The past two years of remote work have changed the relationship that
advisors have with their dealers. Without the comforts of high-end
office space, desk-side IT support, and administration tools at their
fingertips, they are rethinking how they want to manage their business
in the future, and what role their dealers should play in it. Should
they be status quo and manage their books the same way they always
have? Or leave it all behind to explore the world of independent
wealth management and all its opportunities?
Devin Cabel, relationship manager and business development manager for National Bank Independent Network in the prairies, recently chaired a roundtable discussion with three industry experts to go through the potential benefits – as well as some challenges and lessons – for advisors looking to break away.
WPTV National Bank
Devin: [00:00:29] Hello. My name is Devin Cabel, our VP with NBIN. I am the
relationship manager and business development manager in the Prairies. I have three
fellow panelists with me today, each involved in a different capacity. Paul, may I start
with you to introduce yourself?
Paul: [00:00:49] My name is Paul Harris. I'm a partner and portfolio manager at Harris
Douglas Asset Management.
Devin: [00:00:55] Thank you. Vipool. How about you? Can you introduce yourself,
Vipool: [00:01:00] My name is Vipool Desai. I own and operate a compliance business
that provides an outsourcing service.
Devin: [00:01:09] Thank you. Emily, over to you.
Emily: [00:01:13] Hello. My name is Emily Burt, and I'm executive vice president and
chair of the board at Cardinal Capital Management. We're a Winnipeg based portfolio
Devin: [00:01:23] Thanks for joining us. Becoming an independent wealth manager,
starting your own business or contemplating a jump into an independent wealth
management business is a question that has become more prominent throughout the
past two years. Advisors across Canada are exploring the opportunities that exist within
independence for a variety of reasons, and myself in this panel of experts will be diving
further into this topic. Paul, I'd like to start with you. You founded your own firm, Harris
Douglas, and as an advisor with experience working in a number of organizations, what
led to your decision to found your own wealth management firm?
Paul: [00:02:04] So when I first started, I started I started another company prior to this,
an asset management firm. And for me, when I got involved in the investment
management industry in the 1990s, I really wanted to, after a while realize that it's
important. I wanted to start my own firm. So I worked in New York for three years and I
came back to Toronto and I was kind of in a unique situation where I had enough
investable assets that I could manage my own money and live off of. But I also had
enough savings that I could actually start my own business if I wanted to. And I had this
quandary in my life that said, Do I want to go and work for another asset management
company? And I felt that that if I made that decision, that would be my kind of work. By
the way, I was going to live my life for the next sort of 15 or 20 years, or I could take the
opportunity with this slight window, I had to actually start my own business. And so for
me, that was the easy decision because I decided to start my own business. I had I met
a I had a couple of friends of mine that were in the investment business in Toronto that I
had kind of worked with over the years. And so it was we came together and sort of
started the company so that it was a much easier decision back then for me because I
was kind of at this opportune point in my life where I had to make this decision whether
to go to a more traditional asset manager or start my business. And I had everything
kind of lined up from a from a wealth point of view that allowed me to do that.
Devin: [00:03:31] Thank you. Vipool, you bring a slightly different perspective because
you're a consultant that has worked with many early stage independent firms as they're
being created from your seat. What are you seeing as some of the biggest benefits for
an individual owning their own firm? And why are they making this shift?
Vipool: [00:03:52] There are a lot of benefits and maybe we can start with money. You
know, the biggest expense that an advisor has is every time a dollar comes in the
business, their dealer takes a portion of it. That's the grid. And so in many cases, if you
compare what you're paying your dealer versus the cost of actually running your own
business, you'll find your the cost of running your own businesses is lower and in many
cases significantly lower. So first benefit, of course, is more money in your pocket.
