Clients are savvy about the market nowadays. More individuals and families are searching beyond large institutions for wealth management services. They want effective, unbiased advice that will help them maximize their investments. When you choose to go independent, you can offer clients distinct advantages. Read on to learn about four of these benefits.
1. Fiduciary Duty
Portfolio managers operating in the independent space manage assets on a discretionary basis, meaning that they can make investment decisions on behalf of their clients. With this freedom comes responsibility. For example, independent wealth managers have a fiduciary duty. This means that they are legally required to do what's best for their clients.
"The benefits [of independence] are so positive," says Barry. "As a wealth management firm, your fiduciary duty is to your clients: to buy the best assets at the lowest price that you think will provide them with growth."
Many wealth managers employed by large companies are not subject to fiduciary duty. Of course, that's not to say they aren't doing what's best for their clients, but they do have a different type of accountability.
Advisors employed by introducing broker firms are accountable to a self-regulatory authority called the Canadian Investment Regulatory Organization. Portfolio managers in the independent space are regulated by their provincial securities administrator, an independent crown agency who will audit firms to ensure the fiduciary duty requirement is being fulfilled. These agencies have the force of law behind them.
2. Added Protection and Objectivity
When you decide to set up your own firm, a key step in the process
will be to choose a custodian.
A custodian is an independent third party who will hold and safeguard
your clients' assets.
There is a clear line of separation between the duties between the custodian and the advisor. For example, the custodian issues statements to clients independent of the portfolio manager. This is important for clients because it helps to safeguard their assets and prevent conflicts of interest including reducing the risk of unauthorized use of funds.
Moreover, there is no affiliation between the portfolio manager and the custodian, so there is no incentive for the advisor to recommend products that may be offered by the custodian. "It needs to be articulated to the client that NBIN [National Bank Independent Network]* is not affiliated with Baskin, it's a service provider," says Barry.
It is important to note that large financial institutions often have a “shelf” of selected products from which their advisors choose. They may offer employees incentives to recommend products.
3. Wider Range of Investment Options
As mentioned above, independent wealth managers are not restricted in terms of product choice. They are not affiliated with certain lines of investment products, and as such have freedom to choose from a broad range of solutions for their clients.
"We are able to choose whatever investments we want to work with,” says Barry. "We have the freedom to manage our business whatever way we like [and to do] what we think is best for our clients and that's why it's so important to be independent. [At non-independent firms] people may be put into products instead of being able to buy individual securities like we can do, and the fees may not be as transparent."
Independent financial wealth managers can also create their own funds. For example, NBIN can help independent advisors build their own "pooled" funds, whereby capital from individual investors is aggregated into one large portfolio, allowing them to benefit from economies of scale.
"We started two pooled funds, one for fixed income, one for equities for our smaller relationships," says Barry. "We didn't have any experience in that territory of setting them up and the NBIN team just did a great job explaining and walking us through the costs and how it worked."
Independent financial wealth managers can also create their own funds. For example, NBIN can help independent advisors build their own "pooled" funds, whereby capital from individual investors is aggregated into one large portfolio, allowing them to benefit from economies of scale.
"We started two pooled funds, one for fixed income, one for equities for our smaller relationships," says Barry. "We didn't have any experience in that territory of setting them up and the NBIN team just did a great job explaining and walking us through the costs and how it worked."
4. Relationship Continuity
Clients typically have a relationship with their wealth manager rather than the firm. The wealth manager is the one who knows them personally, and who understands their financial situation. If that advisor chooses to switch companies, the client is in a dilemma.
"I think a lot of people ar¬e concerned that they work with a bank advisor and that one day that advisor may switch to another firm," says Barry.
This concern is alleviated when working as an independent wealth manager. Barry explains, "Once you're independent, the message is, 'Now this is my own business. I'm not going anywhere.' Your clients can feel good about that."
Moreover, business owners put a great deal of thought into succession plans. Should your independent wealth manager retire, they will likely have started speaking with you about it well in advance to ensure that you understand the transition plan and will be comfortable with your new wealth manager moving forward.
The nature of owning your own firm is simply different from working for an institution. From your clients' perspectives, there are many advantages — from knowing that their wealth manager has broader options of investment options to choose from, to the peace of mind that comes from knowing your wealth manager has fiduciary responsibility, to the reassurance of knowing the wealth manager is likely to remain where they are.
If you are curious about the possibility of independence, or if you are considering making the transition, talk to our team.
* For wealth managers who select National Bank Independent Network as a partner and their custodian, their clients' assets are held by in custody by National Bank Financial Inc., a wholly owned subsidiary of the National Bank of Canada (NBC).