canada’s magazine for the financial professional • …

Rogers Publishing Inc., One Mount Pleasant Rd., Toronto, Ont. M4Y 2Y5 • Publications Mail Agreement Number 40070230

CANADA’S MAGAZINE FOR THE FINANCIAL PROFESSIONAL • OCTOBER 2004 • WWW.ADVISOR.CA

TIMERETOOLING

SKILLS you’ll need to elevate your practice

Using INSURANCEspecialists to your advantage

DEFLECTINGchoppy markets

CUTTINGthrough the clutter

SPECIALISSUE:DOLLARS&SENSESURVEY

!

AE11_OFC 10/06/2004 10:03 AM

18TOOL TACTICS Advisors willneed a combination of devicesto boost their practices to new levels.

5Inside Edge with Darin Diehl When seeking industry advice,today’s advisors prefer to go straight to the source: their fellow advisors.

8FRONT END LOAD Ethics EvolutionAdvisors muse over Canada’s mutualfund mess. And learn about the CSA’sincreased emphasis on ethics.

48PAYING THE PRICE

13TOOLBOX A Place in the SunReduce clients’ tax liability with non-residency status and a worry-freeretirement.

16SPECIAL REPORT Retooling TimeResults from our third Annual Dollars & Sense Survey.

18COMPENSATION Sharp-Edged SkillsWhat will advisors need to prosper inthe future? By Deanne N. Gage

23INSURANCE Holes in your PracticeWhy are so few investment advisorsusing insurance tools to meet clientneeds? By Sheila Avari

31INVESTMENTS Second Time CautiousAdvisors are sticking with the tried toolsof diversification. By Scot Blythe

39PRACTICE MANAGEMENT Seeking SolutionsAdvisors inundated with paperwork andother administrative duties are lookingfor efficient ways to clean up their practice. By Heidi Staseson

55Compliance Check with Ellen Bessner

57True Wealth with Thane Stenner

60This ’n’ That by Andrew RickardScripophily. Unpaid dividends. Coinhumour.Tax haven.

THE

18 Skills you’ll need to elevate your practice

23 Using insurance specialists toyour advantage

31 Deflecting choppy markets

39 Cutting through the clutter

OCTOBER • 2 0 0 4 •VOLUME 7

NUMBER 12

ONCOVER

www.advisor.ca ADVISOR’S EDGE | OCTOBER 2004 3

AE11_003 09/28/2004 05:26 PM Page 3

“Everybody’s talkin’ at me. I don’t hear a word they’re sayin’.”

Perhaps you recognize the openinglines to Harry Nilsson’s hit single fromthe soundtrack of Midnight Cowboy, theAcademy Award winner for Best Picturein 1969. With this year’s Dollars &Sense Survey pegging the average advi-sor’s age at 46.4 years old, I’ll wagermost of you do remember the song orthe movie—likely both.

The lyrical reference is not anattempt on my part to reminisce aboutclassic films and old songs. Instead, Ifind the lyrics apropos of the advisorexperience today.

For a vocation whose central focus is the provision of advice to others,nowadays financial advisors seem to be flooded with myriad opinions onhow they should conduct themselvesand their businesses.

Those lining up to school advisorson what’s what include their own firms,mutual fund and insurance companies,the media, consultants, coaches for hire,researchers, and of course, the regula-tors. Collectively, their guidance ismeant to help you become a more effec-tive, profitable, client-centric and com-pliant advisor. Trouble is, when “every-

body’s talkin’ at you,” it’s hard to “heara word they’re sayin’.”

While there appears to be no short-age of “advice” suppliers to advisors,most of you are short on time to listen.Through talking to you, we have alsolearned the perspective you value morethan all others is that of experiencedadvisors who have faced and overcomechallenges similar to your own.

This issue of Advisor’s Edge features theresults from our third Annual Dollars &Sense Survey of advisors. The content inthe pages that follow is worth your timeto read because it reflects data and opin-ions collected from more than 3,000advisors coast-to-coast. They comefrom the IDA and MFDA channels.They are rookies and veteran top pro-ducers. They are insurance agents, finan-cial planners and investment advisors.These advisors provide a voice of collective wisdom against which youcan benchmark your own views andpractices.

Our coverage of this year’s surveyincludes four feature stories, leading offwith “Sharp-edged skills” (starting onpage 18) in which managing editorDeanne N. Gage explores what it will take for advisors to succeed in an

evolving industry. In “Holes in your practice” (starting

on page 23) freelance writer SheilaAvari looks at the lukewarm receptioninvestment advisors have given insuranceas an alternative revenue source.

Investments editor Scot Blythe looksat trends in portfolio construction in“Second time cautious” (starting onpage 31).

And, learn how advisors are diggingthemselves out of the mounds ofadministrative and compliance paper-work in assistant editor Heidi Staseson’sstory, “Seeking solutions” (starting onpage 39).

Our job at Advisor’s Edge, its French-language sister publication ObjectifConseiller, and online with Advisor.ca is to provide you with timely, objectiveand relevant news, industry trends, prac-tice management tips and strategies.And yes, dare I say it, advice. Like you,we will listen to good ideas no matterwhere they originate from. But moreoften than not, we prefer to go right tothe source—advisors like you.

DARIN DIEHLEDITOR

[email protected]

INSIDEEDGEMAKING SENSE OFDOLLARS & SENSEWhy time-pressed advisors should take the time to read this issue.


AE11_005 09/28/2004 05:27 PM Page 5

Darin Diehl, Editor, ADVISOR Group (416) 764-3812, [email protected]

ADVISOR’S EDGEDeanne N. Gage, Managing Editor Harvey Schachter(416) 764-3803, [email protected] Contributing EditorHeidi Staseson, Assistant Editor Lisa Darwen, Production Manager(416) 764-3804, [email protected] (416) 764-3928, [email protected] Blythe, Investments Editor Maggie Sicilia, Administrative Assistant(416) 764-3810, [email protected] (416) 764-3822, [email protected] Nicholson, Art Director(416) 764-3850, [email protected]

ADVISOR.CAJohn Craig, Managing Editor Steven Lamb, Reporter(416) 764-3811, [email protected] (416) 764-3961Opal Patel, Web Projects Editor [email protected](416) 764-3818, [email protected] Andrew Gregory, Web Production ManagerDoug Watt, News Editor (416) 764-3817(416) 764-3815, [email protected] [email protected]

OBJECTIF CONSEILLERYves Bonneau, Editor Christian Benoit-Lapointe, Assistant Editor(514) 843-2142 James Wagner, Art [email protected]

ADVISOR FORUMTricia Moore, Manager, Conferences Melissa Horwood, Conference Coordinator(416) 764-3866 Angela Bobotsis, Project [email protected] Giovanna Margani, Project Coordinator

SALESGarth Thomas Gisela StephanyGeneral Manager, Sales Sales Manager, Eastern Canada(416) 764-3806, [email protected] (514) 843-2133, [email protected] Kerry Graham Blair, Account ManagerNational Account Manager (416) 764-3809, [email protected](416) 764-3805, [email protected] David Carmichael, Marketing Research AnalystKathleen Murphy, National Account Manager (416) 764-3820 (416) 764-3838, [email protected] [email protected]

MARKETING AND RESEARCH Nancy Matheson, Director of Marketing Denise Brearley, Circulation Director and Promotions Cindy Younan, Circulation ManagerJoanne Merrick, Promotions Manager Tricia Benn, Director of Research

Ann McDonagh, Group Publisher (416) 764-3830, [email protected]

is published 16 times a year by Rogers Publishing Limited.

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Published in Canada by Rogers Publishing Inc. since June 1998. Rogers Media Inc., One Mount PleasantRd., Toronto, Ontario M4Y 2Y5. Offices: 1200 McGill College, Bureau 800, Montreal, Quebec H3B 4G7, (514) 843-6600; Ste. 900, 1130 West Pender St., Vancouver, British Columbia V6E 4A4, (604) 683-8254.Subscription price plus taxes: Canada $68.95 per year, 2 years: $115.50, 3 years: $146.50; USA/Foreign:$135.10 (one year only). Single copy: $15. Published 16 times a year. G.S.T. #137813424RT.ADVISOR’S EDGE is indexed by the Canadian Magazine Index by Micromedia Limited and the CanadianPeriodical Index. Canadian back copies are available in microform from Micromedia Limited, 20 VictoriaStreet, Toronto, Ontario M5C 2N8. Indexed by the Canadian Business Index and available online in theCanadian Business & Current Affairs Database.

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OCTOBER 2004, VOLUME 7, NUMBER 12

The ADVISOR Group is a division of Rogers Publishing Limited that consists of Advisor’s Edge, Advisor.ca, Advisor Forum,

Objectif Conseiller and Forum Des Conseillers.

EDITORIAL ADVISORY BOARDElaine Andrew John OrdInvestors Group BMO Nesbitt BurnsDavid Wm. Brown Jim RogersAl G. Brown and Associates Rogers Group FinancialDavid Christianson Nancy ShewfeltWellington West Total Wealth Management Wellington West Capital Inc.John De Goey Thane StennerAssante Capital Management The Stenner Group, CIBC Wood GundyRobert Fleischacker Lynne TriffonAdvocis, Stonehaven Financial Group T.E. FinancialCynthia J. KettStewart & Kett Financial Advisors Ltd.

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CONTACT US

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WHAT’S NEW @ ADVISOR.CA?■ More insights and practice-improving tips stemming from our

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Report” in Advisor.ca’s Practice Zone, this online package

includes:

› An interactive practice benchmarking tool

› Top tips to up your insurance sales

› Frontline advice on surviving the administrative avalanche

■ Complete fall conference coverage

■ An all-new insurance case study

■ Daily news coverage of the industry stories and issues you

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■ Lively debates on industry issues in our online discussion

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■ A searchable archive of special reports on key planning areas

■ The latest market news, in our twice-daily e-mail bulletins

ALWAYS ONLINE @ ADVISOR.CA!

6 ADVISOR’S EDGE | OCTOBER 2004 www.advisor.ca

AE11_006 09/28/2004 05:28 PM Page 6

ED

UC

AT

IO

N Can ethical behaviour be taught? The Canadian Securi-ties Institute (CSI) thinks so and has added an ethical mod-ule to one of its most popular advisor courses, the Conductand Practices Handbook (CPH).

The 60-page ethics booklet is an attempt to fill in “gapsand grey areas” where specific rules and regulations may notprovide enough clarity, says CSI vice-president Marc Flynn.

“We felt that enhancing the ethics component was animportant thing to do, given all the stuff that’s been goingon over the last few years,” he says.

“People don’t trust business anymore,” adds CSI presidentRoberta Wilton. “Companies are under a microscope andrightly so. The people entering the financial services worldare well-trained in the core competencies, but it’s beenassumed that when ethical questions arrive, people willinstinctively know the right thing to do. And that’s just notalways the case.”

