Canaccord tops for freedom

“Soon we will be the strongest independent on the street,” he said, adding that he liked the firm’s trading technology and the way the former C.M. Oliver & Co. was fitting with the company.

Never mind merely independent: Vancouver-based Canaccord was tops all the way around in Investment Executive’s 2000 survey of 400 brokers at Canada’s national investment dealers. While technology and a smooth merger helped, a number of other factors combined to cast Canaccord’s good fate.

First, when the Alberta and Vancouver stock exchanges merged in November, volume on the Canadian Venture Exchange, on which Canaccord does a lot its underwriting, boomed. The markets were strong, if volatile, last year and CDNX’s small-cap tech stocks were flying – all through the period when Canaccord brokers were answering calls about the Brokerage Report Card.

Second, advisors at the more institutionalized investment dealers express a lot of displeasure these days. And third, and probably not least in importance, Canaccord managers have been listening to their advisors – about technology, payout and freedom.

“[We’re] really tight,” says one veteran Canaccord advisor. “At the big firms, it’s tough to communicate on a group basis, but at Canaccord it’s more homey.”

Advisors everywhere cherish their freedom, but at Canaccord it is most dear. On average, the firm scored 9.7 on the issue of freedom from pressure to sell proprietary products. Advisors everywhere also know there will be increasing pressure to sell more of these fee-based products, but at Canaccord they feel more secure. “This ain’t a bank,” says one broker who gave the category a 9.5.

The high numbers for freedom already correspond with a comparatively low percentage – 2.2% – of the brokers’ books that are in fee-based business at the firm, vs about 20% of business at the bank-owned firms.

Where Canaccord earns points especially is in giving its advisors the freedom to compete with low-transaction-fee Internet trading –more so than at the Big Five bank-owned dealers. If a client demands it, a Canaccord broker will drop his commission to keep the business.

Michael Greenwood, president and chief operating officer of Canaccord in Vancouver, says it means a lot to the advisor to be able to serve the client this way.

“You have to discount to some extent today to garner some of those extra assets under administration,” says Greenwood. A client with a lot of money at the brokerage is going to expect a better price when he’s looking to make some extra trades on the CNDX, for example, with some extra capital. “Otherwise the client will leave, saying that we’re nickel-and-diming them.”

Everyone knows online trading is forcing commissions lower. Says one broker: “In 1980, with the money that I have under my control at the moment, I would have been making $30,000 a month. As it is now, I make $10,000.”

But at least Canaccord is leaving the control in its advisors’ hands. And as other firms feel the pinch in their payouts, Canaccord’s remains at almost 50%.

The message to management at all firms should be clear, then: advisors like to control the level of service they can give clients – and that goes hand in hand with higher payouts. While Canaccord brokers rate their firm’s payout among the best – an 8.4, vs 6s and 7s at other firms – the most shining example comes from TD Evergreen Investment Services Inc. Brokers there keep 64%, and they’re given the freedom to spend as they see fit on day-to-day office management. They love it, giving it a 9.1 rating.

Canaccord seems to be a bit of a momentum play right now. Advisors gave higher marks this year than last to the firm’s strategic focus. And in the past year, the firm has become the haven for some big defections. “I had five job offers, and I chose to come here,” says one broker.

Some veteran advisors are willing to forgo the marketing power of the big firms and the stacks of analysts’ blue-chip research in order to feel as though they’re on their own again. The big brokerages have lost their entrepreneurial spirit, says one broker who jumped ship. Another echoes that sentiment, saying he would never work at RBC Dominion Securities Inc. or Merrill Lynch Canada Inc. because “I don’t want to listen to the riot act every morning.”

There’s nothing special about working at Canaccord, says one gritty advisor. “Nothing – except for the fact that [the firm] leaves me alone.”

When the management is called on, however, it seems to listen. “I can call up the chairman if I want – and he will return my call,” says another advisor, who, frankly, gushed about his firm at every opportunity. “Everyone is approachable – from the top of the tower to the boiler room. There is a lot of loyalty here.”

Greenwood says management tries to behave as if it’s there to serve the advisors, rather than the other way around. The firm concentrates on giving brokers more time to serve clients, rather than making them jump through administrative hoops, he adds. The firm went online with customer accounts early, which helped. And when brokers complained about the time-consuming access to the U.S. markets – particularly NASDAQ – the firm set up a dedicated retail desk. Most firms were having the same problems, but Canaccord was able to leverage some relationships it has with U.S. firms and work out a deal. “We were getting better order confirmation and better pricing,” says Greenwood.

As loyal as Canaccord advisors are, they aren’t blind to the firm’s faults. They see many places in which their firm could improve – in some ways, ironically, to become more institutionalized. The smaller, nimble ownership structure also has drawbacks. Each of the roughly 350 advisors is a partner in the firm, but some brokers would like a pension system. While the firm has gained a few more analysts, advisors want to see more mid- to large-cap underwriting and more products. They see Canaccord starting to transform its image as a Western-based cowboy’s bucket shop, but the firm needs to continue working on the transition.

One Toronto advisor suggests that Vancouver isn’t the place for the head office. “It’s hard here in Toronto, because you have to ship everything out to Vancouver, especially the RRSP stuff.” Even the aforementioned advisor who adoringly praised his firm says he’d like to see less emphasis on producing, and more on successful performance for clients.

Greenwood says it will take time to change Canaccord’s image with both retail and institutional investors. It will continue to do the underwriting that makes it unique, but it will fund its way onto large-cap syndicates. “And the way we do that is by explaining we’re the largest independent on the Street.”