Second thing to talk about is taxes. You know, we live in an environment where if you
get a T4A slip, you're at a huge disadvantage. It's very hard to accumulate wealth in that
kind of environment. It's very hard to pass on wealth to future generations to do tax
planning, income splitting, estate planning. So you need to have a business and active
business to have those benefits. And so that's benefit number two. Let's talk about the
value of your business. At some point, everyone wants to retire or sell their business or
pass it on to others. And the value of an advisor's business really depends on the
relationship and the agreement that they have with their dealer. So there are many
advisors out there that don't really have an understanding with the dealer that when I
leave, these clients are mine and I can sell this relationship. So for those individuals,
their life's work is just scattered to the winds. It's it's gone. If you're lucky enough to
have that arrangement, well, then there's a value that's placed in a book of business,
and the value is typically one or two times the ongoing fee. Now, if I took that book, if it
was a substantive book and I put it in a corporation and I called it I called it Vipool's
Investment Management Inc. The value of that business is significantly more. Or can be
significantly more. And then as you grow your book, the value of that asset grows. So I
talked about the importance of passing on wealth to future generations. This is part of it.
We can also talk about decision making. I mean, if you're an advisor that has a
substantive book and you've been around for a few years, chances are that you have
some good ideas when it comes to marketing. For example, you have some ideas in the
products and services that you want to offer your clients. You have some ideas around
technology you want to use. And so when you have your own business, you're not
negotiating with your dealer on whether or not these are great ideas. You get to make
those ideas yourself. But I think I think the biggest benefit, the one that isn't really
spoken about is that having your own firm, an independent firm, provides a great deal of
professional and personal satisfaction. You know, the analogy I like to give is, is pretend
there's there's someone who comes out of university in their twenties and they want to
they want to get an apartment. And mum and dad says, you know, we've got a
basement apartment. Why don't you just read that basement apartment and we'll
pretend we'll pretend this is your your own living residence and you can put a little sign
in the door, you know, enter at your own risk free pools or whatever. But the bottom line
is that you're in mum and Dad's apartment, right? They're aware of people coming and
going. They're aware of cooking smells or whatever, whatever else is going on. And it
isn't until you actually move out of that mom and dad's basement apartment and have
your own apartment or your own house that you truly live in a different environment. So
I think I think that's the greatest benefit we spend most of our lives working. So if you
have the opportunity and it's appropriate for you, for everyone, why not operate from
your own firm?
Devin: [00:07:58] All right. Thank you so much, Emily. You also bring a slightly different
perspective, but one that's extremely important in the industry. Not all advisors are
interested in starting their own firm outright, but that doesn't mean that they can't still
reap the benefits of the independent space. You run a successful independent
business, Cardinal Capital, and you have teams across the country. What benefits does
an advisor have when working in the independent space that they may not otherwise?
Emily: [00:08:31] That is a good question, Devin. We have had advisor teams join our
firm across the country, as you mentioned. And I think what they've really been looking
for is a way to become business owners themselves. Our firm is 100% employee owned
and they move from being seen as an employee of firm by their clients because that's
truly what they are to being a business owner. And many of their clients, many of our
clients are also business owners, and I think they appreciate that. It's just a different
mindset and a different way to run your business. Another benefit I think that there is is
just the flexibility. You're no longer reporting into a manager and a manager as manager
and a manager, as manager, as manager on the weekly and monthly and quarterly
sales numbers. You're really you're really a business unto yourself operating in the
niche that you want, making the decisions that you want. Much like what people said, I
think that's very true. Being in charge of your own destiny and having the discretion on
things like marketing and the way that you want to grow your business and the way you
want to operate. So I think once advisors are sort of at that level where they have the
expertise that they've earned over the years in this industry, they just have that comfort
level that maybe I don't need to operate under a big brand name anymore. They
become known and respected in their community and their clients are there for them, for
the relationship that they have with you as a person, not the company that you're with.
And I think once they realize that, they make the switch and never look back. Thank you
very much for that. Similar to that question, Emily, why is independence good for
business? What does it provide that perhaps a larger, more traditional corporate wealth
firm may not? I think first and foremost, it's the fact that you can really say that you're
putting your clients first, not your shareholders. We're all employee owned and we
believe that the clients benefit from that. It's a different mindset and much more long
term focus because we know that the decisions we're making today for Cardinal five
years from now, it's really all for our clients. The changes we make, whether it's
operationally or within our investments, it's all client driven. 100% is not profit driven. It's
not based on a share price. It's it's a big change that puts the advisor and the firm and
the client's interest all in alignment.
