How I became an EMD

Lyndsie Barrie had a steady paycheque with a major IIROC firm—but she gave it up to start her own shop as an exempt-market dealing rep.

The Dawson Creek, B.C. native, who enjoys rugby, skeet shooting and moose hunting, works out of Cochrane, Alta. Her first investing insight came when she was a 21-year-old hairstylist. “One day I was cutting a business owner’s hair. He asked me if I wanted to own a salon in the future. I said I didn’t think so because I wouldn’t want to manage a bunch of crazy hairdressers. He said if I wasn’t planning on being a business owner myself, I would have to invest in other people’s businesses to make money.

“I didn’t have a clue what he was talking about. He suggested I read a book called Smart Couples Finish Rich, and my passion for investing began while reading that book.”

Why I got it

Barrie began working for an insurance firm, selling life policies and segregated funds. “It wasn’t for me. I wanted my income to reflect only the work I did, not what those who worked under me did. And I didn’t want to manage a group of part-time financial advisors any more than I wanted to manage hairdressers.”

The advisor

Lyndsie Barrie, Barrie Financial Consulting

City: Cochrane, Alta.

Years in the business: 4

Clients: About 30

AUM: Less than $10 million

Minimum: None

Compensation style: Commission

So she took a job with a major IIROC firm. They put her on a salary with the expectation she would pass the CSC. “I was basically getting paid to do the CSC online from home,” notes Barrie. When she wasn’t studying, she spent her workday prospecting.

Once licenced, Barrie spent two years at the same firm. The wealth management training she received there was great, she says, but she was eager to become her own boss.

Before she started her own company, Barrie had an opportunity to be an associate under advisors who managed about $100 million.

“They needed someone to handle the lower portions of their books. But I kept comparing that to working for myself, and that’s what really drew me to the exempt market.”

So, in early 2014, she started her own shop. A friend in the wealth management business advised her to avoid naming her company something generic, and opt instead for the more personal Lyndsie Barrie Financial. With all the formalities in order, she got to prospecting.

How I did it

Leaving IIROC and becoming an EMD meant Barrie could no longer advise current clients on stocks and bonds—the biggest parts of their portfolios. To keep these clients, and to be seen as a one-stop shop for prospective clients, she developed a business model based on three partnerships.

Private

For private investments, Barrie joined Alberta-based Pinnacle Wealth Brokers, an EMD with a presence in eight provinces (see “Getting hired for the exempt market” ). Some of her new clients just want the private piece. “They come to me and say, ‘I want awesome returns on this portion of my money. Show me something cool I can’t get at [my brokerage].’ So that’s all we do, and we don’t discuss anything else.”

Barrie says she won’t put more than 20% of a portfolio in private investments. When clients have all their money with her, it’s easy to monitor directly. Not so with clients who come to her just for exempt market plays. In these cases, she relies on KYC—the client must disclose total investible assets, initial next to the dollar figure and sign the form. “Unless he’s lying, you can go by that.”

Clients she kept from her IIROC days are taking well to her new offering. “About 90% have put 10% to 20% of their investable assets in private investments.” Compensation’s more attractive in the private space, adds Barrie. When she was an IIROC rep, she was getting 40% of commissions—the other 60% went to the dealer. “At Pinnacle I get 75%, so that’s a huge increase in pay.”

A typical private deal has a 4% to 10% upfront commission. On the lower end of that range, there’s also a 1% trailer that kicks in after about a year. Barrie notes the company issuing the investment pays her both fees. So, when a client invests $200,000 in a private deal, it all goes to work from Day 1 (see “Choosing private plays”).

Public

For public investments, Barrie uses Toronto-based Lonsdale Wealth Partners, a division of Newport Private Wealth. “Lonsdale takes people with $100,000 to $1 million. If the client’s at $1 million, they’re put into Newport’s discretionary platform.”

Getting hired for the exempt market

What’s it take to get hired as an exempt market dealing rep? Darvin Zurfluh, CEO of Pinnacle Wealth Brokers in Calgary, explains what he’s looking for.

