Choosing the right model, the right firm: Includes chart

If you want a good blend of stability, support and autonomy, one of the independent dealers might do the trick.

But if it’s a solid public image, plenty of referrals and top-notch research that you want, a bank-owned investment dealer would find its place in your cart.

Once you’ve selected a business model, you’ll have to choose the right brand. The choice isn’t an easy one, but the numbers in Investment Executive‘s 2006 Brokerage Report Card reveal a wealth of information about how each of the firms is doing in a number of categories.

On the surface, the two boutique firms, Richardson Partners Financial Ltd. , and Wellington West Capital Inc. , both based in Winnipeg, would seem to have run away with it. Both scored identical IE ratings of 9.7, which were head and shoulders above the rest. However, the survey also revealed that each firm has different strengths, a few shortcomings and may not be for every advisor.

Richardson and Wellington West are considered to be boutiques because of their still modest advisor populations (Richardson has 58 advisors; Wellington West has 92 licensed reps), business models that favour larger books of business (the average book of business at Richardson has $131.3 million in assets under management; Wellington West, $83.6 million) and the opportunity for advisors to have an equity stake in their firms.

Both firms scored above average in all categories, but were especially strong in total compensation, quality of branch management, freedom of movement for book ownership and in firm-provided support for financial planning, wills and estates, tax planning and insurance planning. Both firms also scored a near-perfect 9.9 on freedom to make objective product choices.

“Senior management’s goals and objectives are aligned with ours. Everyone is going in the same direction,” says a Wellington West advisor in Ontario.

“We all have a say. There aren’t any policies jammed down your throat by someone in an ivory tower,” adds a Richardson advisor in the West.

Richardson posted consistently higher scores in all the support categories compared with Wellington West, while Wellington West was noticeably stronger than Richardson in availability and pricing of fixed-income products and in the level of consumer advertising.

Some Wellington West advisors admit that the firm’s relatively small size means that it doesn’t always have the resources to keep up with growth, and that means Wellington West doesn’t always enjoy the public recognition that other investment dealers do.

Richardson advisors were also uniform in their happiness, but, as one Western advisor points out, the firm’s program of equity ownership for advisors can be a double-edged sword: “If we don’t produce, we all suffer. It’s a risk.”

At the four non-boutique independent firms surveyed, advisors aren’t required to have books of business as large as those at the boutiques or the bank-owned dealers; but industry-wide, the focus continues to turn toward the high net-worth client.

According to advisors at the independent firms, the average book of business is $50.2 million at Toronto-based Blackmont Capital Inc. , $39 million at Vancouver-based Canaccord Capital Inc. , $30.4 million at the Mississauga, Ont.-based Canadian division of Edward Jones and $59.1 million at Toronto-based Raymond James Ltd.

As a group, the independent firms scored as well as the boutiques in quality of trade execution and back-office functionality, conventional account statements (as opposed to online) and U.S. and international research. In terms of total compensation, the independents scored noticeably higher than the bank-owned firms.

The independents as a group posted a respectable average of 8.1, despite the fact that Blackmont, which scored 6.6, weighed down the average. The firm that was known as First Associates Investments Inc. until late last year — and which is an amalgamation of brokerages that parent Toronto-based Rockwater Capital Corp. has acquired since 2002 — remains very much a brokerage in transition.

“In the short term, we have some issues. But in the longer term, we are improving; management is working it out,” says a Blackmont advisor on the West Coast.

@page_break@Bruce Kagan, who took over as Blackmont’s executive vice president and head of wealth management in March, says that over the past two years, the firm has brought in roughly 50 new advisors, with an average book of business of $70 million, while it saw another 50 or so advisors — with average books of approximately $20 million — leave the firm. “We expect by 2008 we will have 250 advisors with an $80-million average book,” he says.

At the other end of the scale, Edward Jones scored the highest among the non-boutique independents with an 8.9. The firm posted high marks in stability, strategic focus and corporate culture, in particular. “It has never wavered from its mission statement,” says an Edward Jones advisor in Ontario.

