Advisors are switching firms with the promise of different compensation and the freedom to offer clients more objective advice.fizkes/iStockPhoto / Getty Images
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Many of Canada’s wealth management firms are shaking up how advisors are compensated and promoting other benefits of a smaller and less bureaucratic environment as they seek to attract talent.
At the major bank-owned dealers that dominate the market, advisors work on a grid model in which they pay a certain percentage to the house to cover overhead and access to the firm’s platform. That payout is usually around 50 per cent of their revenue. In recent years, independent dealers, portfolio managers, investment counsellors and family offices have lured top talent with more diverse compensation models, typically ones that allow advisors to keep more money in their pockets.
But it’s not only about money. These wealth management firms also offer potentially wider access to financial products and services, newer technology and the freedom to offer clients more objective advice.
“We have had explosive growth since we started almost six years ago, built on attracting highly qualified, established advisors,” says Colin Ryan, senior portfolio manager and senior wealth advisor with Wellington-Altus Private Wealth Inc. in Winnipeg, which has $25-billion in assets under management (AUM).
Mr. Ryan joined the firm after working many years for a major Canadian bank-owned brokerage. Some advisors who’ve come from larger financial institutions may be motivated in part by the opportunity to keep a larger share of the fees they generate from their client assets under management.
That’s not the only appeal. To Mr. Ryan, advisors also don’t face the same bureaucratic impediments they may have encountered at larger organizations, which can hinder their ability to provide objective advice.
“Clients are smart, and can see when a conflict of interest can arise at some of the large, multi-divisional firms, where they may not be able to access the best product to suit their needs,” he says.
In contrast, Wellington-Altus has no business arm that’s building and selling investment products that must be marketed to clients and can be partially tied to compensation models.
“Rather, we get compensated for doing a good job for our clients,” Mr. Ryan says.
That can be attractive at a time when advisors are in high demand. A report from the Ontario Securities Commission’s Investor Advisory Panel published in June 2021 notes that upcoming retirements in the sector, coupled with declining interest in the career, is creating a looming advisor shortage.
While wealth management firms keep their cards close to their chests regarding the details of their compensation packages, their models typically exist on a spectrum, says Jason Pereira, certified financial planner and senior partner with Woodgate Financial Inc. at IPC Securities Corp. in Toronto.
“On the one end, the dealer is more of a service provider, and at the other, the dealer is more of an employer.”
He says bank-owned brokerages and other large dealers are more like employers. The advisors run a book of business and pay 40 to 50 per cent of the fees they receive for advising clients. At the more entrepreneurial, independent advisory firms, advisors are responsible for human resources and other administrative needs, while paying about 15 per cent of fees earned to a provider for access to trading services and related needs.
The drive to attract talent could soon see Canada’s industry mirror a model emerging in the U.S. called a turnkey asset-management platform (TAMP), Mr. Pereira says.
“Those models charge basis points to the client accounts based on size. All of the costs associated with being with that dealer are wrapped up in that fee as well as a number of trades and account fees,” he says. “That has really only been done under portfolio managers that I have seen thus far in Canada.”
Even among licensed portfolio managers, no compensation model is exactly alike, says David Baskin, chair of Baskin Financial Services Inc. in Toronto, at which salaried portfolio managers can earn year-end bonuses that amount to as much as 40 per cent of their salary.
Mr. Baskin says the structure is attractive as it allows its advisors to focus on clients instead of being pushed, as they often are at larger firms, to meet growth quotas and sell proprietary products. He notes how one of the firm’s newest portfolio managers, who joined from a bank-owned operation, “was unhappy with the eat-what-you-kill model.”
Overall, the pressure to grow revenue is less for discretionary managers than securities-licensed advisors, Mr. Baskin adds.
Yet, he says many of the good securities dealers are now more like his firm, where clients pay a fee for service rather than commissions per trade or embedded in the funds they hold.
Therein lies the recipe for attracting top advisors – better compensation aligning with client needs, Mr. Ryan of Welling-Altus says. “Money is important, but for high-quality advisors, it’s the last thing.”
Rather, he points to elements like the ability to have a growing ownership stake and the promise of more freedom and independence to do right by clients.
“It’s really a breath of fresh air to be unshackled and work with a firm that truly has the best interests of advisors and their clients,” Mr. Ryan says.
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Editor’s note: An earlier version of this story had stated Wellington-Altus Private Wealth has more than $20-billion in AUM. This has been updated to $25-billion in AUM.