Devin: [00:12:01] Thank you, Paul. I'd like to pose a similar question to you, if I may.
You have experience in both worlds, being an independent and being an employee of a
more traditional institution. What are the key differences that you see?
Paul: [00:12:17] You know, when I first started off at TDS management, it was a
different world because TDS management was very small back then, but the industry
was growing very rapidly. And so as an employee or a portfolio manager, TDS
management, at that time you were you were allowed to do many different things. So I
worked in fixed income and I did corporate research and high yield debt research, and
we invested in international bonds. And I was able to move from the fixed income side
to the equity side. And I think today in a traditional firm, they virtualize you pretty quickly.
So you just do credit research or you do high yield debt research, or if you're on the
debt side, would be very hard to move to the equity side. And so from from that
perspective, I think the industry has changed a lot since I was there. But at a big firm,
you do you do learn a lot of things. And I was able to become, I think from an
investment perspective, I became much more well rounded as opposed to probably
today where people tend to be, oh, I know utilities very well and things like that. So
that's one thing. But but you just do investments, right? And when you move to an
independent firm like we did originally, there were many things that I just had to learn.
Whether people mentioned technology while you somebody did all our technology for
us. We had to figure out all that. We had to figure out marketing while somebody did our
marketing and we just kind of presented it. And so the first time we actually did a
marketing presentation to our accountant, he basically fell asleep. And then you
realized, Oh my God, well, I got to change how I do all this stuff, right? So so it's also
more about so you wear many hats. And I think from my perspective, that was always
very interesting because I learned a lot. And it's one thing to analyze a company and
understand how that company runs. It's another thing to run a business. And so for me,
there is these all these other issues that you had to compliance became a big thing, you
know, and compliance has become very big these days, right? I mean, our ISP and our
contract was eight pages long. That was 45 pages long. I used to be able to read it to
my client very quickly. Now I just say, here it is. You better go read it. Right, because I
can't decipher this whole stuff. So so the that's changed. But, you know, there are a lot
of little things that I learned and my colleagues learned, and we had to get better at
more than the investment side. The investment side was always easy for us in many
ways. Whether you had good performance or bad performance, that's not the issue. But
analyzing a company, analyzing debt, investing in those aspects were always the easy
part. The hard part was running a business and dealing with employees and all that
stuff, although they were if those are, they're very interesting to do. And and I think that
and I really enjoyed that. And that's what I actually enjoy about our business because I
think it's not just about investing, it's more about these other things. And as Emily
mentioned, it's also, you know, you have to think about the client and how you help
them. And one of the things I think is very different about being a TDS and
management. I don't know who I'm helping, to be honest with you. I didn't. I just my
portfolio was shoved under my door. I looked at it, I made my decisions, I went on with
my life. But today I actually meet people and speak to them and talk to them and
understand their needs for their future. And how do I help them with that? Through
asset allocation, through the investment process, through other financial planning and
all that stuff. So it's much more it's you know, I didn't come from a traditional advisor
background where they would probably had a much bigger relationship with a client.
Mine was much more institutional. And so it was it's really important, I feel and what I
love about this job is that I get to help people with their future and the investment side.
And I think that the problem with. Our businesses, people will probably spend more time
thinking about the color of their car than their investment portfolio. They just don't like
doing that. So it's nice to be able to discuss it with them in a healthy way that helps
them achieve their goals.
Devin: [00:16:13] Thank you. Another question for you, Paul. Prior to founding your
business, what was the sentiment on the street for those wanting to start an
independent firm? What types of stories had you heard?