The CPH, a required course for investment advisors in the brokerage industry, has always had a code of ethicswith an emphasis on how those ethics fit in with the various rules and regulations, Flynn explains. Now, he adds,“We are trying to fill in the ones that aren’t so explicit.”

The module includes six detailed case studies coveringeveryday ethical issues faced by advisors. One simple exam-ple is whether or not a broker should sell clients in-houseproducts that generate higher commissions. “Many of theseissues in the industry today are not dealt with through the legal system but are at the heart of the industry’s valuesystem,” the module states.

The decision to increase the focus on ethics in the CPHcourse resulted from talks between the CSI and the IDA overthe last couple of years. The ethics module was introducedthis summer and became part of the CPH exam—worthone-third of the final mark—in September.

Going forward, the CSI will likely increase its focus onethics, Flynn notes, and is considering an enhanced ethicscomponent for its flagship product, the Canadian SecuritiesCourse. —Doug Watt

ETHICS EVOLUTION

FRONT

ENDLOADPeople, trends, events and analysis


Cartoon by S

ue Dew

ar

ST

AT

IS

TI

CS

22225555%%%%

of Canadians who enrol in the CSC

go on to enrol in the CPH.

55559999%%%%

or 964 Canadians passed level three

of the CFA exam in June.

55555555%%%%

or 616 Canadians passed

the CFP exam in June.

SOURCES: CANADIAN SECURITIES INSTITUTE;

CFA INSTITUTE; FINANCIAL PLANNERS

STANDARDS COUNCIL.

AE11_008-010 09/28/2004 5:34 PM Page 8

CA

LE

ND

AR

OF

EV

EN

TS

To submit an event, [email protected]


BLEMISH OR BLACK EYE?dvisors are taking a wait-and-see

approach after Ontario’s securities

regulator finally named names in its long-

running probe of the mutual fund industry.

But there’s agreement that the reputation

of the four fund companies singled out by

the Ontario Securities Commission (OSC)

could suffer as a result of the investigation.

After the markets closed on Monday,

Sept. 20, the OSC sent notices to

Investors Group, CI, AGF and AIC, advis-

ing that they could be facing possible

enforcement action in

regards to allegations of

frequent trading, often

linked to market timing,

between 1999 and 2003.

The four fund companies

had until the end of the

month to respond to the regulatory notice,

although all publicly stated in September

that they now have controls in place to

detect any questionable trading before it

becomes a problem.

The fund companies’ reputations could

become the larger issue, even if the inves-

tigation ends up concluding that frequent

trading, which is not illegal, did not harm

investors.

“The allegations will do nothing to

endear these companies to me,” states

Brad Brain of Berkshire Securities in

Fort St. John, B.C. “If I ever had a

reason to consider these companies in

the future I would want to know more

about their trading policies.”

Still, Brain says he has looked closely

at the fund scandals in the U.S.—which

resulted in billions of dollars in fines

against more than a dozen fund compa-

nies—and is satisfied that the Canadian

system has better safeguards in place to

prevent trading abuse. The bulk of

Canada’s fund trades are handled by

FundServ, which has a strict time-stamp-

ing policy in place, effectively preventing

late trading.The OSC has said it has found

no evidence of late trading in Canada.

John Hope of Allied Financial Services

in London, Ont., shares Brain’s point of

view, noting that of the 105 fund compa-

nies investigated by the OSC, only four are

so far facing possible enforcement action.

“That is a massive vote

of confidence in the

Canadian mutual fund

industry,” Hope says.

As for talking to

clients about the issue,

Brain has only had one

or two mention the fund scandal, and only

when it was headline news in the U.S.

media. “I think they were more curious

as to whether I thought that it was a

problem as opposed to that they had

already formed an opinion,” he says.

“I don’t think it would be a huge issue

for most clients since most of them do

not pay attention to these regulatory

issues,” says Blaine Dickson of Capri

Intercity Financial in Kelowna, B.C.

“Sadly, clients seem to be more con-

cerned with insignificant, normal daily

fluctuations in the overall markets.”

The OSC investigation may actually

help boost investor confidence, Hope

believes.“I wouldn’t say that it’s a relief,

but it’s certainly a confidence builder for

me to be able to sit down with my clients

and explain that my industry just passed

a severe OSC test with flying colours.”

—Doug Watt

R E G U L A T I O N

A

“The allegationswill do nothing to endear these

companies to me.”—BRAD BRAIN

■ OCTOBER 14, Income Securities,The Inter-

continental Toronto Centre, Toronto, www.strate-

gyinstitute.com ■ OCTOBER 18 to 19, Advisor

Forum—Halifax, World Trade and Convention

Centre, www.advisorforum.ca ■ OCTOBER 26 to

27, National Registrant Regulation Priorities,

The Marriott Courtyard, Toronto, www.strategyin-

stitute.com ■ OCTOBER 27 to 28, Captive ’04

Insurance Strategies, Metro Toronto Conven-

tion Centre, Toronto, www.strategyinstitute.com

■ NOVEMBER 1 to 3, 2nd Annual Continuing

Education and Business Building Conference,

Laguna Beach, Calif., www.knowledgebureau.com

■ NOVEMBER 2 to 3, IFBC Fall 2004 Toronto

Fall Summit,Toronto Congress Centre, Toronto,

www.ifbc.ca ■ NOVEMBER 3 to 4, Wealth Man-

agement Summit, St. Andrew’s Club, Toronto,

www.strategyinstitute.com

■ NOVEMBER 8 to 9, Advisor Forum—Roundup

Centre, Stampede Park, Calgary ■ NOVEMBER

15 to 16, Income Trusts,The Sutton Place

Hotel, Toronto, www.canadianinstitute.com

■ NOVEMBER 18, Alternative Investments for

HNW Investors,The Sutton Place Hotel,

Toronto, www.strategyinstitute.com ■ NOVEMBER

18, IFBC Alberta Fall Summit 2004, Carriage

House Inn, Calgary, www.ifbc.ca ■ NOVEMBER 18

to 19, 10th Annual Regulatory Compliance for

Financial Institutions,The Sutton Place Hotel,

Toronto, www.canadianinstitute.com ■ NOVEMBER

22 to 23, Advisor Forum—Vancouver, Vancouver

Convention and Exhibition Centre, www.advi-

sorforum.ca ■ NOVEMBER 25, IFBC B.C.

Fall Summit 2004, Vancouver, www.ifbc.ca

■ NOVEMBER 29 to 30, Securities Litigation,

The Sutton Place Hotel, Toronto, www.canadian-

institute.com ■ DECEMBER 2 to 3, Advisor

Forum—Montreal, Palais des Congrès de

Montreal, ww.advisorforum.ca ■ DECEMBER 6

to 7, World Hedge Funds Summit, Niagara

Fallsview Casino Resort, Niagara Falls, Ont.,

www.canadianhedge watch.com ■ DECEMBER 8

to 9, Advisor Forum—Toronto, Metro Toronto

Convention Centre, www.advisorforum.ca

AE11_008-010 09/29/2004 1:54 PM Page 9

FRONTENDLOAD

■ Chief executive officerBARBARA STYMIEST

has resigned from TSXGroup Inc. to take thehelm of chief operatingofficer at the RoyalBank of Canada. Shewill report to GORDON

NIXON, RBC’s presidentand chief executive offi-cer, and will serve on the group executive. Shewill be responsible forstrategic developmentand handle all corporatefunctions including riskmanagement and finance.■ BMO Harris PrivateBanking has appointedBERNARD LETENDRE asregional vice-presidentand managing directorfor Quebec, based inMontreal.■ KEVIN WARK, LLB,CFP, has joined Toronto-based PPI FinancialGroup in the newly created role of seniorvice-president, businessdevelopment. Wark hails

from Equinox FinancialGroup where he was the president and chiefexecutive officer of theinsurance and mutualfund operations. ■ Canadian WesternTrust in Vancouver hasappointed TERRY PASK

as director, businessdevelopment, where he will developand manage its corporate group serv-ices business in British Columbia. Hewill handle custodial and trustee services for group and individual pen-sion plans, retirement compensationarrangements, stock purchase plansand initial public offerings. Previously,Pask was an assistant vice-president fora national trust company.■ Winnipeg-based Wellington WestCapital Inc. has announced the following Canadian appointments:Regina: JOYCE MARBACK, seniorinvestment advisor and vice-president;White Rock, B.C.: BILL GRANT,investment advisor; BOB BAILLIE,

investment advisor; Oakville, Ont.:JOHN ZANDVLIET, senior investmentadvisor; PETER SLYKHUIS, seniorinvestment advisor; KIRK SCHNEIDER,investment advisor; Barrie, Ont.: JOHN GRINTON, senior vice-president;MICHAEL BROOKS, investment advi-sor; Vancouver: ALNASIR KHAN,investment advisor; Toronto: ANDY

RAFELMAN, investment advisor.

&MOVERS SHAKERS

B. Stymiest

B. Letendre J. Grinton

K. Wark

T. Pask

J. Marback

P. Slykhuis

J. Zandvliet

To submit an announcement to Movers & Shakers, e-mail

[email protected]

Correction: In Michael Berton’sToolbox in the September issue ofAdvisor’s Edge, it was incorrectly sug-gested that a donated insurance pol-icy would be subject to capital gainstreatment. Insurance policies are notcapital property. Instead, the differ-ence between the adjusted cost baseand the cash surrender value of thepolicy would be treated as a policygain. The policy gain would be tax-able as income. However it would still count in the 75% maximumdeduction against income availablefor charitable gifts.

Advisor’s Edge regrets the error and apologizes to our readers for any inconvenience.

AE11_008-010 09/28/2004 5:34 PM Page 10

Bill and Mary Smith, 61 and 60respectively, are planning to retire this win-ter. They have Canadian friends who retiredto the Lake Chapala area of Mexico.Although the Smiths want to spend timewith their adult children and grandchildrenin Canada, they are also interested in enjoy-ing Mexico’s climate and culture.

Before making any decisions, however, thecouple needed advice relating to topics suchas taxation, asset management, real estate,insurance and healthcare, immigration andestate planning. Bill and Mary have laid outthe following objectives:

• achieve tax-efficient incomes duringtheir retirement;

• address health insurance coverage whileliving in Mexico;

• understand how to gain legal residence in Mexico; and• create an appropriate estate plan.The couple has an approximate net worth of $1.2 million

comprised of the following assets: $400,000 personal resi-dence, $500,000 in RRSPs and $300,000 in non-registeredinvestments. Mary and Bill will also soon be receiving reducedCPP pensions along with additional pension income fromtheir respective past employment. Mary’s total pension incomewill be $2,500 a month, and Bill will receive a total pensionincome of $3,000 a month.

