To IIROC or not to IIROC? We put the question to three successful advisors with three very different approaches, and got some great answers.
Bruce Vaillancourt, CFP, CSA, Senior Financial Advisor, Vaillancourt Wealth Management/Manulife Securities Inc.
Bruce Vaillancourt was an MFDA advisor before he moved to IIROC. In the first year after his move, his book of business grew by 62%—up by $10 million. Part of the reason was his newfound ability to sell individual stocks. And the quick spurt in growth affected his attitude as well: “My confidence level went up because I was able to offer what clients wanted. Earlier, in the back of my mind it always bothered me that I couldn’t offer certain investments.”
While under the MFDA umbrella, Vaillancourt’s clients often asked if he could offer them individual stocks, and he had to deal with repeatedly saying no. “Today’s investors are a lot more knowledgeable, so they’re getting more inquisitive and they want newer investment choices. The MFDA restricted my options,” he says. The limitation was compounded by the fact that he often noticed IIROC advisors seemed to have larger books of business, and higher incomes. So he decided it was time to move.
The results were instant and heartening. “I now had access to the capital markets division of Manulife Securities – Berkshire Securities back then. It opened doors to new-issue business – initial public offerings, secondary offerings, and structured products -unavailable to MFDA advisors. I also had access to individual stocks, and in-depth research on those issues and the exchange-listed stocks.”
Despite switching sides, Vaillancourt still has friends who are successful MFDA advisors. And he says he too is still a planner at heart. “I focus on building great relationships and providing excellent advice. It’s important for me to understand each client’s situation and goals, and recommend investments that fit those goals, while regularly monitoring the plan to keep clients engaged and on track.
“I’ve kept my perspective. I haven’t become a stock jockey. I still do a number of things quite the same way I did them under the MFDA banner, but I’ve added a lot of new issues, and now have clients invested in individual stocks and stock-only accounts. You want to have those arrows in your quiver.”
Further, he admits mutual funds are still the largest part of his business and probably will remain so.
The big benefits of the move have come from his ability to attract referrals, and transfer in clients dissatisfied with other IIROC advisors. “I’m now able to move those accounts over in kind, without having to redeem the stocks,” says Vaillancourt. “Before, I would have to bring it all over in cash and that would incur costs to the client.”
He adds the quality of referrals – especially those coming from chartered accountants – has vastly improved: “Often these clients have very large accounts, and in most cases, they already have stocks in their portfolios.”
Even though most clients aren’t really aware of the differences between the two platforms, Vaillancourt says he’s received many more referrals to high-net-worth clients after moving to the IIROC side. “The high-net-worth clients, in general, seem more knowledgeable, but even those who aren’t are asking about alternative investment possibilities. They’re tuned into the news and the media’s all over it.”
Vaillancourt’s also seen tremendous support from his dealer because there are many more products and issues to choose from. A whole new division has become accessible to him – Manulife’s capital markets division in Vancouver, which deals specifically with new-issue business. A lot more research is also available. “We can bring that to our clients and offer products with a higher degree of confidence.”
Vaillancourt is also impressed with the level of education the Canadian Securities Course offers. “It is more expanded for IIROC.”
The flip side
The only disadvantage of moving to IIROC, Vaillancourt says, is his inability to incorporate his practice. “I can incorporate on the insurance side, but as far as the investment side goes, I’m not allowed. I have to have the commissions paid directly to me. It makes a big difference to tax planning while I’m in business and also when I wish to sell my practice sometime in the future.”
That, however, wasn’t such a big consideration when Vaillancourt was planning his move because he felt the opportunities of being able to offer additional products and bring more value to his clients outweighed any disadvantages. “That was more important to me.”
While Vaillancourt refrains from commenting on whether the industry on the whole favours the IIROC advisor, he does agree most dealers would like advisors to move to the IIROC platform.
“I think it’s all going to be IIROC sometime in the future. It should have happened a long time ago. Even if it means just one SRO as opposed to two, I think mutual-fund-licensed-only advisors should be allowed to continue under IIROC. Down the road, I think it will happen.”
Harry James, CLU, Ch.F.C. President, HJF and Senior Financial Advisor MGI Wealth/Harry James Financial.
At one point in his career, Harry James very seriously considered moving over to the IIROC platform. “It was prompted, in part, by a general buzz around the industry—a subliminal message—that if you’re not IIROC-licensed you haven’t yet arrived.”
When James went to conferences, spoke to people or read magazine articles by the talking heads, everybody, he felt, seemed to refer to an IIROC registration as an upgrade and MFDA advisors appeared to be looked at as the poor cousins.
James admits his competitive side was swayed by that viewpoint. But in the end, he resisted the urge because he felt that after determining transition costs of approximately $200,000 for a move within the same organization, it would be an expensive and disruptive transition, and would lead to a more transaction-driven business that could detract from his core value, comprehensive advice.
IIROC for the image-conscious
As his practice matured and evolved, James made a serious assessment as to what platform would be best suited for the type of work his team does. In the end, he decided the MFDA platform worked just fine. “We realized we were general practitioners—wealth planners. We were in the advice-dispensing business; whether cash flow, risk management, life insurance, retirement or estate planning. We couldn’t run a comprehensive planning practice as well as be proficient stock pickers.”