Paul: [00:16:26] You know, I think when I started when we started our firm originally, I
think people were very helpful. And I think that especially on the people on the sell side,
which wanted to start a business because you'd give them commissions and stuff like
that. Right. So, you know, I think that we were most people were very helpful. I think we
settled on in and many of the crisis and all those other things. So that was a very easy
decision for us. But but I think that even from that perspective, Nubbin was very helpful
for us to get us going and help us with the process. I think that we what we did right, if I
can, is that we actually met with a lot of people who ran independent businesses. So we
were able to get a lot of good advice initially when we started our company. So we didn't
sort of go in. Somebody said, Oh, well, why do you want to do mutual funds or mutual
fund business to private client? So things like that really helped our grow our business
and not kind of put our put our foot in the mud. So we were able to actually set up the
business in a very effective way. We didn't have a splashy office. We worked from
originally from my basement. You know, things like that made a lot of sense for us at the
time and it worked really well. So I think most people, I would say, were very helpful.
You know, I didn't know they didn't know if we were going to be successful or not. That's
very different. But they gave us very good advice. So make sure you have 3 to 4 years
of money that you can live off of and things like that that were simple things like, you
know, if somebody tells you they're going to give you $1,000,000, they're lying to you.
They're going to give you 250. So you were never if somebody said they were going to
give you $1,000,000, you always say you put it down to 50. And that's actually actually
what happened. They never gave you $1,000,000. So it was good because we'd spoken
to people that started their businesses. And so we were we didn't speak to a mutual
fund company. We've been to private client businesses, and they were very helpful with
all that sort of kind of thinking about the business. So for me, I think everybody it wasn't
it was never the issue about of you're just don't go do this and you're crazy. It was more
about, how can I help you? And here you should go speak to these people because
they started a business and there have been successful, so you should learn from them.
So I think that they were I didn't find anybody very negative. Like I said, I don't you don't
know. They didn't think they didn't know if they were going to be successful or not. But
they were very happy to help you in every aspect, from buy in to the banking
relationships to people on brokerage firms like we had dealt with, because we all came
from kind of institutional backgrounds. We had all these relationships, we got free
research, you know, things like that. They were very helpful with. So there was never
this kind of thing, Oh, I can't help you. I'm sorry. So I found it a very good experience
Devin: [00:19:13] Vipool, from your perspective, what are some of the items you see
consistently among early stage firms that are successful? And what are the traps that
you think should be avoided in your view?
Vipool: [00:19:26] Absolutely. So a lot has changed since the nineties and I think that
there is a lot more service providers out there that can help you start your search, your
business, help you along. And intellectually creating your own firm is not difficult. I can I
can write it down on a piece of paper and you can understand it. The difference
between success and failure is really the mindset that the advisor brings to this process.
And I think Paul touched on it somewhat. You know, you have to switch from a sales
rep mindset or advisor mindset to one of an operator. So what does that mean? Well,
first of all, it means picking up on Paul's point, which he made very, very well, is you
have to be interested in things that you previously considered unimportant. Right? So
you have to be interested in cybersecurity. For your business, you have to be interested
in compliance. What is your compliance manual look like? What's your forms? What's
the onboarding process? You have to pay attention to your bookkeeper. You have to be
interested in all sorts of topics. So number one is if an advisor is really focused on
saying, My job is to find clients and my job is just to manage my money and you do
everything else, it's not going to work because you can't have your own home and not
mow the lawn and fix the roof and make sure things are operating. The second thing is
you have to be able to take setbacks. You know, not nothing is a straight line and
there's going to be disappointments and there's going to be setbacks. When you run
your own business temporarily, you know, you might have delays in your registration,
you might have a technology issue. Maybe the commission walks in right at the time
you're doing your era and audit and maybe a key employee quits on you. These are
these are blips. These are illusions, just like how the market has swings. We have ups
and downs, but long term, the market goes up in the same way. You're going to have to
be able to withstand operational personnel and other glitches. So it's not for everyone,
but for the folks that are ready for it. It's it's an amazing opportunity. It's a place to be.
Devin: [00:21:54] Did you also map out what an advisor needs to start your own
advisory firms too.