Candidates must have at least a few years of financial industry experience, preferably as IIROC or MFDA reps. That way, “they’re still following the same rules under the Securities Act; [except as EMDs] they’re dealing directly with the securities commission.”

Some incoming reps have more than 20 years of industry experience. In all cases, Zurfluh ensures they have no major infractions on record with IIROC, MFDA or provincial commissions.

Another key attribute: willingness to spend more time understanding new products than is typical with mutual funds and other public investments. “When you’re selling on a prospectus, it’s a given there’s full disclosure. When you’re selling on an offering memorandum, there’s a bit less disclosure, and it’s not vetted by the securities commission.

“There’s more of an onus on [the rep] to verify the information and promises given in the marketing material. So there’s a lot more reading and due diligence you have to do in the private space.”

Zurfluh notes the dealership handles the deepest layers of analysis. A team of CFAs, an MBA and an accountant vets the 20 or so investments on Pinnacle’s shelf. Dealing reps then choose five or six as their main offerings to clients. Which ones they pick depends on their own investment philosophies and the types of clients they have.

“Some won’t choose anything that isn’t asset-backed. Some have a client base that’s focused on income-bearing investments: for example, if they’re dealing with seniors or people who want cash flow. Others have clients who are looking for something more tax-favourable. That’s one of the perks of the private space; a lot of [the investments] are structured to provide more tax-efficient returns.”

Clients pay about 2% in management fees. From that, Barrie gets an 80-bps trailer; 10 bps go to Pinnacle. And if she ever decides to drop the private side of her business, she’d continue getting 80 bps, while the extra 10 bps would stay with Lonsdale.

Insurance

When Barrie became IIROC-licenced, she didn’t leave insurance behind completely. She began a partnership with PPI Solutions, a Calgary-based MGA, as a conduit to the major manufacturers she works with. “I don’t do a ton of insurance, but it’s definitely a piece of my business that I’m going to have forever, because it’s part of being a holistic financial advisor.”

Barrie adds she knows how difficult it can be for newly minted advisors at large firms. “They’ve got the commission gun to their heads—it’s really hard.” Her advice: “Stick it out, work hard and do what’s best for clients.” Within a few years, she says, you’ll see how fun and rewarding a career advising can be.

Choosing private plays

Lyndsie Barrie, financial advisor at Barrie Financial Consulting, has strict standards for the private investments she recommends to clients.

Her process begins with background research on the issuers. Although her firm’s due diligence team has already vetted the product shelf, Barrie checks out the investment herself. She begins on Google with a simple name search, and then scours regulatory filings for fines or other penalties.

Even a minor infraction, which others may reasonably give a pass to, is a deal-breaker for Barrie. “I just won’t do anything that’s attached to a name that’s had any kind of securities commission issues.” She adds there are plenty of great investments without this kind of baggage.

An unclear investment concept is another non-starter. Barrie gives the example of an opportunity based on solar panel technology. “There were all sorts of political aspects to it and too many ‘ifs’ and ‘maybes.’ ”

An absolute must is a strong management team with experience in the area the investment is in. “I want to see that they know how to do it and that they’ve been successful before.” She singles out Enercapita, which focuses on oil and gas assets. It’s run by the CFO of Crescent Point Energy, a public company widely viewed as a solid holding for energy investors. “He’s not going to screw this up,” says Barrie.

Barrie steers clear of one-project investments. “I prefer a fund-style approach. With more diversification, there’s less risk.” One of her favourite plays for income-seeking clients is Invico Capital Corporation’s privately negotiated debt fund.

It’s diversified through multiple non-correlated strategies, it’s RRSP and TFSA eligible and the management team is strong, she says.

Managers must have a meaningful amount of their own (or their family’s) money in the investment, and Barrie insists on meeting them face to face to see how they handle her pointed queries and objections.

Dean DiSpalatro is a Toronto-based financial writer.