Addressing the tax-related matters, their advisors suggestedthey become non-residents of Canada and set up the appro-priate residential ties for Mexican residency. The purpose of non-residency is to receive tax-efficient incomes. Thebiggest question was whether or not to sell their home inCanada or keep it and rent it out at arm’s length. The Smithsdecided to sell and use a portion of the proceeds to purchase

housing in Mexico, with the remaining money to be addedto their investment portfolio.

The other major tie to Canada was family. Since their children were grown adults, they were not a factor in the residency tests. The Smiths reviewed in detail the remainingties to Canada and decided to cancel such items as provincialhealth plans, memberships, deposit box and car registrations.They also learned they could dispose of some personal assetsvia selling or gifting to the children. They could keep itemsincluding certain bank accounts and investment portfolios,each of which was registered as non-resident accounts withtheir banks and financial advisors.

Upon their advisors’ advice, the Smiths decided to createa “defence file” to document all matters relating to the sev-ering of residential and social ties to Canada. The defence filewould contain such things as sale documents for the house and

A tax-efficient retirement abroad means becoming a non-resident.A PLACE IN THE SUN

Illu

stra

tion

by

Tho

m S

evlr

ud

TOOLBOX

Continued on page 14

Strategies for advisors from advisors

By Cam McIntosh and Rod Burylo


AE10_013-015 09/28/2004 5:07 PM Page 13

car, garage sale advertisements, letterscontaining notification of their statuschange from Canadian residents to non-residents, as well as change of addressto Mexico. The defence file would alsocontain documents to prove their newresidency such as house purchase orlease agreement, utility bills, copies of immigration papers and local bank statements. (Note: The CRA willalways look at what ties to Canada havebeen severed and what ties to the newcountry exist to prove residency status.While such information may never beneeded, it may be difficult to accumu-late after the fact.)

As non-residents, the taxation of theSmiths’ Canadian-source income lookedquite different than if they hadremained residents. They decided toconvert their RRSPs to RRIFs. Peri-

odic pension payments attract a 15%withholding tax versus taking the fundsout as lump sums and incurring a 25%withholding tax. With the notificationof non-residency, all company and gov-ernment pension incomes have thereduced tax rate of 15%. In addition,the non-registered portfolio has signif-icant tax benefits for the non-resident,as Canadian interest and dividendincomes incur a 15% withholding taxrate while capital gains become tax-free.Their tax liability to Canada has beensignificantly reduced.

The couple determined their exist-ing life insurance policy was sufficientand in force long enough not to beaffected by the residency change. TheSmiths inquired about the impact oftheir move on their long-term care andcritical illness policies. While criticalillness insurance requires only a single

assessment to determine eligibility,long-term care requires ongoing assess-ment. However, this may be impracti-cal to do from Mexico. The Smithsdecided to review these policies directlywith their agent.

The process of becoming non-resi-dents also included the termination ofthe couple’s provincial healthcare plan.As a result, a replacement was necessary.They established an independenthealthcare policy since traditional travelinsurance wouldn’t provide coverage forthe length of time the Smiths required.Although Mexico offers its own social-ized healthcare plan, IMSS, it is notimmediately available to new residentsof Mexico as FM-3 immigration statusis required. Additionally, since IMSSonly provides services in Mexico, non-residents are well advised to supplementthis with a private healthcare plan.

Continued from page 13

Manulife and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation.

Open up more

AE10_013-015 09/28/2004 5:07 PM Page 14

With respect to immigration, theSmiths applied for FM-3 immigrationstatus. This is the easiest way to residein Mexico, as the applications areprocessed rapidly and routinely. As well,residents can bring in household goodstax-free within three months of secur-ing status. While the immigration status must be renewed annually, theSmiths do not have to give up theirCanadian passport.

The Lake Chapala area has a sub-stantial Canadian expatriate community,making the transition into a newlifestyle that much easier. Upon learn-ing, however, that rental opportunitiesare not abundant there, the Smithsdecided to buy a house.

In recent years, Mexico has providedtwo means for non-Mexicans to ownreal estate: by direct deed or by banktrust. Although a bank trust is only

available as an option on the coast ornear a border, the Smiths’ location ofinterest allowed for a choice. A banktrust has a closing cost and modestannual administration fee associatedwith it, but has the added benefit of theability to designate beneficiaries to thetrust. To establish legal residency, theSmiths purchased a home and selecteda bank trust to designate their childrenas beneficiaries and simplify their estateplan.

The Smiths reviewed their Canadianwill to ensure all assets (both Canadianand foreign) were addressed. With abank trust, their home in Mexico wouldautomatically become the property ofthe designated beneficiaries without theneed for a Mexican will. The advisorsrecommended independent advice froma lawyer.

The Smiths initially plan to spend

five to seven years in Mexico. Return-ing to Canada will not be difficult asthe Smiths now know how to set upnormal residential ties in Canada byacquiring housing, enrolling in health-care plans, getting a driver’s licence andcontracting for utilities. They shouldalso consider having their investmentportfolio valued at the date of entry totrigger a new cost basis on those assets.

With proper planning and implemen-tation of the above strategies, the Smithscan feel confident about achieving a richand rewarding retirement.

Cam McIntosh, CA, CFP, and Rod Burylo,CFP, are principals in the “Canadians Retiring Abroad” Group along with Dave Appleton, CFP. McIntosh, Burylo andAppleton were named 2004 Advisor of theYear Award winners for the Prairies [email protected]

TOOLBOX

For more information call 1-877-977-2537

or visit www.manulifeinvestments.ca

AE10_013-015 09/28/2004 5:08 PM Page 15

Average Advisor Top Advisor*

Personal Annual Income

Assets Under Management

Years in the Business

Number of Clients

IDA Registered

Number of Admin. Assistants

Admin. Assistants’ Personal Annual Income

Hours Worked in a Week

$91,406

$28.3 million

11.4 years

255

32%

0.84

$36,819

43.2

$263,194

$199.8 million

12.6 years

326

69%

2.4

$49,250

47.3

*Top advisor is an advisor who reports their total assets under management as $100 million or more.

ADVISOR SNAPSHOT

Source: Annual Dollars & Sense Survey, 2004


RETOOLINGTIMEThe adage “use the same tried-

and-true tools and you’ll always succeed”

is only partially true.To stay competitive,

you’ll also need to think outside the

box and consider all possibilities, no

matter how far-fetched it may seem

initially.

For starters, consider arming yourself

with a new tool.That could mean getting

another designation or a licence to sell a

specialized product.

Our third Annual Dollars & Sense Sur-

vey will help to guide you. In short, our

survey is all about your compensation

issues, investment and insurance trends

and how you cope with your day-to-day

challenges.

In the following pages, compare your-

the third Annual Dollars & Sense Survey Special Report

INSIDE

CHARTS 17

COMPENSATION: Sharp-edged skills 18

INSURANCE: Holes in your practice 23

INVESTMENTS: Second time cautious 31

PRACTICE MANAGEMENT: Seeking solutions 39

Photography by M

ichael Fiala

AE10_016-017 09/28/2004 5:09 PM Page 16


MFDA

IDA / Accovam

authorité des marches financiers

Other

60%

32%

16%

7%

(n=3034; moe ± 1.7% 19/20)

IS YOUR FIRM REGISTERED WITH...


Under $3 million

$3 million to $4.9 million





$100 million to $250 million

Over $250 million

National Average: $28.3 million MFDA: $21.6 million IDA: $45 million

21%

10%

16%

23%

13%

10%

4%

1%

(n=3034; moe ± 1.7% 19/20)

TOTAL ASSETS UNDER MANAGEMENT


I use a risk-profile questionnaire

I use financial planning software

I design an asset allocation plan myself

I use a portfolio fund or wrap programto achieve asset allocation

Other

73%

56%

51%

37%

7%

(n=1608; moe ± 2.4% 19/20)

HOW DO YOU PUT TOGETHER AN ASSET ALLOCATION PLAN FOR YOUR CLIENTS?


More alternative investments

Fewer alternative investments

The same amount of alternative investments

24%

9%

63%

21%

13%

63%

24%

5%

69%

22%

7%

70%

28%

6%

65%

22%

8%

68%

29%

10%

58%

40%

-

60%

Under $3m

$3m to $4.9m

$5m to $9.9m

$10m to $24.9m

$25m to $49.9m

$50m to $99.9m

$100m to $250m

Over $250m

(n=1608; moe ± 2.4% 19/20)

OVER THE NEXT 12 MONTHS,DO YOU EXPECT TO SEE OR RECOMMEND...


Commission

Salary and Bonus

Fee and Commission

Base Salary

Fee Only

Other

59%

16%

14%

3%

3%

3%

Q. What option best describes how you were compensated in 2003?(n=3034; moe ± 1.7 19/20)

HOW ADVISORS ARE PAID

Source: Annual Dollars & Sense Survey, 2004self to your peers, as our survey is based

on advisor responses from the IDA, MFDA

and insurance platforms nationwide.The

survey was conducted among a represen-

tative sample of 3,034 of Canada’s finan-

cial advisors between June 21 and August

2, 2004.

A 12% response rate was obtained.

The margin of error for a sample this size

is +1.7%, 19 times out of 20. For half-

sample questions the margin of error

is ±2.4%, 19 times out of 20. Please be

advised that the margin of error is larger

for sub-groupings of this population.

On a final note, we would like to thank

our research team,Tricia Benn and Rosa

Regula, for their tireless efforts in number

crunching and confirming all the data.

AE11_016-017 09/30/2004 02:59 PM Page 17

SHARP-EDGED

ongratulations…you made it through the worst bearmarket since the Great Depression. Yousurvived industry consolidation. Youmaintained your clients and evenincreased your overall base. But beforeyou pat yourself on the back, ask your-self this: Will you be prepared for thenext stumbling blocks? What will youneed to stay competitive in the future?

In a few words, you’ll need to have itall. You won’t need to be an expert in allfinancial facets but, like a general prac-titioner in the field of medicine, you’llcertainly need broad knowledge.

David Chalmers likens the futureadvisor to a decathlete: someone who isa solid performer in many key areas.“Right now, there are advisors who havegood product knowledge but have poorpeople skills,” says Chalmers, a finan-

SKILLSWHAT WILL ADVISORS

NEED TO PROSPER INTHE FUTURE?

C


BY DEANNE N. GAGE

AE10_018-022 09/28/2004 5:11 PM Page 18

Compensation


cial advisor with Vancouver-basedRogers Group Financial. “There areadvisors who are strong at day-to-dayexecution but are weak at strategicthinking. There are advisors who offerexpertise but can’t run an efficient prac-tice. We’ll have to have all of those skillssimultaneously to be competitive.”

Many advisors licensed to sell prod-uct don’t hold a securities licence.Results from our third Annual Dollars &

Sense Survey show that while 90% ofadvisors sell or recommend mutualfunds, the number drops to 32% forbonds and 21% for stocks.