Vipool: [00:22:00] Start a business? Yeah. So an advisor should think of their dealer as
being a super service provider. Right. So your dealer is not an employee or any other
sort of structure. What they are is a provider of the services you need to run your
business. Right? So what do we need? We need a back office so we can settle trades
and we can do client reporting and issue tax receipts. You need some technology, you
need a compliance department, you need an accounting department or a bookkeeper.
You need maybe an I.T. department. So the process is really identifying what are those
key services that my current super service provider is providing? And how can I
replicate that in my own firm? So that's really the thought process.
Devin: [00:22:54] Emily, on that note, I'm curious to know what you would say if
someone told you they were going to transition to an independent business or found
their own firm. What would you say and how would you advise them?
Emily: [00:23:07] Yeah, I'm happy to answer that one, Devin. First, I would advise to
stick to your niche. Stick to a niche. Do one thing. Do it well. There's a Bruce Lee quote
where he said he doesn't fear the man that's practiced 10,000 kicks one time. He fears
the man who's practiced one kick 10,000 times. And I think that's really true. As a small,
independent firm, you can't be everything to everyone. Just do one thing and do it really
well and hold that over the years and the referrals from the clients that appreciate you
for that will follow. I think that's that's hugely important. The other thing I would say is to
find the right people to build the business with you. It's not for everyone. It's not for the
faint of heart. I think you need to find people that thrive dealing with change and growth,
and that is not everyone. But if you find the right people to go for that ride with you, then
I think you'll be in good company.
Devin: [00:24:12] All right. Another question for you Emily. Is having an independent
advisor, good for clients doesn't have an impact either way. How does that play into the
decision to make the jump to independence?
Emily: [00:24:27] Yeah, I think I think for clients, you know, I go back to something that
my father mentioned because my father actually is the founder of Cardinal. 30 years
ago, one reason why he started the firm, because he had been similar to Paul, his
background was as an institutional portfolio manager. And any time he spoken with
neighbors or anyone that he met, they were really focused around what product they
were in and it was always changing. They're in and out of the latest trend, the latest fad.
And he always felt their frustration, and he realized that an individual retail investor was
not looking at their investments. The way that an institution is an institution. They come
up with an investment policy statement. They select an investment approach or a style
that suits their needs, and that's what they stick to for the long term. They're not in and
out of new styles and new things, and that way a portfolio manager can hone their
expertise in a certain style or niche and do that one thing really, really well. So I do think
clients are better served by getting out of the product based solutions and moving to an
investment style that they can understand over time. They get it. They're much less
focused on what they own. Instead, it's more why they're invested the way that they are.
They get a lot more comfort in it and they can stick to it, and I think that serves clients in
the long run.
Devin: [00:26:27] Great. Paul, if someone told you that they wanted to start their own
firm, what would you say?
Paul: [00:26:34] I mean, I think it's a great thing to do for many of the reasons that
people already spoke about, about the independence you get that you have a great deal
of freedom with it as well that comes with doing that decision. I mean, I think the
problem is that for me is that when people who are investment people start a firm and
investment people, they all think they're investment gurus and they're probably average
gurus, but they they actually have to think about all these other things that they have to
do. And and and I think the problem with the investment world today, it's just not about
investments anymore. It's about wealth management. And we need and like our firm
thinks about it more holistically, right? Harris Douglas thinks about financial planning.
He thinks about tax accounting. It thinks about wills and powers, attorneys, insurance.
So you have to bring all those things together, I think, in today's world to help a person
with their wealth, it can't be, Oh, I'm just great at investing. You're probably not. And I
think that's what you have to. So you have to think about it from a from from that
perspective, from a wealth management perspective far more holistically than I when I
started off originally. That's one thing. The other thing is that I think that the advice I'd
give somebody is that you also have to think about, as people mentioned, the fact that
there's somebody else doing all this stuff for you and you think that you're great, but you
don't have you have to do all this other stuff, right? And so the world we live in today
allows you to do that. So compliance, you don't have to do all that stuff yourself. You
can farm that out. So you should figure out what you can do with how you use
technology to to enhance your ability to deal with clients, but also to do your other parts
of your job. You know, looking at when you look at compliance, can you pass that on to
somebody? But when you're talking about the custodian aspect of all those sort of
things and and portfolio management systems, etc., so there are people you can use
and you should use them. I think the traditional what I would say is don't just go hire
people because that's probably the worst thing to do and you end up managing people.
