Planners who want to switch firms feel they can do so without much trouble, but they admit it is getting harder.
That’s because more firms are demanding that planners sign a non-compete contract, while others insist on holding onto the book or are charging to transfer accounts. As a result, advisors may want to take a closer look at how moving can effect their bottom lines — before packing their bags.
In this year’s Planners’ Report Card, the overall grade for the ability to move from one firm to another is up over last year — 6.8 vs 5.9. Three firms tied for the top rating at 7.6 — Berkshire Invest -ment Group Inc., Regal Capital Planners Ltd. and Primerica Financial Services Ltd. Advisors ar eight of the 14 national distributors surveyed ranked the ease of changing firms at or above 7.0, with 10 representing complete ease.
Yet a growing number of advisors are feeling the constraints. Where Investors Group Inc. used to be the firm known to throw its weight around when departing reps contacted clients, another Winnipeg-based firm, Assante Corp., popularized the concept of exchanging ownership of the rep’s book for stock. And as the consolidation wave has hit the mutual fund distributors, more and more reps are finding it harder to pick up their books and leave.
“It’s not easy to move at all now, because of this new non-compete contract,” says a Money Concepts (Canada) Ltd. planner in eastern Ontario. The firm’s planners rated moving a relatively low 6.8. “I can’t take my clients with me because they now belong to Money Concepts, although they could follow if they wanted,” says another planner from southern Ontario.
Signing over ownership
Many planners say they are signing contracts that give them stock options in exchange for book ownership, but the agreements tie them even closer to the company. “We got stock options but we’ve had to sign over ownership of the book in exchange,” says a Dundee Securities Corp. planner. “Not sure if I was to leave what would happen, but I ain’t gonna try it.”
Some of this is in anticipation of the new self-regulatory regime, when the Mutual Fund Dealers Association kicks in. The Canadian Securities Administrators in its distribution committee report recommended the MFDA follow the Investment Dealers Association of Canada’s lead making the firms responsible for the activities of salespeople. This regulatory insecurity has opened the door for a number of firms to push for greater control of the rep’s book.
Berkshire executive vice president Kris Astaphan says this year’s top-ranked company has no intention of tightening the reins. “We pride ourselves at Berkshire on having a no-contract policy with reps,” he says. “To the best of my knowledge, our reps are free to stay or go, and it is up to the client whether they want to stay with us or follow the rep. Our philosophy is not to tie a legal noose around the neck of the planner, but rather to make conditions within the firm so attractive that reps will choose to stay with us.”
But even the Berkshire reps are noticing that change is afoot. “The industry is becoming more restrictive — and it’s pushing some planners out of the business,” says a planner in Hamilton.
Apart from dodging non-compete contracts, planners on the move also face increased costs. Fees to transfer accounts can go up to $100 a head for self-directed RRSPs. There’s also the problem of the time it takes to move, and what happens to the business in the interim.
Making the escape
“I moved Dec. 8 and my accounts still aren’t straight,” says a planner who has joined Berkshire in Nanaimo, B.C. “The clients are in limbo, and I’ve been pulling my hair out.”
Some planners jump ship to escape hassles.
A W.H. Stuart Mutuals Ltd. rep in Western Canada says he is leaving the company because of repeated conflicts with a manager.
“It has gotten to the point at which I don’t send anything to him to be signed off any more,” says the advisor. “I send everything to Toronto. He’s not incompetent, but he will go away and not sign off the trades I send him. Nobody takes responsibility. and he won’t keep trade logs either. It’s time to go.”
Most planners who have made the leap are happy they’ve done so.
“I just left Investors Group, which litigates with people to no end,” says a newly minted Berkshire rep in Montreal. “There was no sense of ownership, no sense that you are your own boss. Berkshire is great from that perspective — you are free to join, free to leave and there’s no contract.”
“I came from Investors Group, where all you sell is in-house funds,” says another Berkshire planner in southern Ont. “I make it a matter of principle not to sell them here. They do have in-house funds, but there is no pressure to sell them whatsoever.”
Despite contracts, the promise of stock options and fees for transferring accounts, planners who have actually made the leap seem glad they did. And it appears that anyone who is thinking twice about making the move may want to do so before the contractual walls stack up any higher.