This used to be acceptable. Mostclients were content with mutual funds,the mainstay of the mid-to-late 1990s.But today’s savvier client—especially thehigh-net-worth variety—is embracing

investments beyond mutual funds,including stocks, preferred shares,bonds and a world of structured prod-ucts. (For more about these investments,see “Second time cautious” on page31.) These products are generally only accessible by securities-licensedadvisors.

“Clients are more aware that there area wider selection of options out thereand they’re looking for more productdepth,” explains Russell Lazaruk, aninvestment executive with Victoria-based ScotiaMcLeod Inc. “Without asecurities licence you offer clients lim-ited services. If you don’t have all thetools in your toolbox, then you may usesomething that’s not the best solutionfor the client’s situation.”

Adding securities to your offerings

may also have its rewards financially.Our survey shows that IDA advisorsoutpaced MFDA advisors in terms ofpersonal annual income in 2003($115,789 versus $81,310). Thiscomes as no surprise to Chalmers,whose firm is on the IDA platform.“We can sell a whole range of securi-ties, including mutual funds, so simplythe fact that you have more products onyour shelf gives you a greater opportu-nity for solving client problems,”he says.

Some advisors’ hands may be tiedwhen it comes to getting a securitieslicence, since only their firm can decidewhether to go in that direction. How-ever, joining the IDA is no longer aquestion for some firms. Now the focusis when they join and what their interimstrategy is. “We’re not there yet butwe’re discussing it,” says Lee Raine, aCFP and partner with Calgary-basedG2 Financial Group. He prefers tomanage clients who have $150,000 to$400,000 in investable assets, since hecan offer them more value. “We havemany alternative solutions for [mid-tier clients] such as syndicated land and mortgages and notes.”

Raine hands accounts over $500,000to institutional money managers since“larger accounts are very difficult to putinto an array of mutual funds.”

Some of Raine’s clients even haveseparate accounts with investment advi-sors who manage their stock transac-tions, while he looks after the balance.“We’ve really been dealing with long-term money; we’re not going to betraders,” he says. “With my clients, I tend to be the head of the steeringcommittee, the quarterback.”


ADVISORS’ PERSONAL ANNUAL INCOMEFOR 2003, BY REGION

Atlantic

Quebec

Ontario

Manitoba

Saskatchewan

Alberta

B.C. / Territories

National Average

by MFDA

by IDA

$89,263

$90,515

$92,273

$86,768

$83,786

$90,539

$93,213

$91,406

$81,310

$115,789

Q. Which of the following salary categories best represents your personal annual income for 2003 after expenses but before taxes?(n=3034; moe ± 1.7% 19/20)Source: Annual Dollars & Sense Survey, 2004

FCSI

CIM

CFA

CLU

RFP

Pl. Fin

CFP

$171,388

$153,909

$123,751

$119,613

$114,508

$98,758

$94,345

Q. Which of the following categories best represents your personal annual income from 2003, after expenses, but before taxes?(n=3034; moe ± 1.7% 19/20)

ADVISORS’ PERSONAL ANNUAL INCOME FOR 2003, BY DESIGNATION


AE10_018-022 09/28/2004 5:11 PM Page 19


There is still a perception that IDAadvisors, particularly those who work forthe bank brokerage houses, do moreinvestment planning than comprehensivefinancial planning. Our survey resultsmay partially confirm this since MFDAadvisors, for example, were more likelyto include insurance in their businessthan IDA advisors. (For more details on this, see “Holes in your practice” onpage 23.) As Raine bluntly puts it,“Most of the stockbrokers I know outhere are not financial planners. They’renot doing the level of planning that we do.”

Greg Marles, a CFP and branch man-ager with Dundee Private Investors Inc.in Listowel and Waterloo, Ont., concurs.“We’ve actually had clients come to usrecently because they have too muchpressure [from their investment advisors]to buy this initial public offering and thatother stock,” he says.

To counter his lack of a securitieslicence, Marles works with security-licensed advisors within his firm. He

likes to think there’s still demand forMFDA-registered advisors. “We canoffer virtually all the same productsthrough the array of mutual funds andGICs that we have through the MFDAside,” says Marles. “We certainly haven’tseen a diminishing of our client base.”

That said, Marles acknowledges he’sfeeling pressure to move to the securi-ties side of the firm. “There’s the sensethat as an MFDA member, you’re a lit-tle bit handcuffed,” he notes.

So why isn’t Marles making the movejust yet? After all, some successful advi-sors marry the IDA platform with acomplete wealth management approachfor their clients. He sums it up in threewords: expense, paperwork and hassle.He already spends up to 60% of hisday dealing with paperwork mandatedby the regulators. He figures this canonly increase on the IDA side.

It’s certainly something Chalmerswouldn’t contest. When Rogers GroupFinancial joined the IDA in 2001, alladvisors were busy fulfilling the educa-tional requirements and going througha 90-day training period, while “keep-ing the wheels of commerce turning,”Chalmers explains. The paperwork wasscary, something the majority of oursurvey respondents may relate to. Nine-teen per cent identified administra-tion/paperwork as their greatest day-to-day challenge while another 6% aregrappling with compliance and regula-tion issues (for more on challenges andsolutions, see “Seeking solutions” onpage 39). “We had to redo new clientaccount forms for every client who hadsecurities,” says Chalmers. “Then wehad to explain to clients why we weredoing this, so it was a difficult transi-tion.”

But it was a transition well worth theeffort. “Now that I’m [on the IDAside], I couldn’t imagine being back onthe other side simply because I haveaccess to more solutions for clients,”Chalmers says.



Photography by Jim

LaB

ounty

CFP

CLU

Pl. Fin (Quebec)

PFP (from ICB)

CH.F.C.

CIM

FCSI

FMA

CFA

FICB

AICB

CA

53%

12%

11%

10%

8%

7%

7%

6%

3%

3%

3%

3%

Yes 66%

(n=3034; moe = ± 1.7% 19/20)

(n=2037 advisors with a designation)*mentions under 3% are not included

DO YOU HAVE A DESIGNATION?

DESIGNATIONS HELD


DAVID CHALMERS,ROGERS GROUP FINANCIAL

VANCOUVER

AE10_018-022 09/28/2004 5:12 PM Page 20


Having a greater product selectionalso bodes well for advisors profession-ally, Chalmers notes. “If mutual fundsare all you can recommend, that doesnot give you much integrity with clients,especially larger clients,” he says. “Beingable to recommend anything gives youa greater air of credibility.”

Say a client asked you about incometrusts. You can’t even legally commenton income trusts without a securitieslicence, creating a missed opportunityto communicate with clients, says DenisBeaulieu, a branch manager and seniorfinancial advisor with PEAK SecuritiesInc. in Whitby, Ont. “At least with alicence, you can offer clients a perspec-tive—whether income trusts are flavourof the month or if they’re somethingworth considering,” he adds. “There are so many products coming out onthe IDA platform and you have to becognizant of them to put them intocontext for clients.”

Beaulieu first got his securitieslicence, along with his mutual fundlicence, in the mid-1980s. (He obtainedhis insurance licence a decade later.) Hefeels so passionately about having asecurities licence that when PEAK firsttried to recruit him from another firm,he refused to join until the companydeveloped a securities arm. They didjust that three years ago.

Education MattersFor an advisor to prosper, expertise isequally as important as dual (or triple)licensing. Designations are one way tomeasure expertise, and if our surveyresults are any indication, more are seeing the value in having letters aftertheir names. Sixty-six per cent of

respondents say they have a designation.Leading the way is the CFP, which 53%of respondents possess.

Marles earned his CFP last January.Even after being in the business for 29years, he determined that credentials arestill necessary to stay on par with com-petitors. “Having a designation used tobe something special but now if youdon’t have one, it’s like, ‘Why don’tyou?’” he explains. “Every advisor inour office now has the CFP and that’sbeen a big accomplishment.”

Advisors with designations also tendto have fatter pocketbooks, particularlythose who hold investment-related des-ignations. While the average advisor’spersonal annual income is $91,406, theaverage Fellow of Canadian SecuritiesInstitute (FCSI) earned $171,388; theaverage Canadian Investment Manager(CIM) earned $153,909; and the aver-age Chartered Financial Analyst (CFA)earned $123,751. But at $94,345, theaverage CFP is just slightly above theaverage personal annual income.

Lazaruk, who holds the CIM desig-nation, believes advisors who take the

time to get designations are more serious about the industry and show ahigher level of commitment to profes-sionalism.

Staying successful, however, goesbeyond designations and personalannual income. It also means having agood head for business. Beaulieu stayscompetitive by charging fees for inde-pendent, objective financial plans andlimiting his practice to just over 100client families. His strategy is to stayvisible within his community and toincrease his client base by no more than10 families each year.

Marles is looking to consolidate withanother local office to create economiesof scale. “We realize there’s no pointhaving two offices. Why not just have one, and have one set of over-head?” he asks.

Advisors don’t need to think big tosucceed tomorrow. They just need tothink smarter.

Deanne N. Gage is managing editor of

Advisor’s Edge.

[email protected]


53%OF THOSE WHOHAVE A DESIGNATIONHOLD THE CFP.

AE10_018-022 09/28/2004 5:12 PM Page 22

HOLESIN

YOURPRACTICEWHY ARE SO FEW INVESTMENT ADVISORS USING

INSURANCE TOOLS TO MEET CLIENT NEEDS?

K

BY SHEILA AVARI

ate Brown wanted to be able todo more to help her clients. After work-ing for five years as a financial plannerin a bank, she felt something was stillmissing. “I know insurance is critical tothe whole financial plan but I was only able to discuss insurance with clients in general terms,” says Brown, a CFPnow with RBC Dominion Securities in London, Ont. “I could tell them the difference between whole life and

term but then I always had to tell themto talk to a life insurance agent.”

When she moved to RBC last yearfrom another bank-owned firm, it wasrecommended she get her licence for lifeinsurance, something she calls a “regu-latory opportunity”—two words rarelyseen in the same sentence. “Gettinglicensed for life is one of the reasons Imoved here. I saw that more doorsopened for me.” Now, rather than direct

clients to other insurance professionals,Brown is able to talk in more detailabout what products would suit them.

Sensing the need to focus on wealthpreservation, bank-owned brokeragesstarted hiring insurance specialists towork with their investment advisors adecade ago. These specialists have yearsof experience and most of them areequipped with insurance designations


Insurance


AE11_023,024,026,029 09/28/2004 04:40 PM Page 23

such as the Chartered Life Underwriter. Brown is still new to insurance but

says she will make it a priority in herplanning practices. An attitude like this,especially from an investment advisorin the IDA world, is music to the insur-ance industry’s ears. Yet, according toour 3rd Annual Dollars & Sense Sur-vey, while 67% of IDA advisors arelicensed to sell insurance, 29% of themsay they are not selling insurance to anyportion of their clients, compared withjust 17% of advisors on the MFDAplatform. Furthermore, only 9% ofIDA advisors sell insurance to 75% ormore of their client base versus 23% oftheir MFDA counterparts.