And that's a hard thing actually. You know, I never came from a management managing
that wasn't my background and so it's very difficult, right? So, so I think that you should
use these other aspects to figure out your business. And then when you get to a level
where you feel you need to add on somebody that can add value to your business,
that's important. But to bring in somebody right away to say, I'm going to go get this
person to do compliance. And, you know, because I just want to do investing is just the
wrong thing to do. And I do think you have to think about it more holistically today than
you ever had to do before. It's just not it's just not an investment business anymore. It's
a wealth management business. And you're not helping people if you're just doing
investing as far as I could, that's my opinion. As far as I'm concerned, you're not helping
people. You really need to. People really need a help with a lot of this stuff. And we as
investment professionals need to think about it differently and help people with their
future. You know, when I grew up in working at TD or TD Bank, there was a pension
plan there that you could join and those days are all gone. And so you really need to
help people be able to. And they were living longer, right? You know, years ago. You
have to take out 7.28% from your rrif now it's 5.28%. They're probably going to drop that
number over the next little while because people are living longer. So we we need to
think about our businesses differently and more holistically as opposed to just saying,
I'm an investment person and that's all I want to do because that's just not enough
Devin: [00:30:07] Right. If you could go back, Paul, and speak to yourself in the
moment that you decided to go independent, what would you say? Is there anything you
wish you had known then?
Paul: [00:30:19] It's a good question. I think the issue for me was that is that you really
have to we spoke to so many people before we even went down this path. So there
weren't too many things that were, you know, that kind of surprised us in many ways,
right? So we put all of us there were three partners. We all put aside money to live our
life for three years. And we basically started taking a salary after two. So we were so we
put all this out. We realized that people are telling you something, but they're not going
to give you as much money. We add all those things. And just to be clear that in 2003, a
lot of things were easier to do. Getting registered was easier, getting compliance with
easier. Your contract, like I said, was easy to do. All those things were a lot simpler
when I started. And so and I think so it's slightly harder today with all those things. As
people mentioned, they may getting registered, may take you an extra three or four
months in just because of some they're clogged up at the OSC. Right. So I think there's
a lot of other things that that are happening today which make it tougher for people to
go independent. But I do think that there was nothing really that we were kind of
shocked by when. We did that. We were we plotted along a little bit, but we were not
shocked by things that came along because we had spoken to so many people who had
become independent already, and they gave us really good advice. And I think that, you
know, and I think things like the Portfolio Management Association of Canada, those
things really help young people starting out in the industry, helps them with their
business. Right. And and I think that those are and when I advise people, I always tell
them, join, join, pack, because they give you a lot of things, especially as a small firm.
So I think there are a lot of things that are in place today that help managers, people go
independent. But I was never really shocked by anything that happened, and it took us
a lot, funnily enough, because we had done those things and we started getting paid a
lot quicker from our from our business. So it was for us, it worked out really well. And I
think that but I do think that you you the one thing I would say is bringing in assets is a
lot, at least for us. It was a lot tougher initially than you think because we didn't have
that. We didn't come from an advisor background. We all came from this institutional
background. That was maybe that was the one shock. I would say, oh, why don't you
why don't you give me recognize me? Look, I have this performance and all these other
things, right? So but when you work at TD Asset Management, you weren't a brand
manager, you were TD Asset Management, whereas people who worked at a lot of
independent firms had a store manager sort of effect. So I think that's one thing, if I
would say that kind of people didn't quite understand that we'd been doing this for ten
years and I didn't know you. Right?
