being able to fine-tune a portfolio with a variety of securities has been invaluable. And so has the credibility that comes with presenting himself as a fully qualified securities advisor.

“Our assets under administration have increased dramatically,” agrees Cumming, who’s been an IIROC advisor for fewer than two years. “Because I’m able to sell so many new products, I have new revenue sources and I’ve got different types of clients that I can go after,” he says. “Even when the markets have been so poor, our growth has been excellent.”

For Bourbonniere, who transitioned about six months before Cumming, “It’s like we’ve taken training wheels off. We still believe in managed money. We still believe in letting other people make the security selection. We’d rather deal with the other issues of an individual’s financial plan. So we haven’t changed radically, but it’s just comforting to know that no matter who comes in the door as a prospective client, and whatever they have in their portfolios, we’ll be able to deal with those assets. That’s the biggest win for us.”

Still unconvinced? Proteau offers some words of warning to MFDA advisors who are interested in pursuing high net-worth-clients.

“If you’re in a competitive situation – and if you’re dealing with a $750,000 portfolio, you will be in a competitive situation – that client is going to get proposals that include ETFs and perhaps some individual securities from your competitor,” he says. “If you come with a mutual-fund-only solution and the client shows your recommendations to your competitor, that’s the first thing they’re going to pick on. They’ll say, ‘Why restrict your universe of choice to just mutual funds?'”

Staying with MFDA, he suggests, means you’d better have a very compelling answer to that question.