With regulatory and compliance costs mounting, some long-time mutual fund dealers say it suits their strategy to migrate their advisors toward the Investment Dealers Association of Canada platform.

“We’re seeing the switch,” says Chris Reynolds, president of Mississauga, Ont.-based Investment Planning Counsel “As a corporation, we have no preference whatsoever. But for advisors who want to take their clients to the next step, they need the IDA platform.”

Advisors must choose between the IDA or the newer Mutual Fund Dealers Association, as they can hold membership in only one. An increasing number are weighing the costs and benefits of the two self-regulatory bodies and choosing the IDA, Reynolds and other industry executives say.

The argument given by many is that advisors who want to prepare themselves for meeting clients’ complete needs should consider the IDA platform. It allows advisors to provide more products and services to clients — especially high net-worth clients who may want access to discretionary asset management.

“The IDA offers all that, plus securities, options. It’s a much broader suite of offerings,” says Joe Canavan, chairman and CEO of Toronto-based Assante Corp. , at which more than half of the advisors are on the IDA platform. “The reason that’s important is that some clients are more sophisticated than others. It’s different than it was 20 years ago, when clients were shifting from GICs into mutual funds.”

There is no alternative for advisors, Reynolds adds: “You’re either there, or you’re not.”

It can be argued, of course, that not all advisors need to be licensed for securities. After all, more than 90% of Canadians’ equity investments are in mutual funds, and this is the cheapest way to provide diversified and risk-managed investments to the greatest number of people. For the great number of advisors who put clients into mutual funds, an IDA membership adds little value.

As well, any advisor in the country can forge a relationship with an IDA member to provide additional services to his or her client, just as he or she might foster relationships to provide legal or accounting services. That system is in effect in every financial services shop across the country, including IPC.

But it may not be the ideal solution, argues Reynolds: advisors don’t like losing control of the assets, or their clients’ choice.

Costs are part of the equation for the individual advisors, but also for the mutual fund dealers at which they ply their trade. For the advisor, the MFDA’s monthly fee per $1 million in assets under administration continues to creep up relative to the IDA’s.

At Assante, for example, in 2005 an advisor at the firm’s IDA affiliate pays $35.75 per month per $1 million in AUA, a rate that is down a few dollars from the previous year.
The comparable MFDA fee is $95, up from $75 in 2004. The rate for the MFDA’s investor protection contingency fund has increased, as well.

“In theory, the two fees should even out, but so far [with the MFDA] every year the fee has gone up,” says Reynolds, noting that MFDA start-up costs and smaller membership probably contribute to the difference.

Some regulators, including Randee Pavalow, director of capital markets at the Ontario
Securities Commission in Toronto, have argued in the past that duplicate regulatory functions may be helpful, that they foster a sense of competition among regulators, and that their “clients” — the dealers — will seek out the best among the regulators.

But from the perspective of the firms registered with both regulators, efficiency and costs are a concern. Duplicated legal, accounting and sometimes back-office and clerical costs could, at the very least, be reduced and the savings passed on to investors.

From the investors’ perspective, Canavan says, research in both Canada and the U.S. shows most people are beginning to prefer fewer rather than more financial relationships.
They tend to want one bank, one wealth-management advisor and, possibly, one accountant, he says. So advisors are best served to provide as many services as possible to their clients or those clients will seek to consolidate their accounts elsewhere.

Bob Levis, a director and senior vice president of investment banking and corporate development at Berkshire Investment Group Inc. in Vancouver, says the Burlington,
Ont.-based company has made it easy for advisors to switch to the IDA platform, partly because it suits the firm’s business strategy. Berkshire has offered share options to most of its advisors and, Levis says, as its new-issues business grows and investment banking fees grow, “Berkshire could have real financial value in the next three to five years.”

@page_break@“You’re going to see our name [in investment banking deals] more and more,” Levis adds.

In addition to seeing some of its own advisors migrate to the IDA platform, the firm’s strategy is to attract advisors who are interested in making the transition. “In the past, advisors have thought of Berkshire as a mutual fund firm, or even a firm to generate sales
for AIC Ltd., but we’re fairly committed to building the full-service side of the business,” he says.

From that perspective, firms such as Assante, IPC and Berkshire stand to retain a greater control of IDA assets that are held under the firms’ names than they do under the MFDA, at which accounts are typically under the client’s name.

But Levis stresses that the migration has been “bottom-up,” driven by advisors’ need to build and diversify their businesses. He says it works because there’s less suspicion about the firm’s motives among clients “especially with regard to the investment banking side.”

Still, the issue is one for the entire industry, even those with no corporate strategy to expand platforms. David Vowles, president and CEO of flat-fee service provider FundEx
Investments Inc. , based in Markham, Ont., says the firm has “seriously” considered introducing an IDA platform. It has no definite plans to do so, but if the Canadian regulatory landscape starts to change, FundEx has a sister company in Industrial Alliance
Securities. “That gives us some comfort,” Vowles says.

It’s generally agreed that in a better world, one national regulatory body would oversee all of the financial services, yet years of inter-provincial and other parochial squabbling has kept that from happening. Somehow, as the financial services channels start to look more and more like each other, insular industry associations and self-regulatory organizations are viral.

The Canadian Securities Administrators has initiated a wholesale review of self-
regulatory systems, and most agree that duplication is bound to be a topic for discussion.
It’s conceivable that the IDA and the MFDA could one day be forced into an arranged marriage if they can’t get together on their own, as suggested by the IDA at its annual conference in Banff in June.

“We want to become the best IDA home for financial planners,” says Levis. “So, if for some reason — if it’s driven either by the regulators themselves or by competition — if the MFDA isn’t there, we have the technology in place to make sure it’s easy for advisors to make the switch. IE