Devin: [00:33:14] So thank you. Vipool, what would you say to an advisor that would
like to consider independence but is concerned about the unknown aspects of starting
Vipool: [00:33:27] Absolutely. So the greatest source of fear is lack of knowledge.
Right? Once you know something, then it's easier to take action. So whenever we talk
to folks about independence, the first thing I like to do is, is do the numbers. How much
are you making now pre-tax? When are you going to make going forward? Does it make
sense financially? We also like to talk to them about timelines, maybe help them sketch
out a timeline. So I guess what I'm saying is that you need to visualize your business, as
Paul has indicated somewhat, you need to visualize your business, right. You need to
visualize dive you're going to take before you jump off that diving board. And so that
really is a process of planning, running the numbers, interviewing key service providers,
maybe talking to other firms that have made the leap and understanding at a very
general level what's involved, what the risks are and what you need to do. You're never
going to perfectly plan. I mean, if you're someone that wants to plan everything to to
perfection, then it's not going to happen because you're going to have to make that leap
off the diving board at some point. But you want to make sure that you understand at a
very general level what's what's involved. Once you've done your research and you
work with people that can help you through that, you're going to have one or two
decisions. And they're both great decisions. One decision is, I don't want to do this. It's
just a lot of hassle and it's going to be very upsetting. I just want to earn my income,
which is decent enough and I just want to live my life. And that's a great decision
because you don't want to embark on your own firm if you have any uncertainty. And
sometimes when I'm talking to potential clients, we actually try and talk them out of it
because I know six months down the road they're going to be very upset if they're not
100% committed. But for those folks who have what it takes, who have that basic desire
and can understand what's involved, getting that knowledge dissipates the fear, and
from there you can take action.
Devin: [00:35:38] Thank you Emily, Paul, Vipool. Thank you for sharing your
Emily: [00:35:44] Thank you Devin.
Vipool: [00:35:44] Thank you, Devin.
Paul: [00:35:45] It's my pleasure. Thanks for inviting me.
Devin: [00:35:48] There's many advisors out there wondering where to begin and your
insights have provided some great guidance for them. And I thank you again.
Earnings and succession planning
One advantage of being an owner-advisor comes down to earnings. Rather than splitting client revenue with a dealer through a compensation grid, advisors with their own practices can potentially keep more of the earnings for themselves.
“In many cases … you'll find the cost of running your own business is lower, and in many cases significantly lower [compared to what you’re paying your dealer],” says Vipool Desai, president of Ara Compliance Support.
Owning a wealth-management business, advisors can take advantage of specific tax planning, income splitting, and estate planning practices that have significant financial benefit, and that they would
not have the opportunity to implement while working for a corporate institution. Managing a substantive book of business in their own corporation, as opposed to having to negotiate ownership of it with a dealer firm, would also allow them to benefit from having a greater enterprise value once they decide to sell their practice or pass it on as they retire. “There are many advisors out there who don't really have an [agreement] with the dealer that [says,] ‘When I leave, these clients are mine and I can sell this relationship,’” Desai says. “So for those individuals, their life's work is just scattered to the winds [when they retire].”
Achieving strategic autonomy
An owner-operator advisor also has more control over day-to-day or strategic decisions – what products-and-services mix they want to offer clients, for example, or how to do marketing – as opposed to negotiating with a dealer on whether to implement their ideas. Beyond that, Desai says advisors who own and operate their own firms stand to enjoy a great deal of professional and personal satisfaction, given the increased freedom.
Paul Harris, partner and portfolio manager at Harris Douglas Asset Management, made his first foray into independence in 2002 with two long-time colleagues. At that point, he had spent over a decade as an institutional portfolio manager, including 10 years with the asset-management arm of one of Canada’s big-six banks.
“My portfolio was shoved under my door. I looked at it, I made my decisions, I went on with my life,” Harris says. “But today, I actually meet people and speak to them … and understand their needs for their future.”