Greg Jizmejian, an estate and insur-ance specialist for BMO Nesbitt Burnsin Toronto, says the majority of advi-sors in his region aren’t actively involvedin insurance. “Forty per cent of themprovide on-and-off business but only10% of them are my core business,” hesays. Last year, licensed IDA advisorssold an average of 15 new policies,while licensed MFDA advisors sold 27.The difference in renewals was evenmore substantial, with IDA advisorsrenewing 44 policies and MFDA advi-sors renewing 125.

So what’s the real story here? Given

the resources in place, why are invest-ment advisors doing such little businessin insurance?

“We are in the money business first,”explains Andreas Komitas, an invest-

ment advisor with RBC DominionSecurities in Toronto. Currently, insur-ance sales comprise 5% of his business.Komitas got his insurance licence five




0%

1-24%

25-49%

50-74%

75-99%

100%

National Average: 33.8% MFDA Average: 37.8% IDA Average: 19.3%

17%

27%

18%

15%

18%

5%

29%

45%

11%

6%

6%

3%

MFDA IDA

(n=1426; moe ± 2.6% 19/20)

WHAT PORTION OF YOUR CLIENT BASE DO YOU SELL INSURANCE TO?

0

1-100

101-200

201-300

301-400

401-500

501+

National Average: 325.5 MFDA: 322.8 IDA: 150.4

3%

56%

10%

7%

3%

3%

17%

Q. How many insurance policies did you have in force in 2003 (including new sales)?(n=1048 licensed to sell insurance)

NUMBER OF INSURANCE POLICIES IN FORCE(INCLUDING NEW SALES)

Insurance Policies

Average Insurance Policies: 26.3

26.6 15.3

MFDA IDA

Q. Approximately, how many new insurance policies did you sell in 2003?(n=1048 licensed to sell insurance)

NUMBER OF NEW INSURANCE POLICIES SOLD IN 2003



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years ago because he felt it would addanother dimension to his practice.However, he says, “Investments are ourbread and butter. You will be left out to dry if you stick only to insurancebecause sometimes it can take monthsto close.”

Gerald D’Souza, an insurance spe-cialist also with RBC Dominion Secu-rities, echoes Komitas’s comments. He

believes investment advisor performanceisn’t measured by the amount of insur-ance sold. “It’s a part-time job to makea couple of dollars,” he says.

“Their first responsibility is handlingthe clients’ money and to make moremoney,” D’Souza explains. “Many ofthem have to focus on bringing moreassets into the firm, otherwise they are shown the door.”

Insurance can be particularly chal-

lenging for the investment-trained advi-sor to master. “They don’t want to looklike fools,” Jizmejian says. “Some don’teven know their clients because they dobusiness on the phone. Their thoughtsare ‘why introduce something that mayrock the boat.’”

Education is another reason for lacklustre insurance sales on the IDAplatform, says Komitas, whose greatest success comes from selling segregatedfunds. But he admits it takes two orthree years “to get your feet wet,” andthat advisors require proper educationon how to introduce insurance toclients. Moreover, they need time towork with the insurance specialists.

Jizmejian agrees. He conducts infor-mation seminars to acquaint advisorswith complex insurance cases that, ineffect, give advisors a way to sample his




0

1-100

101-200

201-300

301-400

401-500

501+

Average Number of Policies Renewed: 131.3 MFDA: 125.4 IDA: 43.9

25%

55%

3%

4%

1%

1%

4%

Q. How many insurance policies did you renew in 2003?(n=1048 licensed to sell)

NUMBER OF POLICIES RENEWED IN 2003

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GERALD D’SOUZA,RBC DOMINION SECURITIES

TORONTO

platform. “We’re talking about trying toget in front of established, traditionalinvestment advisors,” he explains. Hegrants, however, some of these advisorswill “never change their stripes” and arecomfortable without having an insurancelicence. But he suspects the real hookcomes from the continuing educationcredits advisors receive for the seminars.

D’Souza came to RBC DS withnearly three decades of insurance salesand management experience. He is oneof the firm’s 19 insurance specialistsand says he wants nothing more than towork closely with the investment advi-sors in his region. “I have to really holdthe advisor’s hand and show them howto spot the prospect, establish the need,and [teach them] how to talk to theclients’ other advisors,” he explains,adding, “They also need to know howto service the client now and 20 yearsfrom now.”

Each September, D’Souza runs a four-hour insurance seminar for investmentadvisors. To showcase the opportunity,he brings along his top insurance per-former. This year he plans to bring Bev Evans, an investment advisor whoserevenue from insurance far exceeds that from investments. “A couple ofsolid insurance concepts really clickedbetween her and her clients,” he says.“She knows the talk and is actually sur-prised at how successful she has become.”

D’Souza concedes investment advi-sors want to develop confidence in hisplatform before presenting him to theirclients. After a year of trying, he finallysecured a meeting with an advisor whohas a client with $100 million ininvestable assets. The next day D’Souzareceived an e-mail from the advisor’sson, who helped arrange the introduc-tion. According to the son, D’Souzahad passed “the smell test”—a goodsign, and a good step forward.

Sheila Avari is a freelance writer based in

Philadelphia. [email protected]


Pho

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Investment Planning Counsel

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IN TODAY’S UNCERTAINEQUITY MARKETS

ADVISORS ARE STICKINGWITH THE TRIED TOOLS

OF DIVERSIFICATION.BY SCOT BLYTHE

SECONDTIME

CAUTIOUS

here’s nothing like a bull market toget investors excited. The double-digitreturns some indexes posted in 2003—some funds sported 40% gains—almost made up for portfolio losses suf-fered since the Nasdaq bust in March

2000 ushered in the Great Bear.Now, deep into 2004, advisors and

investors are seeing a market surge thathas stalled since the first quarter. It’s notquite the devastating losses of 2000-2003, but definitely enough to remind

investors that there are risks to stocks. Asa result, advisors are finding their clientscautious and noncommittal.

“I think the expectations got out of control last year, as they always do,”



Investments

T

AE11_031,032,034,036 09/28/2004 05:09 PM Page 31

says John Horwood, an advisor atRichardson Partners Financial Ltd. inToronto. “The last couple of months,the usual candidates, people who arerisk-averse, have been on the telephoneasking what’s happening. I’ve been con-stantly doing portfolio reviews to makesure they understand what’s going on.”

That said, Horwood finds thatinvestors are quick to rein in expecta-tions, unlike in the 1990s. “I think theappetite and comfort level with risk ismuch lower now. People are still gun-shy from a couple of years ago. They’re

very happy when it goes up, but when itgoes down, they get that sinking feelingprobably quicker than they did a fewyears ago.”

That lack of enthusiasm shows up inmutual fund sales figures. As late as lastSeptember, halfway through the bullrun, mutual funds fell into net redemp-tion. And outweighingly, investors areopting for income-type products, bethey dividend funds, income trusts orhigh-yield vehicles, resulting in somefunds closing to new investors, as fundcompanies worry about too muchmoney chasing too few securities in agiven market.

Still, 2003 was a year in markets likeno other. Conventional wisdom has itthat in the 1990s, an investor couldthrow money at anything and makemoney. That was never true, of course,

for those who remember the long cal-vary of value funds and small caps andthe occasional bond downturn. But in2003, every asset class was up, notesDon Phillips, managing director atMorningstar in Chicago, speaking atMorningstar Canada’s annual confer-ence for advisors earlier this year.

“I think [investors] are frustrated,”says Darren Coleman, an investmentadvisor at TD Waterhouse InvestmentAdvice in Toronto. “The markets havebeen going down, then we had them goup in the last half of 2003, and thenthis year has been very, very flat, and it’s been flat across the board: Incometrusts have backed off, equities are flat,bonds are flat, hedge funds are flat.Where can we go to find return with-out taking on an enormous amount of



Guaranteed Notes

Managed Wrap Accounts

Labour Funds

Real Estate

Hedge Funds

Closed-end Trusts

Exchange-traded Funds

Managed Futures

35%

31%

25%

16%

13%

12%

11%

10%

Q. Which of the following alternative investments are you selling or recommending?(n=1609; moe ± 2.4% 19/20)*mentions of 2% or less are not included

ALTERNATIVE INVESTMENTS ADVISORS ARE SELLINGOR RECOMMENDING

Source: Annual Dollars & Sense Survey, 2004Source: Annual Dollars & Sense Survey, 2004

73.9%

20.7%

5.4%

53.2%

39.6%

7.1%

27.9%

62.0%

10.2%

GROWTH INVESTOR

Equities

Fixed Income

Cash

BALANCED INVESTOR

Equities

Fixed Income

Cash

INCOME INVESTOR

Equities

Fixed Income

Cash

Q. What is your recommended asset allocation mixfor an unrestricted portfolio for the following type of investor?(n=1608; moe ± 2.4% 19/20)

RECOMMENDED ASSETALLOCATION FOR SPECIFICTYPES OF CLIENTS

AE11_031,032,034,036 09/29/2004 05:17 PM Page 32


risk? That’s very, very challenging.”

The New ClientWhat this may point to is a new type of client. While many investors arestill in the accumulation phase of theirlives, capital preservation is emerging asa theme. To some extent, it’s reflected in the kinds of products clients are buying.

“I’m still buying some internationalfunds, on the premise that we’re buyingwith a 20% depreciated Canadian dollar,” says Joe Riche, a former invest-ment advisor who has set up his ownfirm in St. John’s, Nfld. He expressesconcern that income trusts may beoverbought and is cautious about U.S.equities. However, he’s still buying a lot of income products. “I like theGuardian monthly dividend fund, forolder clients, and ones who are moreconservative.”

Principal protection also is an issuefor clients, and the past year has seen aflurry of guaranteed notes, says Riche.“These are the kind of things we’relooking at, because we’re not too excitedwith the rates on GICs.”

Riche strives to keep it simple, withhis shelf space limited to three or fourcompanies. Simplicity is more than avirtue; it’s a necessity when it comes tocomplex new offerings. Some take theform of a split-share corporation withone tranche of investors receiving a pre-ferred share and the other capital shares.

There are income trusts of trusts.Other structured products include cov-ered-calling writing trusts and hedgefunds whose guarantee is secured eitherwith a zero-coupon bond or an option.“When I was at Merrill three years ago,

principal-protected notes and market-linked notes were pretty sexy stuff,” saysBruce Ferman, director of operations atRichardson. “A lot of this stuff is com-moditized. Some fees that are built intosome of these products are very, veryhigh. You really have to sift throughthem to find the good ones.”

