One of the most difficult things about starting a new investment dealer is luring experienced advisors away from existing firms. Recruitment strategies vary, depending on what the new entrant has to offer and what internal resources it can draw upon. It is a slow, laborious process, no matter how big the brand name.
It’s been more than seven months since Fidelity Investments Canada ULC announced the launch of Fidelity Wealth ULC, an investment dealer and mutual fund dealer. Its strategy is to be a matchmaker for advisors seeking to retire.
The idea is for their successors to be mid-career advisors willing to join Fidelity.
Expansion into advice-giving will provide an internal customer for Fidelity Clearing Canada ULC’s custody and back-office services. It also represents an expanded role in Canada for Fidelity, which since its 1987 launch has always been a fund manager, but until now never a retail distributor.
So far however, there’s not much distribution going on at Fidelity Wealth. One advisor came aboard at the outset. But according to regulatory filings, the seven licensed personnel consist primarily of a managing director and compliance and operations personnel.
Currently, Fidelity Wealth is seeking a transition manager, a key hire if the fledging dealer is to execute its recruitment strategy. “We’re still very, very early days with (Fidelity) Wealth,” a spokesman from the firm said. “But I expect that over the next few months there will be more to report.”
Similarly, investment dealer Sun Life Canada Securities Inc., launched in November 2023, remains a tiny, publicity-shy operation within the Sun Life organization. No spokesperson was made available for this article.
The brokerage firm has nine registered individuals, according to regulatory filings, mostly management and compliance personnel. By comparison, mutual fund dealer Sun Life Financial Investment Services (Canada) Inc. employs nearly 2,700 financial advisors.
By upgrading their qualifications and moving to the brokerage from the fund dealer, Sun Life advisors who make the switch will be able to sell ETFs, stocks and other securities.
With other key personnel now in place, hiring advisors is a top priority for Sun Life Canada Securities. It will look to its much larger sibling for head count, according to Toni Yako, assistant vice-president, head of business growth and strategy.
“I will work closely with our internal advisor community to enhance their service offering to their clients and strengthen our competitive position in the marketplace,” Yako said in a LinkedIn post.
Win or crash
Of course, it is possible to launch a new dealer business. Privately owned Designed Securities Ltd. was launched in June 2021 by brokerage executives Gillian Kunza and Michael Konopaski.
Operating as Designed Wealth Management, the Toronto-based firm has grown to $4.5 billion in assets under administration, 125 financial advisors and more than 30 staff.
Three years since inception, it’s now profitable. And it’s on track to reach $5 billion in administered assets once about another 20 advisors complete their transition.
It wasn’t easy. “There is no other way to describe it other than win or crash,” said Konopaski, the firm’s chief financial officer. “You sink a couple of million dollars into the business, and there is zero guarantee that you’re going to survive. Because on day one you start with no revenue, no advisors.”
On average, it has taken about two years to onboard an advisor after first contact. By the end of 2021, six months after Designed Wealth began, it had recruited only about 10 advisors. Twelve months later, at the end of 2022, that number had risen to 25.
After the two-year mark, recruitment picked up as more transitions were completed, and advisors happy with the switch provided referrals. “We wanted to serve a different area of the market and wanted to be totally different,” said Kunza, chief executive officer at Designed Wealth. “We believe we had something that was not available anywhere in existence at the time.”
Kunza said the firm’s pay model and focus on service over investment analysis, market views, recommended lists and proprietary products is unique.
Instead of a conventional pay grid in which the advisor shares a portion of their revenues with the firm, Designed Wealth employs a customized fixed-fee model. “When an advisor grows their book or gains new clients or however it is that they grow, that effort is rewarded to them and to them alone,” Kunza said.
The fixed amount is negotiated, based on the specific situation. An advisor bringing a team along with them would have different needs than a solo advisor. And an advisor working out of a home office would be charged less, other things being equal, than someone who wanted to rent office space. Kunza said the guiding principle is that “people should only pay for the services that they need and use.”
Designed Wealth doesn’t employ analysts or economists. It provides no recommended lists and produces no opinions on the market outlook. “It’s not like we don’t care,” Konopaski said. “It’s just that, you know, we have 125 advisors with 125 different beliefs.”
The cost savings from not providing investment research are spent on service. “We’re not putting our profits first,” Kunza said. “If we need to resource up, like hire more staff, or invest back into the business in order to service and support these advisors, that’s the priority decision we make.” Designed Wealth maintains a product review committee that includes advisors, which determines whether a security makes it onto the firm’s approved-for-sale list. Though a security could be rejected, possibly for custody or operational reasons, the starting assumption is that the advisor seeking approval has determined that a security is suitable for their clients.
Similarly, Designed Wealth takes a more streamlined “common sense” approach to compliance, avoiding what Kunza described as extra layers of rules that obstruct advisors who are trying to run a business. At other firms, said Kunza, “they get frustrated because they’re spending so much more time on compliance over things that are not risky or not important.”
This article appears in the February issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.