Having built a practice of 800 clients and $150 million under administration—”not huge by any stretch, but certainly a respectable size” – James claims he hasn’t lost any significant amount of business as a result of not being on the IIROC platform.
“I’m not for a moment suggesting the MFDA side is the be-all and end-all, just that for the type of clientele we manage, we certainly don’t leave any gaps in our capabilities.”
James does, however, find that a lot of advisors make the leap from the MFDA to the IIROC platform because it sounds more impressive.
“I find it fascinating – I don’t have hard statistics to back it up – but whenever I have breakfast with a good friend of mine who has a significant practice, I find about 85% of his IIROC practice is exactly what I do but he receives less compensation for selling mainly the same product line. He’s admitted one of the reasons he went to the IIROC side was the perception; the window dressing. He didn’t want to have to say to a client, ‘Hey, I can’t do that.’ He’d rather say, ‘Yes, I can do that, but here is why you shouldn’t.’
And James says he isn’t sure this friend is the only one who shifted over to IIROC for that reason. “Often in our industry, I think many advisors worry too much about image, as opposed to thinking about what the client wants or needs.”
In his 48 years, James says he hasn’t met a single person who can’t handle winning. It’s in the dire times, he says, “When CNN is calling for the world to come to an end that human beings, regardless of their backgrounds and educations, tend to overreact and panic.”
James suggests advisors fall into one of three categories – MFDA planning and managed-money-oriented; IIROC planning and managed-money oriented; and IIROC transaction-oriented. Each of these types plays a distinct role in providing advice and service to the investor.
By choice, James was quite sure he didn’t want to manage people’s stock and bond portfolios. So he decided not to become a transaction-oriented advisor. “We wanted to pass the baton of professional money management to people who have the additional proficiencies, enhanced research and education. If you’re a doctor, I don’t think you can run a family practice and be a brain surgeon at the same time.”
James says as general practitioner, his role is to interview the managers and make sure they aren’t just walking pamphlets. “I want to ensure they’re staying true to their prospectus and their mandates. That’s our skill set: to manage the managers on behalf of our clients and make sure there are synergies between their objectives and the portfolios they’re putting them in.”
IIROC is no adversary
Despite the self-sufficiency the MFDA allows James, he does acknowledge the importance of the IIROC platform, and says for some clients it is exactly the right one to be on.
James makes sure he offers full disclosure of the services he can provide to any prospective clients. “It isn’t unusual for me at a job interview (that’s what we call our first meeting with a potential client) to assess very quickly that it’s not a good fit. The expectations for clients may be more in line with the IIROC side. They may want somebody who brings different products – ETFs or flow-through shares—to the table.” He notes some of his friends on the IIROC side say they’re not interested in doing the level of planning that his organization does, placing them into the transaction-driven advisor category. “They are less focused on finding out if clients want to take a vacation, or assist with their mortgage, life or disability insurance, or taxes, but rather prefer to invest time studying investments,” he says.
Still, there are times when James refers prospects and clients to the transaction-focused IIROC side of the business through his affiliation with MGI Securities. “I’d be doing a disservice trying to bring someone into my practice when he or she would be better served elsewhere.
“Many of the clients we’re managing also do their own equity and bond investments via discount broker relationships. While we certainly want to earn all of our client’s business, we understand that’s not always the best for them or us.”
Rich clients aren’t an IIROC monopoly
While it’s true IIROC advisors tend to attract a lot of high-net-worth clients due to their enhanced product offerings, James says he too manages to attract a good number of wealthy people. “Many of them (maybe I’m dealing with a unique handful) are very comfortable with the MFDA offerings. I’ve met a lot of entrepreneurs and multi-millionaires who like to stick with what they know. I find they are very comfortable with managed money.”
So who should move to IIROC?
Advisors who feel they need to offer their clients a wider choice of investment products and services without limitation due to registration with the regulator should consider transitioning the change.
“Some IIROC investment advisors may be a clone of the MFDA advisor with more choice; others may wish to become more transaction-oriented and take an active role in the day-to-day management of the client’s portfolio,” he says. “Those who choose to stay on the MFDA platform may simply wish to have a relationship, like we do, with a professional IIROC advisor who deals directly with the client for their transactional needs.”
When James meets with prospective clients for the first time, he likes to set expectations about his team’s background, education, proficiency, core strengths and limitations. “What we do well and what we don’t do at all.
“We make it clear we don’t do individual stocks, individual bonds, flow-through shares. If that’s the type of products a prospective client is interested in, it’s probably not a bad idea for him or her to interview two or three different advisors because there might be a better fit elsewhere.”
James says true financial planning comes down to cash flow and net worth. If you’re getting all excited because you received a 32% rate of return on your investment, but your net worth went down by $100,000, you have to step back and ask yourself if you’re going in the right direction.