Horwood agrees. For every 10 prod-ucts he looks at, he rejects nine of them.“Research is key. The issue is what

you’re paying for the guarantee andreally what it’s worth.”

Our survey data shows that guaran-teed notes are the most popular alter-native to straight-up funds (35%),though an increasing number of advi-sors are also using managed or wrapaccounts. Guaranteed notes can be aninteresting hybrid. According to otherdata in our survey, 19% of advisors use mutual fund notes; 16% hedge fund notes; 12% index notes; and 12%managed futures notes.

Absolute ReturnsHorwood does use some hedge fundnotes. “Generally I don’t feel that goodabout principal-protected notes unlessthey have a very special application,” he

says. “I have some principal-protectednotes for hedge funds where the long-term track record for the underlyingfund is good.”

The difficulty is in a note where theunderlying funds have no track record.“There’s really a lot of research to bedone on any of these structured prod-ucts before you buy in because if you’rewrong, it’s horrible,” Horwood warns.

Still, some notes fit an overriding

theme among investors. “The wholepurpose of the hedge funds that we useis designed to reduce risk in a portfolioand get a more consistent return andthat’s very much what clients are look-ing for right now,” says Coleman.

David Bluteau, an advisor at Welling-ton West in Halifax, concurs. “Hedgefunds have basically taken a front seathere because a lot of people are look-ing for something that can make areturn whether the market is going up,down or sideways,” he says. “I’m notsuggesting that everybody go full tiltinto hedge funds. But I think they’ve

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JOE RICHE,RICHE INVESTMENTS

ST.JOHN’S,NFLD.



AE11_031,032,034,036 09/28/2004 05:15 PM Page 34

come into the forefront because peopleare looking for consistency in returns.

“You can do a great job of setting upa portfolio that’s well-balanced, whichis right for most clients,” Bluteau adds.“I would say that 90% of clients couldfall into a balanced portfolio. The chal-lenge right now is that with the equitymarkets not performing, with a bal-anced portfolio they’re still not pleasedwith the relative performance. You canstill say we’re doing very well relative tothe market but people are focusingmore on absolute returns—hence theinterest in hedge funds.”

EducationAbsolute versus relative returns? That’sa matter of client education. It toucheson getting the best risk-adjusted

returns (and teaching clients what thatmeans) but it also concerns a veryimportant corrective: The 1990s weredifferent. While advisors will hesitateto use the term “secular bear market,”even those who were perceived as thebiggest boosters of Wall Street duringthe long secular bull market that ranfrom 1982 to 2000 have cautionedthat stocks in the long term will yieldmuch lower returns than they did.

In other words, there may benowhere to hide for clients. Instead,they have to get used to it, and try tohang on to their wealth rather thangrow it exponentially.

“My clients are mostly older, con-servative and more concerned aboutkeeping what they have rather than try-ing to make a fortune,” says TerryCampbell, a senior financial consult-

ant with Investors Group in Burnaby,B.C. “They have reasonable expecta-tions which we normally meet or beat.This is especially true over the last fiveto six years. During the greed of thelate 1990s, and then the last threeyears of panic, my clients stayed bal-anced. They listened and went slowrather than fall into that greed versuspanic cycle.”

Adds Riche: “There’s that pendulumswinging back and forth again. It’sadjusting expectations. The days whenI think most advisors got into this business saying you’ll get 10% a year,so every seven years your money is goingto double—those things are just out tolunch right now.”

Scot Blythe is investments editor of Advisor’sEdge. [email protected]


Looking for more insights and practice-improving tipsstemming from our third Annual Dollars & Sense Survey?Then be sure to check out Advisor.ca’s new online package that’s chock full of expert advice and tools.This special October package includes:

• An interactive practice benchmarking tool • Top tips to up your insurance sales• Frontline advice on surviving the administrative

avalanche• Direct links to other helpful Advisor.ca resources

and tools

All this and more can be found in the Practice Zone atwww.advisor.ca starting October 6, 2004. In addition,our Product Zone and News Zone will be featuring thefollowing survey-related coverage:

• A closer look at the new breed of insurance client• A recap of key survey findings that impact your practice

Be sure to visit www.advisor.ca starting October 6, 2004,for all of the above and more. For other online resourcesrelated to articles in this magazine, please visit www.advisor.ca/edge/.

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AE11_031,032,034,036 09/28/2004 05:19 PM Page 36

SEEKING

SOLUTIONSADVISORS INUNDATED WITH PAPERWORK AND

OTHER ADMINISTRATIVE DUTIES ARE LOOKING FOR EFFICIENT WAYS TO CLEAN UP THEIR PRACTICE.

BY HEIDI STASESON

the advice industry wheretoday’s client wants it all, it’s no surprisethat one of the leading day-to-day chal-lenges confronting advisors is an over-load of administrative and paperworkresponsibilities. According to our thirdAnnual Dollars & Sense Survey, 19% ofadvisors surveyed identified paperworkas particularly onerous; 15% citedbuilding books and assets; 15% namedprospecting; 10% identified time management; and 6% said compliance

and regulation were their primary challenges.

But rather than running and duckingfor cover, advisors are tackling the burden head-on. They are finding solu-tions—both their own and tips bor-rowed from their peers—to the red tapelining their desks, and many of themare excited about the correspond-ingsurge of activity their books are absorb-ing as a result.

Craig Walker, branch manager and

senior financial planner at Dundee Private Investors Inc. in Edmonton,attributes administration and paper-work as the key obstacle to productiv-ity. An advisor since 1997, Walker iden-tified the obvious time wasters early on.Routine and often niggling tasks suchas fielding phone calls, processingcheques that might have been misplaced(even more maddening when one goesmissing) and adjusting clients’ monthly

Practice Management


IN


AE11_039-048 09/28/2004 5:28 PM Page 39

contributions or transactions keep theoffice hopping. Within two years hedecided to hire an assistant.

“I realized it was much better to paysomeone else to perform those func-tions for me and alleviate my time,” saysWalker. “I don’t want to be hung up onwhether a redemption has made it in themail; it’s not an effective use of my time.

My function is purely servicing and getting new clients.”

Creeping ComplianceThis type of insidious paperwork cou-pled with an increasing litany of com-pliance requirements ultimately takesadvisors away from their primary func-tion of servicing the client. “It used tobe more or less paperwork would be

submitted and if there was an issue thecompliance people would take a look atit,” Walker says. “It’s at the point nowthat if there’s any kind of issue at all,whether trivial or outside the guidelines,the whole train stops moving. It’s not acase of being able to fix the problemafter the fact. There is no problembecause the transaction isn’t happening.So it can create some issues in terms oftiming, getting back to your client, cor-recting paperwork when it’s deficientand moving forward.”

Such pervasive “over-regulation” maybe the reason our survey indicated 13%of advisors say they are consideringleaving the business altogether—anincrease of four percentage points from2002. Indeed, an advisor’s ability tomanage, assess and improve a client’swealth portfolio may be hamperedwhen one’s time is interrupted by ping-ponging e-mails related to complianceconcerns.

Just recently, for example, Walkerapplied to have his mutual funds licenceextended to Saskatchewan—he alreadyholds licences to practise in bothAlberta and Ontario—only to be toldby his compliance department heneeded to obtain his transcript fromIFIC.

Continued on page 43Source: Annual Dollars & Sense Survey, 2004


Administrative / paperwork

Building book / assets

Prospecting

Time management

Staying focused / disciplined / motivated

Life-work balance

Compliance / regulation

19%

15%

15%

10%

9%

7%

6%

Q. What is the greatest single challenge you face in your business on a day-to-day basis?(n=1426; moe ± 2.6% 19/20)*mentions of 4% are not included

ADVISORS’ GREATEST DAY-TO-DAY CHALLENGES

Over-regulation

Exploring other career opportunities

Too stressful

Increased costs of doing business

Too much paperwork

Poor compensation

Yes 13%

40%

34%

33%

31%

30%

24%

(n=188 advisors thinking of leaving the industry)*only top mentions included

(n=1426; moe ± 2.6% 19/20)

AMONG THOSE THINKING OF LEAVING THE ADVISORYBUSINESS: WHY? (MULTIPLE RESPONSES)

ARE YOU THINKING OF LEAVING THE ADVISORY BUSINESS?


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AE11_039-048 09/28/2004 5:28 PM Page 41

“I initially wrote the IFIC exam sevenyears ago, so of course I don’t havethat!” Walker says. “But I do have mycertificate hanging on the wall sayingthat I’ve successfully completed it.Compliance said, ‘No, that’s not goodenough; you need a transcript that saysyou passed it.’ So that’s another seven-to-nine-day delay in getting thingsdone.”

Issues of compliance crop up so fre-quently that sometimes even having thatextra help from an assistant becomes amoot point. Certain tasks surface thatonly an advisor can perform. Theseinclude checking a client’s personalidentification, filling out risk profiles orasset allocation sections of applicationsand handling the original documentsfor trade tickets.

Administrative AntidoteFor the most part, Walker’s assistant isable to handle the bulk of paperworkthat passes his desk. But when you wantassistants to do more than fill out trans-fer forms, consider paying them well.

Walker is a firm believer in bothoptions. Whereas the average advisorpays their assistant $36,819, Walkerpays his assistant $40,000 annually,plus an attractive bonus, equating to

approximately 25% of his firm’s netincrease year over year. In a typical year,he says she actually makes $60,000.

Such rewards reflect a considerabledegree of education and skill, Walkerpoints out. His assistant has both amutual funds and insurance licence.“Otherwise you’re limited in what yourassistant can do, particularly when itcomes to client contact,” he says. Hisrationale for hiring was essentially todownload the entire administrativefunction to his assistant so his involve-ment would be on an “exception only”basis. By having both licences she is able

to perform a variety of functions,including those which fall under theindustry’s current compliance rules. Asa result, he is sticking to his plan ofproviding 100% client contact, whilehis assistant handles the rest and is com-pensated for it handsomely.

Last spring, when George Fischertransferred into his new position as BMO Nesbitt Burns’s branch manager, Halifax, and divisional man-


Continued on page 44Pho

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CRAIG WALKER,DUNDEE WEALTH MANAGEMENT

EDMONTON

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AE11_039-048 09/29/2004 1:55 PM Page 43

ager, Atlantic Canada, he realized hecouldn’t carry over the clutter. His two-pronged role would now accumulateeven more paper, including staffing,profit and compliance reports.

“One of my biggest complaints wasI could file something today and Icouldn’t remember where I filed ittomorrow,” says Fischer. The solution?His regional administrator told himabout Jane Veldhoven, the owner ofGet Organized! Professional Services, a home and office organizing companybased in Halifax.

“I was bringing the mess with me soI figured I would meet her and see ifshe could bring value,” says Fischer.And that she did. Like a fiduciary fengshui, Veldhoven purged and proddedthrough Fischer’s files and set up an organized and colour-coded filingsystem.