However, Edward Jones scored lowest on the Report Card in advisors’ freedom to move firms, with 3.9, because the firm, not the advisor, owns the book of business.

Raymond James advisors gave their firm high marks in total compensation, quality of branch management and in support received for financial planning and for wills and estates. It also received the highest mark among all 12 brokerages for freedom to move firms with 9.8. “I don’t think there is an easier firm to leave than Raymond James. But not too many people do,” says a Raymond James advisor in Ontario.

Canaccord received good scores in the availability of initial public offerings and new issues, its Canadian equity research, front- and back-office technology, and freedom to choose the appropriate products for clients. Canaccord advisors also gave the firm the highest score, 9.3, among all 12 firms for delivering on promises made when they were hired. “It has done everything it said it would do — and then some,” says a Canaccord advisor in British Columbia.

The six bank-owned brokerages received an average of 7.7 and scored slightly higher than the independents — but not the two boutiques — in stability, public image, ongoing training, support for specialized financial services and mutual fund research.

The bank-owned firms, as a group, also received a surprisingly strong score of 9.2 for freedom to make objective product choices, going against conventional thinking. However, they received a weak score of 5.5 in consumer advertising.

Bank-owned brokerage advisors also tend to have larger books of business than advisors at the independents, with an average of $111.5 million among advisors at the bank-owned firms.

Toronto-based BMO Nesbitt Burns Inc. scored the highest overall rating of 8.5 among the group, rating highly in front- and back-office technology, legal compliance, advisors’ access to new issues and quality of Canadian and foreign research.

“I like the depth of our research; there is very little we can’t do for our clients,” says a Nesbitt Burns advisor in the West. “Senior management tries very hard to make us the best full-service firm on the Street.”

Also strong in this group were Toronto-based RBC Dominion Securities Inc. , which scored 8.3, and Montreal-based National Bank Financial Ltd. , with 8.2.

DS advisors gave their firm high marks in stability, strategic focus, corporate culture and public image. “We have the backing of the golden lion, one of Canada’s most respected and recognized organizations,” says an advisor in B.C. The firm’s support for wills and estates and tax planning was also praised.

National Bank Financial posted the highest scores among the bank-owned dealers in the strength of its consumer Web site, its conventional and online account statements, the firm’s ethics and in freedom to make objective product choices. “There is zero pressure to sell proprietary products,” says an Ontario advisor.

But in terms of consumer advertising, it received a meager 3.8, the lowest score among all 12 brokerages — a reflection of the firm’s relative anonymity among consumers.

Toronto-based ScotiaMcLeod Inc. rated high in stability, freedom from pressure to sell products and support for insurance planning, but scored low grades in front-office technology and in the quality of Canadian, foreign and mutual fund research. “If it dealt with technology and research, which are paramount issues, it would be a lot easier,” says a ScotiaMcLeod advisor in Ontario.

TD Waterhouse Private Investment Advice generally lagged in the bank-owned brokerage sector, with the firm receiving relatively poor marks for support for specialized financial services and fulfilling promises made to advisors when they were hired. “It’s great having the strength of the bank,” says a TD Waterhouse advisor in Ontario. “But they still don’t get it. It’s like trying to stick a round peg in a square hole.”

At 6.9, CIBC Wood Gundy received the lowest overall rating among the bank-owned firms. Advisors are frustrated with the poor level of communication between head office and the branches and a perceived disconnect between the bank and the brokerage. “There are different sides fighting and that doesn’t lead to anything running smoothly,” says a Wood Gundy advisor in Ontario.

The brokerage’s reputation has also taken a collateral hit after the well publicized Enron Corp. fiasco that beset the investment banking side last year.

At the end of the day, choosing a firm is a matter of understanding who you are as an advisor, what tools you need to serve your clients and what brokerage attributes are high on your priority list. Like reading the ingredients on the back of a package, this survey can give you the straight goods on the strengths and weaknesses of each of these 12 brokerages.

There’s room for only one in your shopping cart, so make the right choice. IE