Their Way or the Highway – Life in Brokerland.

“If you gaze long enough into an abyss, the abyss will gaze back into you.” – Friedrich Nietzsche

There has always been a simple truth in brokerland; those that worked hard at gathering client assets and deploying them wisely would succeed very well. The current complexities involved in living that truth are widely varied and very substantial.

A long, long time ago and in a very different place I was present when the walls came tumbling down within the finance industry. I distinctly remember my chairman, the late J. Howard Hawke, upon learning that the walls and pillars separating banking, trusts, brokerages, etc. had collapsed, looked out at the future to come: “Well , I guess everyone can do whatever the hell they want from here on”. It seemed like a heartbeat later that the banks had scooped up the likes of Dominion Securities, McLeod Young Weir, Burns Fry/Nesbit Thompson, Wood Gundy and later others through additional acquisitions. In that heartbeat the guts of the brokerage business disappeared but, it would be decades before the bankers really got the control and direction they wanted. That day has now arrived.

What is critically important in today’s market is that investment advisors recognize the change they are under and, if able, adapt to the change OR change course themselves before someone changes course for them. The intensity of performance expectations within the “A” segment (banks) of the business has and is driving and raising asset and revenue bars to levels that clearly outline their endgame. While the asset factor in all forms remains essential to the IA’s success it is the targeted HNW clients and their assets that are wanted and coveted by the big dealers. Not ‘desired’ but, wanted and expected! The calculation of A.U.M. by H/H (households) is giving way to specific targets as in, say, $250,000.00 being the new per account standard. The day is fast approaching where clients under that mark will be invited to do their business elsewhere along with their broker.

The accompanying revenue or production targets will follow suit at a similar pace where the “magic” number for payout survival will be tagged at $500,000.00 in the not-too-distant future. And, in addition the fundamentals include serious consideration for the type of assets, revenues and business styles conducted and the internal platforms on which the business is operated upon. In other and simpler words it is like this:

– “They” want and expect to manage HNW clients

– “They” expect their I.A.’s to follow suit and adapt to revenue and asset standards that are set

– “Their” compliance standards will be in lock-step with those targets (quality of business style)

– “Their” costs and profitability will be determined by the brokers adhering to asset/revenue standards as will operating their business on fee based and managed platforms.

– “Their” culling process will include the dramatic lowering of payouts for those not achieving the targets and for business practices not considered to make the liability cut line.

– “They” are not relying upon a nickel and dime control philosophy any longer, they’ll simply hand out pink slips to the ‘undesirable’ as they walk through the door in the morning.

So, back to the “complexities” as mentioned in the opening of this dialogue. A good number of us have seen this coming for some time but, like our aversion to succession planning we seem to block out the inevitable as if it is someone else’s issue to deal with. Well, that “inevitable” is here and it will cause a tremendous amount of trauma and pressure for those A-Sector brokers who will not achieve the revised standards to come. The harsh reality of the expectations of the large firms will reflect the well-being of the IA’s family and will cast a pall of doubt over one’s ability to succeed in the business to say nothing of the appreciation of one’s worth and character. The fences in the field pose obstacles to many of today’s brokers but, their restrictions will yield bumper crops for those who built the fences. The servicing of HNW clients by HNW brokers means there will be less of each and less costs in managing both by replacing the person in the corner office with a regional compliance officer.

Dark days ahead for IA’s whose clients don’t make the asset cut-off grade? How do you balance the merits of keeping a long term client with $100k in AUM with a 20% payout or worse, not getting paid at all ! How does one justify maintaining a transactional business when the increasing oversight of the compliance gods will direct the broker to acquire a P.M. designation? Score one for control of risk and revenue. Dark days indeed and getting darker BUT, there’s always a light somewhere. While considering the reality of achieving the ever-increasing standards laid down by the large institutions in a shrinking time frame the investment advisor operating a healthy, quality and hard earned business with a loyal and trusting clientele SHOULD and MUST consider the alternatives.

– Fully supported IIROC firms offering a Principal/Agent operating model – Medium sized institutions offering an independent correspondent network model

– Smaller a/o emerging IIROC firms offering business style flexibility

– IIROC firms offering a single operating model

– ICPM models

All of the above offer a wide variety of operating platforms suitable for most practices. The investment advisor of today regardless of his/her position in the business can flourish in their endeavour to build a healthy practice in a flexible environment offering greater control over client ownership and earnings potential. Here’s the simple but, tough love message – if you didn’t see this coming then you can’t see the forest for the trees; if you’re all alone in the middle of that forest no one will hear you when you scream for help.

I can hear you and I can help you. Don’t just sit there; get up and take control of your life. Call Me.

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