According to Fischer: “I’ve never hadmy office as organized. People I share itwith have been impressed! You feel a lotmore in control. I don’t waste as muchtime. One of the biggest time wasters islooking for stuff.” Fischer estimates he’sshaved off as much wastage as an houror two a week and now he can concen-trate on what he does best: managingand coaching.

Partnership PanaceaOther advisors take on partners toincrease performance and efficiency.Chantal Murphy agrees having a part-ner in business is essential for providingthe higher level of service today’s clientsare seeking. Murphy, who is a vice-pres-ident and wealth advisor for BMO Nes-bitt Burns’s private client division inOttawa, brought in partner SylvainBrisebois 10 years ago. She says themove was the solution to managing hertime effectively, allowing her to achievea healthy work and life balance, andeven quadruple assets and productionover the last decade.

Brisebois handles the daily activitiessuch as the portfolio management, trading activities and management ofaccounts, while Murphy is the “rela-

tionship” person, responsible for serv-icing and maintaining the shared trustand loyalty with her long-time clients.When they are not working in tandem,preparing for client meetings and man-aging their firm’s recently launchedwealth advisory board, the partnersdemonstrate a pass-of-the-baton work-life relationship to accommodate theirrespective personal responsibilities.

“We have different strengths thathave complemented each other. It’s likeparents who will do anything for achild; you try to do the right thing,”explains Murphy. For example, Brise-bois will arrive at work earlier than she, allowing her to tend to her ailingmother during morning rush hour.He’ll subsequently leave the office


Atlantic

Quebec

Ontario

Manitoba

Saskatchewan

Alberta

B.C. / Territories

National Average

by MFDA

by IDA

$32,986

$38,561

$37,105

$34,531

$35,292

$35,696

$36,292

$36,819

$34,750

$38,542

Q. On average, which of the following categories best represents your administrative assistant(s)’ annual salary for 2003?(n=3034; moe ± 1.7% 19/20)

ASSISTANTS’ PERSONAL ANNUAL INCOME FOR 2003, BY REGION



AE11_039-048 09/28/2004 5:29 PM Page 44

earlier in order to accommodate hisfamily time while Murphy stays laterfocusing on client needs.

Both concede the challenge hittingthem hardest is the enormity of paper-work stemming from their 325 clientfamilies—especially that amassed fromclient meetings. Although the partnershave two assistants, simply organizingthe meeting notes in a logical and com-prehensive manner is a duty only theadvisors can responsibly fulfill.

“That’s where we’re falling behindthe most,” says Brisebois, explaining thatwhile many advisors use such clientdatabase software to keep meeting notestogether, he and Murphy rely on theirown working papers and diarizing ofclients’ personal and qualitative infor-mation. The issues requiring thoroughnote-taking are for the most part “psy-chological,” says Brisebois, and incor-porate aspects such as long-term care orcritical illness, charitable giving, runningthrough an estate planning checklist anddetermining legacies. “It’s not aboutmaximizing the dollar at the end of theday,” says Brisebois. “It’s about makingthe client feel organized and with peaceof mind so it goes beyond the 6%return.

And given the fact client emotion

isn’t something an assistant is adept atconfiguring, who better to format thenotes than the advisor, explains Mur-phy. “We have to enter them in thedatabase, that’s the challenge,” she says.“The idea is to sit down and consoli-date this in a logical fashion so you’ll beable to understand these notes six ornine or 12 months down the road.

“If you hand in your scribbles tosomebody, they could do the notes butthey won’t be as good as if you dothem,” Murphy says of her binder-filledbacklog of 30-to-40 hours of notes toprocess.

Darren Coleman also teamed with apartner in response to the changingmilieu of compliance regulations andclient demands. “Obviously there is amuch higher standard that we have tomeet in terms of maintaining our doc-umentation and keeping it up to date,but also just in terms of a client servic-ing perspective,” says Coleman, aninvestment advisor in Toronto with TDWaterhouse Investment Advice, whomanages 700 clients with partner andsenior investment advisor Patrick Chan.

“There’s just more paperwork interms of client letters, keeping track of opportunities and things that are maturing and staying on top ofthe client relationship because we tend

to do more with clients now than justtypical transactions,” Coleman says,adding that today’s clients are moredemanding and what worked a decadeago won’t necessarily work anymore.“Clients want a much more thoroughanalysis and plan of action in dealingwith their affairs. Ten years ago, youcould show somebody a balanced orequity mutual fund and away you went.

“But that’s much different now. Peo-ple are now more focused on capitalpreservation and on income, whereas 10 years ago people were much morefocused on capital growth.”

Each advisor would agree that to ful-fill their client service objectives, it’soften necessary to undertake a thoroughanalysis and inventory of one’s clientbase. And sometimes that involves cut-ting back. “In order to be able to givethe level of service the clients deserve, Ithink you have to be reasonable and real-ize you can only service so many clients,”states Murphy. “It’s very difficult whenyou have a relationship with clients fora long time but you can’t do it all.”

Craig Walker concurs. When hemoved from Investors Group toDundee in January 2003, he undertooka thorough examination of his businessmodel and nailed down the obstacles to



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a successful practice. For him, the chal-lenges were time management and aweaker prospecting performance. “I wasspending all my time servicing and verylittle time prospecting and generatingnew clients,” he says. “I wanted to effec-tively change my business model to geta higher-net-worth client and to pro-vide more of a planning function.”

To reach that stage, he had to exam-ine the quality of clients he was attract-ing and the precise level of commitmentthey were bringing to the table. “Ifyou’re going to actually put in the timeto build a financial plan, you’ll really getthe client on board with the idea ofplanning, until that fateful day that itrequires commitment on both parties,”Walker explains. “What I looked atwas, am I just a depository for them,hoping that I’ll make a better returnthan the next guy? Or, are they com-mitted to the plan that’s actually goingto get them to where they want to be?”

With that, he trimmed his book by 270 clients. He reconciles that move after having performed a carefulcost/reward analysis. “When I had agood hard look at it I found I had a lotof small clients in addition to the high-net-worth ones but the numbers of smallones were huge comparatively,” he says.“They were $10,000 to $20,000 clientsand if you really look at it you’re notmaking any money with these clients;certainly you can put yourself in a seri-ous loss position if you are spending alot of face-to-face time with them. Sothe initial purge allowed me to really cutmy portfolio dramatically, in terms offactual numbers but not in terms of seri-ous dollars.”

He now has a manageable client base

of 150 and says, “It was probably thesingle best thing I did in that process. Itfreed up a lot more time, took away a lotof the headaches and the type of clientthat maybe you don’t want to deal with,and allowed me to pursue this part of the

business that I enjoy the most: gettingclients to where they want to be.”

Heidi Staseson is assistant editor of

Advisor’s [email protected]


There is some good staff out there and

[finding them] shouldn’t be a challenge.Get

yourself some help and delegate. Spend a

little bit of money. Hire the right people.

A lot of people are hesitant to do it. But

don’t depend on the firm to do it.You have

to take care of yourself and we shouldn’t be

doing administrative and paperwork. We

should be doing minimal.We should be out

there doing what we’re good at doing and

that’s dealing with clients and bringing in

business and building our assets.

You have to go out and persevere. Do

what you think is right because you’ve got

to make your practice better. I know it’s

difficult when you’re growing because you

feel limited. Whether you have to hire an

extra person and suffer financially short-

term, if you do it right it will pay off. Short-

term pain for long-term gain. And be gen-

erous by paying a bonus.

You’ve got to dig into your own personal

pocket. Pay the few dollars. Motivate

them. Money is very motivating! But make

their job interesting. With the delegation,

you can make it as fascinating for them as

it is for you. And they reap the rewards

when times are extra busy by [receiving]

that higher percentage.

A lot of investment advisors are not able

to part with the financial aspects, but in

this business, you have to take on the finan-

cial burden.Take it one step further and

make sure you’re generous with your

support staff. It’ll make all the difference,

certainly in your administrative work.

—As told to Heidi Staseson

PAYINGTHE

PRICE

CHANTAL MURPHY,CIM, FCSIBMO NESBITT BURNS

MINI PROFILE

OTTAWA

VICE-PRESIDENT AND WEALTH ADVISOR

BMO NESBITT BURNS,

PRIVATE CLIENT DIVISION

OTTAWA

NUMBER OF CLIENTS: 365YEARS IN BUSINESS: 34

Photography by C

olin Row

e

AE11_039-048 09/29/2004 05:18 PM Page 48

CHECKCOMPLIANCE

Advisors may think they have the KYC system down pat but critical requirements are still too often overlooked. By Ellen J. Bessner

KYC IN ONE FORM OR ANOTHER

Yes, I know you’ve heard all you’dlike to hear (and then some) aboutknow your client (KYC) forms, but there is one IDA and MFDArequirement that advisors sometimesoverlook. Both IDA and MFDA reg-ulations seem to indicate that a KYCform be completed for every accountopened.

Just so we’re clear, if Joe Advisoropens two accounts for one client, sayan RRSP and RESP, presumably hemust complete a separate KYC foreach of the new accounts. The word-ing of the IDA (Regulation 1300.1(a) and MFDA Rule 2.2.1(a) arealmost identical: Each member shalluse due diligence to learn the essentialfacts relative to each client and to eachorder or account accepted.

One might argue that this provisiondoes not require a separate KYC forevery account opened, but in certaincircumstances others, including theregulators, may disagree.

This is a rude awakening for someadvisors, particularly on the MFDAside, who are just growing accustomedto enforcement in this highly regulatedindustry. It may be that the KYC formshappen to be identical. But if you don’task the client his or her specific objec-tives in relation to each account, youwill never know, and therefore, youwon’t have the evidence of having madethese inquiries, which could lead toproblems. I am certain you don’t want

that to happen, as each violation maybe the subject of an MFDA or IDABulletin that will remain on the Website for several years.

Why is such a rule in place? Clientsmay have different goals for differenttypes of accounts and a separate KYCform will discipline both clients andadvisors to examine this possibility.

Perhaps, being the eternal optimistthat I am, the extra obligation of com-pleting a separate KYC form for eachaccount can protect advisors, branchmanagers and supervisors from clientswho complain they never expected tohave RSP money treated the same wayas RESP or unregistered money.

There is, however, a problem thatall advisors, branch managers andsupervisors should be aware of. Beforethey sign each KYC form—and itreally should go without saying—theymust review it carefully. Of course,this does not always happen.

If the client already has an accountwith the firm it would be prudent topull the existing KYC form and reviewthe two forms together. The clientinformation should be reviewed indetail to determine whether the per-sonal information is consistent inboth forms, and if not, inquiriesshould be made to understand theinconsistencies.

