What do you do when you work for an investment firm that doesn’t share your business vision? If you’re Mark Kent and the year is 1994, you round up a dozen or so top producers with a combined $120 million in assets under management and create your own dealer, Portfolio Strategies Corp.

The Calgary-based mutual fund dealer is now registered in five provinces, has 300-plus advisors and manages about $1.1 billion in assets. The firm’s next move is to beef up its presence in Ontario. Its goal is to attract the kind of advisors that fit the firm’s unique, franchise-like business model, which gives individual branches much of the control usually reserved for head office.

“We’re a different kind of dealer,” says Kent, 46, who remains at the helm. “I think one of the reasons for our success is that a lot of national dealers feel that if it’s not happening in Ontario, it’s not going to happen anywhere else.”

He laments, for instance, that many national dealers often prevent advisors from doing the kind of business they want to do because the dealers apply the provincial regulations for their head office to advisors in other provinces. “Here, we use Alberta rules in Alberta; we don’t use Ontario rules for Alberta advisors,” Kent says. “We’ve coined the phrase ‘compliance with common sense’.”

So far, it appears to be working. The firm has seen a 60% jump in AUM in about two years, with burgeoning offices in Regina, Saskatoon and Winnipeg on top of its core branches in Alberta and British Columbia.

Kent, despite his plan to break into the Ontario market, isn’t keen on advisor-targeted advertising or mass-marketing campaigns. Instead, he lets the firm’s budding reputation speak for itself.

“We get a lot of referrals from our existing advisors and mutual fund companies that find out what’s important to advisors and, if it’s a good fit, will say to an advisor: ‘Why don’t you give Portfolio Strategies a call?’” Kent says.

The decision to launch his own firm didn’t come overnight. After working for a handful of dealers in Ontario and Winnipeg in the late 1980s and early ’90s, Kent joined the only Calgary branch of the now-defunct Sutherland Investment Corp., based in Richmond Hill, Ont., to take on the role of vice president. Like many Toronto-based dealers, he says, Sutherland was too “centralized” in its thinking. Everything from processing a trade to ordering paper clips had to go through head office. Fed up, Kent joined forces with the advisors from his branch and hatched a plan.

“We decided that we wanted our own control in compliance and marketing and in how we presented ourselves and our practices to the public,” says Kent, who has since bought out his Sutherland business partners and is president of Portfolio Strategies. “It was time to present a strategy that was different from the competitors.”

The move meant shifting the wire-ordering processing duties to the branch level instead of patching them through head office, and opening an administrative office in Toronto to help process trades. Branch managers are responsible for bringing in new advisors, and overhead costs are covered by individual offices. Kent is also adamant about not making money on technology costs. The firm charges a $30-$60 monthly technology fee, and Kent refuses to mark it up to cover operating costs the way he says other dealers do.

He also wanted to offer a competitive compensation structure. Roughly 90% of the firm’s advisors are compensated on a traditional grid system, in which the payout is determined by a combination of gross annual commissions and book size. Each branch can set its own grid; advisors who have demonstrated a solid and clean administrative process take home 100% of their commissions but pay a $12,000-$18,000 desk fee plus regulatory costs.

“What we thought we’d do is give above-average compensation to the advisors in the branches, and they can decide how to spend their money,” says Kent. “So if they want to hold a client event or make a donation to charity in a corporate name, they can do it. I know it sounds kind of ‘apple pie,’ but it’s an important philosophy.”

In an environment of ever-increasing compliance costs, Kent is contemplating a hike in regulatory fees this summer. He says it’s not only a way to keep up with costs but also a way to attract the right kind of advisors.

@page_break@“We have a lot of good advisors that understand that the dealer has to be profitable to survive long term, and they don’t want to be in a position in which the dealer is going to have to cut corners in compliance to maintain profitability,” he says. “They want us to have enough time and money to be compliant.”

Most of the firm’s advisors are what Kent calls “entrepreneurs and self-starters” who are dually licensed to sell mutual funds and life insurance and have several years experience in the industry. Only about 20% have their certified financial planner designation. Kent estimates that 5%-10% of the firm’s advisors have come from the Investment Dealers Association of Canada platform, and they’re happy to be on a Mutual Fund Dealers Association environment.

“It’s an interesting situation,” he says. “The advisors who used to be with an IDA firm don’t feel they need to be any more; whereas the rookies coming in feel like they need more product on the shelf, and being IDA-licensed is the only way to do it.”

In an ideal world, advisors wouldn’t have to choose between the two platforms, Kent says. He considered developing an IDA channel several times in the past, but every time he did the math it worked out the same: the costs were unsustainable. If and when regulations permit, he would like to see the creation of a “super-SRO” with two tiers of licensing: one for full securities and a more junior one restricted to mutual funds, GICs and government bonds.

“We’re hoping to move to that system and still operate as one firm to keep costs down rather than creating another firm and duplicating all of our costs and expenses,” Kent says.

In the meantime, Portfolio Strategies offers no proprietary products and has formed partnerships with a number of investment-counsel/portfolio-management firms to provide fee-based relationships with high net-worth clients. Still, most of the firm’s 30,000 clients are middle- to upper-income investors and small-business owners.

“This is a very retail-oriented, focused firm,” says Jim Stevens, who joined Portfolio Strategies in a still to be defined role in 2004, following 16 years as regional director at the IDA. “It’s able to deliver a product and service at cost levels that the big firms can’t even imagine, including the large mutual fund dealers. It’s a tremendous opportunity for advisors and it’s a benefit to advisors. We’re keeping costs down and providing good-quality products and services.”

Another key difference, Kent says, is there are no minimum accounts at the firm. It makes sense in a market such as Alberta, in which the average earned income is $46,000 a year and growing.

“You don’t want to shut out the newer, younger investor by demonstrating that you’re not going to provide service for them,” he says. “I’m always pleased to see our advisors taking on the smaller clients.” IE