As the broker population ages, succession planning is becoming increasingly important in the brokerage business. When advisors retire, they want to have buyers for their books and thus realize their value; dealers want a sound exit strategy to keep clients and their assets within the firm.
But this may be a case in which firm managers are thinking ahead and advisors aren’t. In this year’s Brokerage Report Card, brokers themselves didn’t place succession planning high on the scale of importance. It was one of the lower-rated categories in importance, with an average score of 7.3.
In fact, it’s difficult to discern a pattern among responses to the succession planning question. For example, there’s no apparent correlation between a broker’s age and how he or she rates succession planning in importance. Advisors at Toronto-based First Associates Investments Inc., for example, are in a two-way tie with Toronto-based Dundee Wealth Management Inc. for having the oldest average age, at 50. Yet First Associates brokers rated succession planning the lowest of any of the firms in importance. The youngest group of brokers, at Vancouver-based Canaccord Capital Inc.,
gave succession planning a middling importance rating, 7.5.
Yet some firms extol their succession planning support programs as recruitment tools. Many offer purchase financing for brokers who wish to buy a book of business from a retiring broker within the firm.
Wellington West Capital Inc. of Winnipeg scored highest among brokers on the question of the firm’s succession planning support. Charlie Spiring, the firm’s chairman and co-CEO, says the main attraction of his company’s succession planning program is that the broker has relative freedom to sell to whomever he or she wants within the firm.
“We give some flexibility to the broker to get the best value,” he says. “But if no one wants to buy, [the firm] will be the buyer of last resort.”
Although only two brokers have gone through the program, Spiring says, succession planning is becoming an important recruitment tool.
David Agnew, national director at RBC Dominion Securities Inc. in Toronto likewise believes his firm’s succession planning support program works as a recruitment tool, if it’s not the firm’s top-selling point.
Agnew says the firm’s focus on succession planning is directly related to the age of its sales force. “The average age of our investment advisor today is mid-40s, so in the next 20 years we’re going to have a lot of people retiring,” he says.
RBC DS, which ranked No. 2 in the score category, has a practice management group that advises brokers who are approaching retirement on how to effect a smooth transition.
“If somebody wants to retire in five years, [the practice management group] is in there today looking at the business and making recommendations … to make sure the succession is done very professionally, matching up personalities to client personalities,” he says.
Advisors at Montreal-based National Bank Financial Ltd. gave their firm a third-place ranking in succession planning. The company’s Relay program helps advisors pass their books on to colleagues on retirement as well as other events, such as downsizing and premature death.
Gordon Gibson, NBF’s senior vice president and managing director, says the Relay program is an important recruitment tool for both rookies and experienced brokers.
“Seasoned producers obviously have built
an asset for themselves and they want to make sure that when they decide to move on that they are going to be able to realize that asset,” he says.
As for rookies, Gibson sees a hidden benefit: the succession program creates mentoring relationships between newer advisors and seasoned veterans, providing training for the less experienced advisors.
About half the firms surveyed, including NBF, RBC DS and Toronto-based TD Waterhouse Private Investment Management offer purchase financing for brokers who want to buy books from retiring colleagues.
“We have a full, 36-month financing program,” says Dave Pickett, head of practice management at TD Waterhouse.
Although the succession financing program has not yet been used by many brokers, Pickett believes it is reassuring for advisors to know the program exists. “It’s like an insurance policy,” he says. “When you need it, it’s there for you.”
One Ontario TD Waterhouse broker has bought two books of business using the firm’s succession planning and purchase financing program. But the program is not without its critics. Another Ontario advisors complains that the firm, not the broker, decides on the price of a book. “TD lost about half its top sales force when the [succession planning] policy was established,” he says.