Examine information as basic as theclient’s address. For example, a well-intended but ill-informed advisor may

open an account for an existing clientin which the address on the form isdifferent from the client’s actualaddress. Transfers may be made fromone account to the other withoutmuch serious consideration. However,if the losses are transferred to theaccount and the statements fail toreach the client, the losses may not bedetected by the client until it’s too late.

Also verify that the client’s personalinformation is consistent on bothKYC forms to ensure that any updatesare recorded. The objectives on theform should also be reviewed toensure the overall plan is logical.

These are merely my own humblesuggestions to protect yourself asadvisors, branch managers, supervisorsand your firm. Whether you think itmakes sense or not, the MFDA andIDA rules indicate if you have morethan one account you must preparethe KYC forms to reflect the objec-tives for each account. If you don’twant to follow the rules, you will risklosing your licence, your livelihood,and most importantly, your and yourfirm’s reputation.

Ellen J. Bessner is a lawyer at Gowling,Lafleur, Henderson. She practises in the areaof brokers’ liability and offers compliancetraining to brokerage firms. The above isintended for a general audience and shouldnot be considered legal advice. “ComplianceCheck” appears every other issue.


AE11_055 09/28/2004 05:29 PM Page 55

WEALTHTRUE

Should you structure your HNW practice as a multi-family office?By Thane Stenner

WORKING FOR THE FAMILY

As wealth grows, so does com-plexity. This is especially true of thosewho have crossed the threshold fromhigh net worth ($1 million or more)to ultra high net worth ($10 millionor more).

One way for ultra-high-net-worth(UHNW) families to manage thisincreasing complexity is to build a pri-vate investment firm or “family office”to manage their financial affairs fulltime. However, with annual costsranging anywhere from $500,000 to$1 million (and sometimes more),only the wealthiest of the wealthy canafford one.

That may be changing. Industryinnovations and a renewed under-standing of what UHNW familiesare actually looking for from theirwealth advisors have made the familyoffice practice model a lot moreattractive. Whether you work within alarge firm or a smaller, independentshop, this practice model stands tochange the way you work with yourwealthy clients.

The Multi-Family Office (MFO)The (MFO) is in many ways aresponse to consolidation in the Cana-dian financial services industry. Asinstitutions have become larger, staffturnover has increased and service hasbecome somewhat less personal. Thisis exactly the opposite of what mostUHNW families want from their

wealth advisors. The MFO’s personalized and

highly attentive structure is commonamong European private banks thatfor generations have served theUHNW population. It’s basically amore cost-effective variation of thefamily office, comprised of a multi-disciplinary team of experiencedfinancial professionals (investmentofficer, accountant, estate lawyer, etc.)and administration staff. This teamworks to perform a wide range offinancial services for the family—any-thing from managing investment port-folios to paying bills. Yet, instead ofserving a single family worth $250million or more, the MFO serves afew dozen families, each with a mini-mum net worth of $10 million. Thisallows for much the same level of serv-ice a family office provides, but at agreatly reduced cost.

The MFO is typically structured asa fee-based advisory practice. MostMFOs charge fees based on a per-centage of the client’s assets undermanagement. However, because theservices rendered by MFOs don’talways relate to investments (estateplanning, tax planning, etc.), manyMFOs add a supplemental charge foradvanced planning services, either bydirect billing or by adding an advancedplanning premium on top of the basicinvestment management fee.

In our practice, we offer a simple

fee-based service for clients who wantpure investment management, and apremium fee for those clients lookingfor fully integrated, comprehensivewealth management. We also work asan independent consultant for someclients, charging a flat fee to becometheir financial co-ordinators—for-mulating big-picture strategy, over-seeing investment managers, produc-ing consolidated financial reportsetc.—without actually managing theirassets.

Advantages of the MFOThe exclusive nature of the MFOstructure ensures UHNW familiesreceive best-in-class services, access totop-notch investment managers andcustomized wealth management solu-tions (stock monetization, customizedprincipal-protected notes, advancedhedges, private equity, etc.). Moreimportant, it offers UHNW familiesthe stability of working with peoplewho know the family and its financialaffairs inside and out.

The MFO structure also offers sig-nificant advantages for the advisor. Itencourages long-term client retention,and provides an opportunity to workon a range of wealth challenges. Byoffering services to multiple generations,the MFO replenishes its client basefrom within, giving advisors the oppor-tunity to forge lifelong relationships



AE11_057,059 09/28/2004 05:25 PM Page 57

WEALTHTRUE

with client families that are as much per-sonal as they are professional.

The MFO culture is distinct fromthat of the traditional wealth man-agement firms. I suspect it willbecome the preferred model forUHNW families who in the futurewill be seeking more personalizedservice and will gravitate toward advisors who offer holistic, multi-gen-erational wealth services in either a private or a bank-owned firm.

Common features of a successfulMFO are listed below. You don’t haveto establish your own firm to imple-ment these ideas into your practice.Having a basic knowledge of these fea-tures should make it easier to explainto your UHNW clients how you aredifferent from the competition.

Focused Client BaseThe MFO usually serves between 25and 60 families. However, more impor-tant than the number of families served(or their net worth) is the type of fam-ilies served. Successful MFOs establishclear guidelines about the families theywant to work with, and only acceptclients who fit within those parameters.This makes it easier to anticipate clientneeds while maintaining the highestlevel of personal service.

Integrated Service OfferingThe MFO is a one-stop shop for afflu-ent families seeking financial advice. Itmanages all aspects of client wealth,from building a portfolio to payingbills and structuring estate plans and charitable bequests. If the MFO

doesn’t already have staff experts in a particular area, it should establishrelationships with a network of spe-cialists, and be ready to act as a “wealthco-ordinator” with those specialists.

“Four Seasons” Service CultureSuperior service is the hallmark ofthe successful MFO. In this vein, it operates similarly to a luxury hotel,whereby the intention is to not only exceed client expectations, but to establish a new standard ofclient expectations. Client-staff ratiosshould be kept as low as possible, andregular in-person contact betweenclients and professionals should be thecultural norm.

Emphasis on Family The MFO’s mandate is to build andpreserve wealth for multiple familymembers, across multiple generations.That means MFO professionals needto be more than number-crunchers;they need to be comfortable workingwithin a family dynamic, and should beable to offer guidance in case financialconflict arises among family members.

Long-term ThinkingThe MFO does not accept new clientssimply to bulk up on assets prior to asale to a larger firm. It encourageslong-term employee loyalty, compen-sating advisors as if they were owners.

Open ArchitectureUnlike the more traditional serviceproviders, the successful MFO is anindependent shop offering the broad-est range of products and services. It

should not be tied to any one invest-ment manager, and it should recom-mend products and services based onfamily need, not sales quotas.

Absolute ConfidentialityMFOs must establish strict confiden-tiality guidelines for all staff. Sincethey are privy to the most intimatedetails of a client family’s financialaffairs, professionals working in anMFO must go to extraordinarylengths to assure client families theirfinancial information is in safe hands.

Commitment to Technology MFOs need to invest in technology tokeep service levels at their highest.Information technology helps them to provide accurate and completeinformation to client families. Moreimportantly, technology helps freeadvisors’ time, allowing them to offermore comprehensive and personalizedservice to client families.

These features are as much a way ofdoing business as an actual corporatestructure. Even if you work within theframework of a larger institution, posi-tioning yourself as an MFO will helpyou attract and retain more UHNWfamilies to your practice.

Thane Stenner, CIM, FCSI, is a first vice-president and

investment advisor with The Stenner Group™ of CIBC

Wood Gundy. The views of the author do not necessarily

reflect those of CIBC World Markets Inc. This article is

for information only. CIBC Wood Gundy is a division

of CIBC World Markets Inc., a subsidiary of Canadian

Imperial Bank of Commerce and Member CIPF.

[email protected]

“True Wealth” appears every other issue.



AE11_057,059 09/28/2004 05:23 PM Page 59

By Andrew RickardIl

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SCRIPOPHILYTake heart, all you disgruntled

investors! The stock itself may have

been a dog, but someone may be pre-

pared to offer you money for that old

certificate. “Scripophiles” collect old

stock and bond certificates. And they

are prepared to pay for their habit.

In an interview with the Globe andMail last year, Bob Kerstein, CEO and

founder of www.scripophily.com, said

there’s a real market for scandalous

failures like Bre-X, with prices rang-

ing between $150 to $175 per share

certificate.“I always go out of my way

to try to get Canadian companies

when I can find them,” he says.“There

are some good collectors out there!”

UNPAID DIVIDENDSIn the midst of The Great Depression,

William “Bible Bill”Aberhart struck a

chord in the hearts of Alberta voters.

When his Social Credit party took

power, he promised to pay each citizen

a monthly dividend of $25.00 for basic

necessities.

However, the provincial government

attempted to introduce its own cur-

rency,“Prosperity Certificates,” issued

in $1 and $5 dollar denominations, to

meet government expenses, including

wages for relief [welfare] work, writes

historian Lewis Thomas. Alas, only a

few merchants accepted it, and the

experiment was abandoned after a few

months.

COIN HUMOURA joke circulating in the financial serv-

ices industry tells of a man and his son

walking through a hotel lobby. The

young man tosses a Loonie up in the

air and catches it between his teeth. A

porter then bumps the boy and the

coin lodges in the child’s throat.

Deprived of air, the child falls to the

ground and begins to turn purple.

“Can’t someone help my son?” the

man cries. At that very moment, a

well-groomed gentleman in a suit

walks up, reaches into the boy’s

mouth, and extracts the dollar with-

out the slightest difficulty. “That was

incredible,” says the father. “Are you

a doctor?”

“Certainly not,” says the man in the

suit. “I’m with the Canada Revenue

Agency.” And with that, he pockets the

coin and leaves the hotel.

TAX HAVENPlaywrights and novelists in Ireland do

not have to pay tax on the mechanical

royalties they receive on their works.

In his autobiography, J. P. Donleavy,

whose play The Ginger Man was shut

down in 1959 after running three

nights in Dublin, says when he first

heard about the tax exemption he

thought it might be a ruse to get him

back in the country.

He says he feared returning only to

hear officials say, “Not only are we

going to tax your filthy artistic earnings,

but we’re also going to arrest

you and put you in prison and burn all

your bloody obscene books and manu-

scripts.” Eventually convinced of the

government’s good will,Donleavy moved

back to Ireland and used his tax-free

income to purchase a country estate.

END QUOTE: XXX XXXXXX XXXXXXXXX

“As far as I’m concerned, you can go now.”

FRENCH AUTHOR TRISTAN BERNARD (1866-1947) TO THE SECURITY GUARD AT THE

BANQUE DE FRANCE, AFTER HE HAD WITHDRAWN HIS LAST FIVE FRANCS.

THIS’N’THAT


AE11_060 09/28/2004 05:22 PM Page 60

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