“On the other hand, if I can lessen somebody’s debt burden and free up $1,500 a month in cash flow, or if I can show them, from a tax plan and estate plan perspective, that I can get a product in place that will pay for their estate planning and capital gains tax for pennies on the dollar, how much is that worth to them?”
James notes you can’t manufacture chemistry. “The only way to determine if there is a good fit is to sit down with prospects and get a feel for them—where they’ve been, where they are, where they’re trying to go,” he says. “We make sure there’s a good foundation and expectations are aligned for a long-term relationship.”
Fewer than 2% of James’ clients have gone over to the IIROC platform because he couldn’t give them what they wanted.
“That’s because we do a very thorough job of making sure clients live today—do the things that are important for them like take a vacation, enjoy their families and have some balance in their lives. Our clients know we’re in the advice-dispensing business and are here for the long haul. Anybody looking for fancy, complicated products is going to know after our first meeting that our firm is not the place for them to be. We don’t try to be something we’re not. However, we will refer them to our IIROC partner.”
Before joining MGI Wealth, James worked with Dundee for many years; and it offered both platforms. Speaking from that experience, he says if a firm is committed to the business and has the technology and expertise, both will do equally well by clients.
Ultimately, an advisor needs to back away from the IIROC or MFDA discussion, look in the mirror and ask, “What business am I in?” or “What value proposition do I bring to the table?” The answer to those questions will make it clear which platform the advisor needs to plug into in order to deliver. The key is to get focused on clients and what they need. “It would be so much better if we aligned ourselves to the platform that made the most sense for our vision, aspirations, proficiency level, educational background, and ultimately what’s best for the clients we have the privilege of serving,” he says.
James reiterates his choice to stay with the MFDA side is based on the fact that he’s able to do everything he needs under his current platform, without compromise. And he can partner with the firm’s sister company for additional product for certain clients. “Just because you have the ability and means to convert to the IIROC side doesn’t mean you should,” says James. “At the end of the day, I enjoy helping clients meet their financial planning and lifestyle goals.”
Ted Rechtshaffen, President and CEO, TriDelta Financial
While James and Vaillancourt battle it out for MFDA and IIROC, Ted Rechtshaffen, president and CEO, TriDelta Financial, says he needs neither. “We’d rather work with a discretionary investment counsellor rather than become IIROC or MFDA-licensed,” he says.
Rechtshaffen doesn’t consider mutual funds good for most clients. “Therefore, I think the MFDA platform is not suitable for everyone. We basically work with the client on a planning perspective. We make sure the plan and investments are working in alignment, as opposed to independently, but we rely on the investment counsellor to buy and sell individual securities. That essentially means our only concern is finding the best solution for you, not pushing a particular product.”
Relying on third-party professionals also allows him to put a buffer between clients’ emotions and their money. “It’s a lot better than a panicked client saying, ‘I need you to sell my stocks today,’ and the advisor having to do it.”
Rechtshaffen considers this investment outsourcing approach to be most effective for his type of client—$500,000-plus in investable assets—as it allows a professional manager to handle the money.
“Holistic financial planning is what we do. We look at every piece of the financial puzzle; investments are a part of it but usually they are not the first things we look at. We look at net worth, expenses, cash flow, taxes and pensions. We also look at age, health, dependent parents and kids when trying to build a model. We strive to get the model as reasonably accurate as it can be, for the rest of our clients’ financial lives.”
His firm gets to the investment part too, but it doesn’t come first. Instead, asset mix and tax planning are key and he works with clients to understand what their asset allocation should be, and help in terms of tax perspective by aligning what makes sense on the non-registered side.
After covering the planning process, Rechtshaffen refers his client to a discretionary investment counsellor. “We’ve covered what we can cover, the investment counsellor comes next with the connections and the expertise to squeeze that extra percent and a half or achieve the best return with the least risk.”
The counsellors pay Rechtshaffen’s firm a referral fee. “It allows us to fire the investment manager if he or she isn’t delivering what we think they should be delivering or if we feel there’s a better investment option.”
When it comes to picking counsellors, Rechtshaffen prefers to work with somebody small or mid-sized. “In our experience, very large firms tend to be rigid in terms of how they manage money, and they tend not to have good partnerships with financial planners. We like to choose a firm that has significant experience and connections on the street. It needs to be a service-oriented firm.”
If a client’s not happy with a manager for legitimate reasons, Rechtshaffen’s firm is committed to hooking them up with another manager.
Rechtshaffen charges clients for the planning process. “We do a financial plan for a fee—typically $2,500. We refund the financial planning fee if someone decides to work with us long-term.”
Rechtshaffen’s firm also has an insurance brokerage arm and a mortgage brokerage arm. Depending on the client, they’re referred out to investment counsellors after as little as two meetings or as many as 10. Think of it as a visit to the family doctor. The advisors do a thorough checkup and then refer clients to related specialists.
“Our planners work with clients to help them reach their dreams by building a plan with them. They have strong knowledge across investments, insurance, debt management, estate and tax planning,” he says. “But despite this knowledge, it is impossible to have the same depth as someone who specializes in one of these areas. So we partner with leading specialists to deliver our clients the best solutions.”