The Investment Advisor Survey Results Are In …

We asked 1,253 of your peers what they thought about the current state of our industry. Here’s what they said:

In November of 2017, the Curry-Henry Group sent out a set of questions to a widely diverse group of IA’s relating to the management of their business. The topics contained within the questionnaire were designed to create a picture of the conditions under which the brokers of today ply their trade.

Following are the 6 questions and the compiled and edited commentary from the respondent IA’s. While many respondents gave CHG permission to use their name and firm, I determined confidentiality for all would best serve the general purpose of the survey.

— Question 1 – Compliance/Administration

Is this element of the business becoming overly-restrictive and taking up too much of my or my associate’s time in my daily operation?

A small majority answered “yes” citing the process can be distracting while the overall purpose is to protect the firm from is brokers. Others reflected they had structured their business to comply/avoid the headaches in dealing with the compliance cops.

— Question 2 – Production and Assets Standards

Will this incessant raising of the bar stop @ $500,000 on $50/75M of A.U.M.?

Most respondents felt the revenue and asset bars would continue to rise especially at the bank-owned firms. Some of the side commentary was critically bitter over the firms’ increasing disregard for small producers and small investors while favouring the elite investor upon whom they could concentrate their services.

— Question 3 – Minimum Asset Standards for Clients

With many firms now or about to impose a $250,000 A.U.M. minimum with or without an H/H consideration, will you be able to weather the disruption to client relationships with or without a payout?

Surprising results! A strong showing on a good majority of the respondents who accept the reality of the standards for higher and better quality assets under management. The age old trend formed under the 80/20 rule are clearly in reverse as the IA’s of today view time and focus essential to their success. Only those brokers in the principal/agent side of the business felt unthreatened by the coming asset restrictions.

— Question 4 – Shifting Business Styles

The near-total firm focus these days on fee-based and portfolio managed platforms is bound to have an effect on the traditional part of the business. Are you going to be able to successfully shift your transaction business to the revenue stream the firm wants/demands?

The fee-based model has been long in coming and along with P.M. platforms on a slow upswing the argument for the inevitability of change is not in question. That is what the survey spells out; the IA’s will move in the direction of the trend regardless of the costs and control factors of the clients. The day of the romance of trading is seeing its last days.

— Question 5 – Payout Issues

With the issues of business styles, production standards and compliance demands it is (sadly) possible you could fall into a payout range where your net earnings will not sustain even a modest life-style. Under that (and other) consideration(s) do you see the principal/agent model offered by some major IIROC firms growing substantially in the future as an alternative?

With a sizeable (if not majority) of financial advisors in the U.S. working in some form of an “independent” channel versus the wire houses it is surprising this trend (P/A model) has been and still is slow to develop in Canada. Half the respondents offered a positive picture for future growth, but the level of question marks and a lack of enthusiasm shades the industry reality in this country. Since “payout” was the issue in our business, perhaps I should have re-structured this question.

— Question 6 – Succession and Retirement Planning

A somewhat thorny issue in there is still a significant percentage of the aging IA population that has not faced the importance of this issue. Are you prepared to let your firm control this process whereby your financial interests and the firm/client relationships are not in your hands?

Split responses with tinges of inevitability attached. While some felt they had little choice in the matter the “independent” brokers felt very strongly about control. While the overall results seemed to confirm the issue of succession- planning wars still could be described as a work-in-progress between many IA’s and their firms I was very impressed by the strategic thinking offered up by a few of the respondents and I will post these under “other comments”.

— Other Comments

Some of these were well thought out while others were based on the industry’s tradition of “groan and moan”. A couple were quite revealing in terms of recognizing the totality of today’s marketplace and the realities that will need to be faced. Here are some actual comments which I felt offer some useful relevance to the overall discussion in succession planning and change (some editing applied).

“There is a conflict of interest when a firm declares you to be an independent contractor and yet limits who can bid on your business. The only leverage that the firm has is the concern about the privacy issues concerning sharing client information with a new advisor who bought your business”.

“One of the main reasons that I came to this firm from an independent was succession. The independents and specifically the principle agent models do not have a bench of younger advisors that could take over my business. At the end of the day, the client is the most important part of the equation and the need to pass the business onto a professional that will take good care of the client and future generations thereof is of the utmost importance”

“This is a complex issue (and a complex question). There needs to be a middle ground on this. Simply ceding this issue to the firm to decide and manage makes little sense to an advisor that has invested in their business over the years and for whom the business represents an asset. On the flip side, the argument that the advisor is the ONLY value to the customer has been proven wrong in customer research. The firm has some interest in the customers and indeed the regulator holds the firm to account on the dimension to some degree. Tough issue. The industry is going to be rocked by this for the next decade I suspect”.

“It is obvious to me that your (question or article) is focused on attracting older advisors that are no longer growing their businesses and at the end of the day complaining about how they are being pushed out of the game. Move the older advisor to the younger team via principle agent or in another case to a corporate setting with a younger protégée in the wings. The business is no longer changing, it has changed and those that are prepared to grow their businesses at every production level will be rewarded. Those that sit around waiting for things to change back to the “traditional” model will be lost in the weeds”.

“I think that there is a big need for firms and advisors to have a conversation of what is profitable to everyone and what business should be avoided. It is nice to want to help everyone, but not everyone is capable of paying the costs that justify your time. Also, economies of scale may encourage an advisor to use others to do work that they cannot provide or in which they do not have the expertise to deliver the appropriate solution to the client. A good advisor needs to know where their strengths are and what they need to farm out to others so that they can focus on what they are best at. This improves credibility with clients and frees up time to do other, more productive, activities”.

— Final Thoughts

I found the commentary and opinions in the questionnaire to be very enlightening and provided for a survey rich in diversity. The question of change in the securities industry is no longer a matter of anticipation, rather it is a stark reality all IA’s agree is in their face and is something they need to deal with. Some have accepted the inevitability of change and they will either adapt to survive or they will move to a safer place. The dominating factor in the business is the banks and while some could argue the changes they desire are already there I would counter the changes they will bring are far from over. And yet while there appears to be a reluctant acceptance of this by members of the IIROC population the 2017 Brokerage Report Card still shows a continuing dissatisfaction by the brokers in bank- owned firms; three out of the six showed an overall rating of under 8 with one more right on the line.

The simple message contained in this survey is while brokers do hold strong opinions and views on topics relevant to their business they do recognize they have little control on the working environment imposed upon them by the firms that really control the industry. Therefore, the changes have evolved thus far and those in the offing will dictate that IA’s will adapt and bend to the will of others, or they will opt for change giving them greater control over their lives in the world of brokerage.

On behalf of the Curry-Henry Group I wish to thank all survey participants; all opinions and commentary are respectfully received and most welcome. Should critical decisions a/o career questions be on your table, the C.H.G. is here to help with experience gained in 40 years in the trenches. We are in constant touch with IA’s of all ranks in the business and continually monitoring the changing trends. That positioning affords us the unique ability to bring value to your decision-making in your career choices.

Brian L. Curry