Traditional financial firms have changed radically compared to Harris's early career. People making their start today are likely to get quickly verticalized into a narrow specialization – credit research, for example, or high-yield debt analysis – which
gives them a very limited view of the overall business they’re working in. As business owners, advisors will have full visibility and control of their business strategy and can make decisions at the macro level.
Getting ready for the leap
To prepare for the pivot to independence, Harris and his colleagues consulted other independent owners, who offered encouragement and shared numerous hard-earned lessons (for example: “If someone says they’re giving you $1 million, they’re lying to you. They’re going to give you $250,000”). But even with that, the move from working at a large firm to becoming independent was a reality check for Harris.
“There were many things that I just had to learn,” he says. “[At my old firm,] somebody did all our technology for us. We had to figure out all that.… It's one thing to analyze a company and understand how that company runs. It's another thing to run a business.”
At a purely intellectual level, Desai says it’s not difficult for advisors to set up their own firms, especially with all the service providers available today to assist with such transitions. But the key to success, he says, really resides in advisors’ mindsets – even well before they actually leave their current employer dealer.
“Advisors should think of their dealers as being super-service providers.… [They are] a provider of the services you need to run your business,” he says. “The process is really identifying what are those key services that my current super-service provider is providing, and how can I replicate that in my own firm?”
Aside from that, he stresses the importance of accepting setbacks along the way. Whether it’s delays in registering their own firms, technology issues, or an untimely departure of a key employee, independent advisor-owners have to be able to carry on even as they encounter potholes on the road to growth.
“These are blips. These are illusions, just like how the market has swings,” Desai says. “We have ups and downs, but long-term, the market goes up in the same way.”
Emily Burt, executive vice president and board chair at Cardinal Capital Management, advises would-be independent advisor-owners to find the right partners – ideally, ones who can thrive managing growth and dealing with the changes that naturally come with building a business.
Another pearl of wisdom from Burt: choose a niche, and stick to
it. “As a small, independent firm, you can't be everything to everyone. Just do one thing and do it really well and hold that over the years,” she says. “The referrals from the clients who appreciate you for that will follow.”
For Desai, advisors who are considering the jump to independence should think more like operators. Before jumping off the diving board, advisors, he says, should look at their pre-tax earnings and estimate how much they’d make in future. Drawing up timelines, interviewing key service providers, and talking to other firms about the general process and risks are also very important activities to prepare.
“The greatest source of fear is lack of knowledge.… Once you know something, then it's easier to act,” he says. “For those folks who have what it takes, who have that basic desire and can understand what's involved, getting that knowledge dissipates the fear, and from there you can take action.”
A middle path to independence
There are other paths to independence aside from being an owner-operator. Cardinal Capital Management, a large firm whose presence spans Canada, takes great pride in the fact that it is one-hundred percent employee-owned.
According to Burt, advisor teams that have joined from across the country benefit from being perceived as business owners by their own clients, and have greater opportunities to customize their offering and client service style than a traditional firm would typically allow.
“There’s just the flexibility. You're no longer reporting to a manager, and a manager’s manager, and a manager’s manager’s manager on the weekly and monthly and quarterly sales numbers,” Burt says. “You're really a business unto yourself, operating in the niche that you want, making the decisions that you want.”
Advisors at larger, more traditional institutions may be limited in their ability to serve clients because of the firm’s need to produce short-term results for shareholders. But at independent firms like Cardinal, decisions are made with a longer-term focus on clients’ interests.
“The changes we make, whether it's operationally or within our investments, it's all client-driven.… It's not based on a share price,” Burt says. “It's a big change that puts the advisor and the firm and the client's interests all in alignment.”
The desire to strike out as an independent doesn’t necessarily come right away; according to Burt, that tends to come after advisors have earned a certain level of expertise over a number of years in the industry. At that point, they can be confident enough in their abilities to practice even outside the auspices of a traditional financial institution.
“They become known and respected in their communities, and their clients [will be] there for them, for the relationship that they have … not the company that [they're] with,” Burt says. “And I think once they realize that, they make the switch and never look back.”
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if you’re interested in going independent, contact NBIN today to learn more about the next steps.