Great expectations often fizzle into compromises

The tradeoff for working at a high-profile firm such as Investors Group Inc., which offers planners the amenities of a cohesive parent organization, is in lower payouts and limited freedom. Conversely, mid-size independent firms such as Balanced Financial Planning Group, trumpet the flexibility they give their planners, but have less to offer in the way of administrative and corporate support.

Can financial planners have their cake and eat it, too?

Planners at the 13 national planning firms surveyed by Investment Executive in the first annual Planners’ Report Card want an efficient back-office, tight compliance and some training from head office. Given the cut of their payout that the firm takes, they want to see where that money is being spent. They want the tools to hold their own amid increasing competition from financial planning conglomerates and the bank-owned brokerage houses.

But like latchkey kids, financial planners are used to having free rein in their domain, and they don’t want the firm or regulatory bodies dictating rigid rules. It’s not surprising that freedom and independence were most often cited as the quality that planners appreciate in their firms.

So what do planners demand from their firms in the way of services and assistance? And conversely, what do firms exact from their planners?

IE’s survey revealed back-office blues at many firms. High error rates, slow order processing and poor follow-up were cited. “Their attitude is confrontational and condescending,” says a Money Concepts (Canada) Ltd. planner.

Some firms fared better than others. At high-scoring Radville, Sask.-based TWC Financial Corp., a planner boasts back office “bends over backwards to provide you with tools and opportunities.” Both TWC and second place Ross Dixon Inc. of Kitchener, Ont., use RPM-Power Rep as a back-office support system.

Fortune Financial Corp., in the midst of bureaucratic turmoil, trailed the pack. “There are lots of problems,” a Fortune rep noted. “I circumvent them by using outside trustees. When I used Fortune’s back office, I had poor service, no follow-up and mistakes.”

At TWC, back-office functions have been departmentalized. “We have a purchase department — so that team of people does nothing but purchases — a switches and redemptions department, and so on,” chief executive officer Tim Calibaba explains.

Although Balanced Financial Planning scores were average, the firm’s new intranet system earned praise. “We just turned it on a month ago, and already we’ve had 12,000 hits,” says Balanced Financial Planning’s chief executive Lorne Jackson. “With just over 900 reps, that means it’s getting a lot of use.” Planners get daily market reports through the system, client and commission statements, as well as access to asset allocation models produced by analyst Duff Young’s FundMonitor.com.

One Balanced Financial Planning rep says he uses the system extensively. “Although it’s brand new, I’m very dependent on it.” He praises the firm’s allocation of resources, noting “it’s difficult in a mid-sized firm, when you only have a limited amount of money to apply anywhere. They’ve done a good job directing money where it’s going to have the greatest impact.”

It’s not just back-office mistakes and lethargy that concern planners. Problems with account holdings have far more serious repercussions. Confusion over nominee name and client name accounts has troubled Fortune. “There’s a lot of mistakes,” confides a Fortune rep. “I hold the account in the client’s name, but there is confusion from their [back-office] end with nominee name accounts.”

Similarly, the Equion Group’s two types of accounts, held in either the client’s name or the “street” name, have generated some back-office disarray. “Equion doesn’t place priority on client-name accounts,” a planner notes. With Winnipeg-based Assante Corp.’s focus on nominee name accounts, “you have to stay on top of them [client-name accounts]. There is potential liability if Equion loses track of them. There needs to be an accurate reporting system so processing is done on a timely basis.”

Compliance also reared its (sometimes ugly) head as a key pre-occupation among planners. Firms under a large umbrella organization, such as Investors Group Inc., Primerica Financial Services Ltd., and Assante-owned firms, scored higher than most mid-sized independent companies, which tend to have a looser infrastructure. Fortune ranked lowest.

Yet some planners were resentful of their firm’s compliance department. “They’ve gone overboard,” a Money Concepts planner complains. “They are kind of like the jackboot division of the German army in 1943.” A less angry planner at Financial Concept Group rated his firm’s compliance department as very tight, “to the point of being anal retentive.” And an energetic Primerica rep declared that “I’d like to blow them [Legal and Compliance] up.”

Extreme responses were countered by an overall sense among planners that legal matters are increasingly important. “It’s funny I should talk about compliance as being positive,” a Balanced planner says. “But we appreciate having a head office that doesn’t allow the shadier dealings that exist in some other firms.”

Payout proved to be a sensitive area for many planners. It’s a case of not only how much, but also what value planners see for the cut that their firms take. High payout does not necessarily have to be at the cost of administrative support. TWC, which has the second-highest payout of the firms surveyed, also scored the highest marks for back-office administration.

“Do you have a rating for ‘it sucks’?” a Regal Capital Planners Ltd. rep asked. “I don’t believe I’m getting value for the 27% I’m paying.” W.H. Stuart Mutuals Ltd. planners receive the highest payout, and rated their firm’s scheme accordingly. Money Concept planners proved to be the most disgruntled. “Planners today are looking for a minimum 80% commission grid,” a Money Concepts planner laments. “Our commission grid starts at 70% and ends at 80% — and there’s the 2% that’s taken away for advertising. Our grid starts low and ends low.”

Payout structures seem to vary greatly. At Ross Dixon, 80%-85% is paid out to the franchise/branch, and the franchise then pays reps at its discretion. “The owners pay reps according to their experience, what they do, etc. It’s not our decision. It’s the decision of the branch manager,” Ross Dixon CEO David Velanoff says.

Money Concepts planners disliked the sliding payout scheme at their firm. “We have a different rate for limited partnership, a different rate for trailers, a different rate for new mutual fund sales — it’s very complicated,” one planner says. He wants an 85% payout.

Perhaps the prickliest area for planners has to do with client ownership and corporate pressure. Planners at mid-sized independent firms have more flexibility and control over ownership of their book. Purely proprietary firms, and those firms owned by Assante, rated their ability to move their book lower. “With Assante, they’ll want control of your book because they are going public and need to control the assets,” a FCG advisor says. Both Fortune and Assante’s preference for nominee name accounts makes it harder for planners to leave with their clients. Similarly, owning Assante shares means signing a non-compete clause. But planners at Assante firms don’t feel hemmed in by these caveats. “If I was not satisfied, I would not have signed the non-competitive clause — I’m very happy with the firm.” The benefits of the firm’s increasingly high profile seems to outweigh any constraints — at least for now.

Non-compete clauses proved much more contentious at Money Concepts. “I want 100% free access to client ownership,” a Money Concepts planner states. On the plus side, Money Concept planners have accessibility to a selected limited partnership scheme.

The trade-off between freedom of mid-sized independent firms and the infrastructure and profile of large conglomerates has become increasingly defined. As large financial-planning firms grow, and the bank-owned brokerages look to corner a share of the wealth management arena, planners with smaller firms may find themselves overwhelmed. They lack an aggressive head office to champion their needs and provide administrative services. But the future is not necessarily bleak for planners in mid-sized, independent firms. With most business coming from referrals, and the availability of products such as WRAP accounts through the mutual fund companies, these planners remain competitive.