Consolidation among small dealers is increasing as compliance standards and costs continue to rise. And that, along with a keen desire to grow the business, are the major reasons behind Markham, Ont.-based mutual fund dealer Equity Associates Inc.’s recent acquisition of Halifax-based Legacy Associates Inc.
Legacy is a boutique firm with a business model similar to Equity’s. However, Legacy’s founders no longer wanted to be bogged down with compliance and administrative duties, says Bob Goodish, Equity’s chairman and CEO.
“A lot of people say that small dealers can’t survive because of compliance, but I don’t believe that,” he says, noting that although running an effective compliance and administrative department is labour-intensive, it is not impossible.
In fact, in the six years that Equity has been in business, it has thrived. Goodish launched the firm in 2004, and within six months he had 20 advisors on board. Now home to 115 advisors, Equity will add 35 more as a result of the Legacy acquisition, bringing its assets under management to $1.8 billion and its client base to 40,000.
Equity, which has offices in Ontario and Quebec, is now able to expand into Atlantic Canada, adding offices in New Brunswick, Prince Edward Island and Nova Scotia through the acquisition.
“Both firms have very strong synergies,” Goodish adds. “I don’t think you can find two other dealerships in Canada that are as advisor-centric.”
Equity’s secret is in its business model, Goodish says, which allows advisors to receive 100% of their gross commissions in exchange for a flat monthly fee of $1,500. The fee doesn’t increase as an advisor’s business grows, and all Mutual Fund Dealers Association of Canada and regulatory fees are charged back at cost. Equity’s advisors also purchase ownership in the firm and become partners; therefore, each advisor will receive dividends on their shares from profits of the company.
Goodish has been a longtime proponent of the flat-fee model. In 1995, he founded FundEx Investments Inc., also of Markham, one of the first flat-fee firms in Canada. “That is a testament to the flat-fee model,” Goodish adds, “and that it is a viable one.”
Goodish’s goal is to bring 100 more advisors to Equity, which would bring the firm to a total of 250 — a number Goodish says is large enough to be profitable but small enough to keep the original vision of being a small boutique with shareholder power. “This firm is all about the advi-sors and building a firm for the advisors, not building it for the suppliers or for resale value,” says Goodish. “We are very advisor-centric, and the size of the firm allows us to maintain a close-knit relationship with each partner.”
The cap of 250 advisors, he says, will allow each advisor-partner to retain a predictable stake in the firm. It will also ensure the long-term value of each partner’s equity. Over time, Equity will develop a waiting list for advisors looking to acquire existing partner’s assets, thereby providing a succession plan for those looking to retire. “With so many consolidations going on in the industry, we want to assure our advisors that they have ownership in the firm,” says Goodish. “If [management] wanted to sell the firm, 75% of the shareholders would have to agree. I want to be able to offer advisors the stability and control they need and guarantee we are not going to sell the firm out from under them.”
Goodish believes that this is one of the most successful models in the mutual fund dealer world. He says dealers can get crippled on a variable model, as they can end up holding a high number of licensed individuals who have below-average production levels; this causes the firm to lose money and, in the end, have to consolidate or sell.
“We are the only dealership,” he says, “that allows reps to have control over who owns the dealership and know what is happening.” IE
Equity acquires Legacy
Purchase of Halifax firm allows small Markham, Ont., dealer to keep growing
- By: Clare O’Hara
- February 8, 2010 February 2, 2019
- 10:23