Making the leap to IIROC (Part 1)

Let’s face it. If everything was equal and you had the choice to provide only funds or all available products including funds, which option would you choose?

I have been a satisfied member of the MFDA for the last 13 years and could have happily continued on my way and made an excellent living. Something just didn’t feel right though. As a member of the MFDA, I felt I was not able to offer certain products that could enhance a client’s plan and that clients might get the impression I was biased towards funds. There have been times when clients have asked for my opinion on ETFs. After I provided my genuine opinion as to the reasons why I didn’t like them, I would then have to say “and by the way I can’t even provide them if I did like them.”

It’s the same as being a Mazda salesperson and saying you’re not a fan of Toyotas. Now, if you sold all sorts of vehicles and said you were not a fan of Toyotas, that would certainly sound a lot more credible!

The rationale

About 5 years ago, I made the decision to convert to a fee-based platform. Under my previous MFDA dealer (which still is a fantastic organization) a fee-based solution covering all types of plans was simply not available. So, I did what most would do — I began to provide no load funds and be compensated by trails only. Close but not close enough. I was still involved in compensation decisions on product: 1% trail on equity or balanced funds or .50% on income funds. What I couldn’t stop thinking about was…Why should our compensation be cut in half just because we recommend a different product? That made no sense to me.

In order to become a truly unbiased advisor I had to find a fee-based solution where our clients pay us directly and we are not compensated by any product whatsoever. These two goals worked together to lead to a securities license and the IIROC platform. Next step was to figure out which dealer would accommodate our independent style and our focus on financial planning.

Choosing a dealer

At the outset it was clear that our payout rate would go down significantly as I was on a flat fee with my previous dealer. That did not deter me. I knew this was the right decision for my clients and for my business. Long term, I have no doubt this will be a profitable move. During the due diligence of researching IIROC dealerships, my main mandate was to find a dealer that would offer excellent back office support, save us time, feel and look like a bank but leave us to be an independent office. Of major importance to us is that we needed to continue on with our brand – Wealth Strategies – and our outside business activities such as AdvisorPractice.com. After much research, phone calls and meetings, all arrows pointed to Raymond James. They showed a clear advantage and focus on an advisor’s independence and book ownership. Their entrepreneurial attributes sealed the deal.

The perfect storm

Looking back, we may have chosen the absolute worst time to change dealerships. Markets were just coming off a terrible year and the news was dominated by various ponzi schemes, frauds and thieving advisors. Not the most perfect period to let clients know we were changing dealerships. Any deviation worries clients and we were altering the way we did business in several areas. Not only did we have to explain what a dealership change meant but also our new licensing. We also had to alert our clients to the fact that we were switching over to a fee-based platform so they would now see a monthly fee coming out of their investment accounts. Yikes!

I sent out an email outlining the changes then proceeded to contact all our clients within the next two weeks to explain things ever further. I certainly had to deal with numerous questions and concerns but in the end, clients understood the rationale and were onboard with the move.

I also took the opportunity to part ways with a portion of the households that I thought would be better served if they remained with my former dealer. I shed about 30% of the households but less than 4% of assets. I now have the room we need to add on more appropriate clients.

Preparing for the move

The next step was to actually make the move. When you become securities licensed you need to complete a few courses. Even though I had completed the CSC course back in 1991, I was lucky enough to be advised that according to IIROC regulations, I needed to take it again as well as The Conducts and Practices Handbook.

Oh well. As Nike says “Just do it.”

For those of us who work in the industry on a day-to-day basis, these are not difficult courses and in hindsight a great refresher on certain principles. I made sure to complete both of these courses within four months and one month before our scheduled transition.

Robert Abboud, CFP, PFP, is the co-founder of AdvisorPractice.com, which offers advisors practical solutions to help transition to a financial planning practice and offers a 12 week training program. He is also the author of ‘No Regrets, A Common Sense Guide to Achieving and Affording Your Life Goals’. He has been offering life goals financial plans for over 15 years through his firm Wealth Strategies. Robert is available to speak at conferences and educational days. You can contact him at rob@wealthstrategies.com.