Planners may be the new cowboys on the ever-changing frontier of the Canadian wealth-management industry.

Any number of personal and professional preferences will drive an advisor toward the investment dealer or the mutual fund dealer world, but there are some marked tendencies, as indicated by the numbers gathered in this year’s Report Cards.

More and more it is planners, traditionally the poorer cousins of the full-service bank-owned brokerages, who see themselves as having more freedom to define themselves financially and the independence to service their clients in the matter they see best.

Independence is defined differently by each of the mutual fund dealers, which claim it as their “unique value proposition.” But what doesn’t change is that planners tend to rate freedom higher than the brokers. And when Investment Executive asked planners what the best thing about their firms was, freedom of one sort or another was the answer. “The autonomy to run my business the way I want,” says a Manulife Securities International Ltd. advisor. “Freedom of choice,” says a FundEx Investments Inc. advisor. “The freedom to be independent,” adds an advisor from Worldsource
Financial Management Inc.

Maybe the one common element in planners’ “freedom” is perceived financial independence. On average, planners rate their compensation higher, at 7.8 vs brokers’ 7.6 — and payout is generally higher, even though gross revenue may be lower. And while every advisor hates chargebacks, brokers tend to be more irked about them: on average they rate chargebacks at their firms a 6.3, while planners give their firms a 6.9 rating.
These are small but important differences.

David Vowles, president and CEO of Markham, Ont.-based FundEx, says that, in the end: “Money is what drives a lot of human behaviour.

“Whether it be in the mutual fund business, the stock business or the retail hardware industry, people tend to be driven by compensation,” he says. “So because a mutual fund dealer tends to pay out a higher percentage of commission, because it doesn’t have to support the cumbersome infrastructure of a brokerage, it becomes more attractive to some individuals.”

FundEx consistently ranks No. 1 or No. 2 when it comes to planner compensation because it pays out 100% of commissions and charges a monthly flat fee to advisors under its umbrella for back-office and regulatory services. The advisor is responsible for the costs of ongoing education, office rental and all other business expenses.

The idea that planners may be more nimble financially than brokers is one that carries over onto another hot topic in today’s market: succession planning. One Western CIBC Wood Gundy broker looking to buy a book of business says brokerages tend to pay out a simple percentage of the advisor’s book when he or she retires. Planners often can sell their books to whomever they like, at higher multiples of their income stream. The book becomes part of the retiring advisor’s nest egg.

“I haven’t compared valuations side by side with the brokerage industry,” says Chris Reynolds, president of Mississauga, Ont.-based Investment Planning Counsel. “But on the independent side, in geographical pockets, books of business are going to high multiples because the barriers to entry rise every year.”

Meanwhile, the brokers may enjoy being coddled by the banks. In several less tangible categories, they blow the planners away. They are especially appreciative of the strong corporate and strategic energy their employers lend their businesses, giving their firms a higher stability rating (8.9) than planners (8.4).

The brokerages’ image with the public scores 7.6, vs 6.6 at planners’ firms. This category goes hand-in-hand with consumer advertising, rated higher by the brokers; advisors at planning firms know their budgets can’t compare with those of the bank-owned firms’.
Another area in which the superior resources of the brokerage firms are keenly felt is sales support. Judging by the rankings, brokers get more support.

In fact, the comment from an RBC Dominion Securities Inc. advisor that “the firm has a great reputation and it will be here for the long term” is typical of comments from the Brokerage Report Card.

That sort of bank-owned power, brand and visibility is enviable — and takes consistency.
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 firm needs to “work on our brand” as it builds its investment banking business and moves the business toward being a full-service brokerage.

@page_break@“If we are going to build financial value in this company, we want our advisors to be proud of it,” he says. “It’s going to take time.”

There is a sense traditional brokers would like some of their financial freedom back. In some ways, the more a brokerage feels like a planning firm, the happier its advisors. The list of top finishers in the Brokerage Report Card is dominated by “independent” non-bank-owned firms such as Winnipeg-based Wellington West Capital Inc. and Dundee Wealth Management Inc. in Toronto. To boot, Raymond James Ltd. , also based in Toronto, is a brokerage with its roots in the planning world and its compensation structure shows that — it offers a whopping 85% payout.

Perhaps most telling of all, brokers at the perennial top-end finisher, Edward Jones, sit alone in their offices, free from corporate interference, reiterating the mantra of
independence. IE