Dealers must find creative way to grow

New policies, capital pressures and increased regulation are the biggest challenges facing mutual fund dealerships today. Some of these changes are opportunities for growth, others just the gum on the bottom of their shoe.

An expert panel at the Federation of Mutual Fund Dealers Dealer Day conference shone some light on various changes and challenges as they relate to the mutual fund industry.

Andy Mitchell, president, Worldsource Financial Management, is trying to adjust to the issues of growth, governance and regulation and the margin pressure that they put on his firm. Training advisors to deal with regulators is a critical part of his plan.

“We have to free up the end advisor to spend time with their clients,” said Mitchell. “We don’t want advisors to worry about the paperwork and all the bells and whistles and the steps you have to go through to meet and serve a client.”

The biggest challenge for Vince Valenti, president, Independent Planning Group Inc., lies in growth, both organic and through acquisition. “You’ve got to be so careful about what you’re buying,” he said. “Banks control two thirds of the mutual fund business in Canada; they are aggressive marketers; they are keeping and stealing wallet share from independent advisor.”

But the scariest thing, he said, is that most advisors are in maintenance mode, living comfortably off trailer fees, while banks are becoming increasingly aggressive.

Valenti stressed the need for creativity to fight the status quo and grow the independent business. Recruiting and training young advisors, he said, is one of them.

“We were all once junior advisors, so it can’t be that bad, he said. “Recruiting established guys is a tough business; we have to find new blood somewhere else. Recruiting junior advisors, getting them together with senior advisors thinking of retirement; it is refreshing to see excitement on the faces of these new advisors.”

Also sold on the mantra of catching them young and watching them grow is John Adams, chief executive officer of PFSL Investments Canada Ltd. “When I see young people who are excited and want to get involved in the industry, I get excited because then I know the firm’s going to carry on when some of our older advisors retire and move on.”

Adams is particularly enthusiastic about the second generation that is willing and able to “come up, develop and take over” from their parents. There is no better instance where the idea of paring up younger advisors with more seasoned colleagues is put in practice.

The panel reserved arguably its boldest assertion for advisor compensation, a rather tricky subject at the best of times. Mitchell made a strong case for advisor compensation to counter the growing industry view that it is too high.

“We understand the economies of advisors; their economics are real,” he said. “They have costs [and] they are not making 85% net. So to cut their cost is just the easy solution to fix things, its not going to solve the long-term issue.”

The panel identified adoption of new technology, something that dealers tend most to resist, as one of the most efficient ways to lessen the burden of advisors and improve their own productivity and procedural efficacy.