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CONTENTS

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UPFRONT 04 Editorial Canadians are finally setting their investment sights abroad

06 Head to head Three advisors weigh in on the DSC debate

08 Statistics Advisors’ business is booming – so what’s the catch?

10 News analysis

26 COVER STORY

OUTSTANDING INDEPENDENT OFFICES 2015

FEATURES

42 42

ETF PORTFOLIO CONSTRUCTION WORKSHOP Advisor Bob Sewell builds an ETF portfolio for an archetypal young professional couple in Toronto

12 Intelligence This month’s big movers and shakers

14 Alternative investment update How worried should you be about crowdfunding?

16 ETF update The ETF industry shows no signs of slowing

20 Opinion

These 22 firms prove there’s still plenty of room in the financial industry for innovative independent practices

How to capture millennial clients

PEOPLE

PEOPLE

INDUSTRY TRY ICON

46 Career path From his first job as a bank teller, Marcello Varano knew the financial industry was where he belonged

Industry veteran an and former Advocis s chair rt on Harley Lockhart where regulations have gone awry

2

Why young advisors aren’t concerned about CRM2

48 Other life Edmund Chien learned to build portfolios by building cars

FEATURES

ADVISOR PROFILE Sun Life’s Sonia Wu reveals how she took the company’s Burnaby branch from failing to awardwinning in just two years

2

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UPFRONT

EDITORIAL

Home country bias gone?

I

t only took a huge dip in oil and a plunge in the value of the loonie, but it appears Canadians have finally gotten the message on the value of portfolio diversification. Despite Canada only making up approximately 3% to 4% of the world’s total market capitalization, it’s well-known that many Canadian investors have long expressed a ‘home bias.’

Canadians have demonstrated that bias toward domestic asset classes in particular. While patriotic, the financial and energy sectors that make up over half of domestic indices have a high concentration risk.

Advisors have urged clients to diversify, but that cry has often fallen on deaf ears – until now. Over the last year, investors have taken more than $12 billion out of Canadian equity mutual funds and ETFs. During the same period, $21

It appears Canadians have finally gotten the message advisors have been extolling on the value of diversification billion flowed into the foreign equity versions of the same product types.

Advisors who managed to convince their clients to look beyond the Great White North undoubtedly look like heroes in their investors’ eyes. But now, as the benefits of investing abroad are really starting to sink in for the average Canadian investor, could the market be heading too far in the other direction?

Advisors have likely noticed regular US and global equity product launches, whereas there have been few new ETFs or mutual funds with a Canadian equity focus. It appears product manufacturers are only too happy to take advantage of industry sales trends.

So when will this trend finish or reverse?

“That will totally be a function of the performance of the markets moving forward,” says James Gauthier, head of investment fund research at HollisWealth. “The efficacy of using fund flows as a predictive indicator can be debated, but what’s for certain is that fund flows rarely ramp before an extended period of strong performance.”

The Wealth Professional team

wealthprofessional.ca ISSUE 3.09 EDITORIAL Editorial Director Vernon Clement Jones Senior Writer Nicolas Heffernan Writers Will Ashworth Olivia D’Orazio Donald Horne Executive Editor – Special Features Ryan Smith Copy Editor Clare Alexander

CONTRIBUTORS Rosemary Horwood

ART & PRODUCTION Design Manager Daniel Williams Designer Kat Vargas Joenel Salvador Production Manager Alicia Salvati Traffic Manager Kay Valdez

SALES & MARKETING National Accounts Manager Dane Taylor Associate Publisher Trevor Biggs General Manager, Sales John Mackenzie Marketing and Communications Claudine Ting Project Coordinator Jessica Duce

CORPORATE President & CEO Tim Duce Office/Traffic Manager Marni Parker Events and Conference Manager Chris Davis Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil Global COO George Walmsley Global CEO Mike Shipley

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Wealth Professional is part of a international family of B2B publications and websites for the finance and insurance industries INSURANCE BUSINESS CANADA john.mackenzie@kmimedia.ca T +1 416 644 874O

INSURANCE BUSINESS AMERICA

Correction: A headshot appearing on page 11 of the magazine’s 3.07 issue incorrectly identified the subject as Horizons ETFs Management (Canada) Inc. President Howard Atkinson. WP regrets the error.

4

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Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as the magazine can accept no responsibility for loss

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UPFRONT

HEAD TO HEAD

Should advisors discontinue use of DSC funds?

There are few financial products as polarizing as DSC funds – but love them or hate them, it seems they’re not going anywhere

Sarah Holland

Rob McClelland

Meagan S. Balaneski

Financial advisor Align Capital Partner

VP, co-owner and senior financial advisor The McClelland Financial Group, Assante Capital Management

Financial planner Advantage Insurance & Investment Advisors

“It’s a complicated position. On the one hand, I recognize that a number of advisors find it helpful to be compensated upfront for their work. On the other hand, though, I have dealt with a number of clients who have unexpectedly needed to access the assets and would not benefit from a deferred sales charge.

Still, options are always good to have for both clients and advisors – as long as clients understand the ramifications of what they’re getting into. The real question becomes whether or not you have real informed consent from clients.

As an advisor, it is important to ensure that your clients are consenting to DSC funds in an informed manner.”

“I think DSC funds are a reasonable idea for advisors who are starting in the business. The DSC structure allows the advisor to be compensated and forces the typically younger client with fewer assets to stick to their plan. At the end of the day, I don’t think it’s a terrible structure.

Still, there’s no doubt that compensation structures are changing, and the majority of the industry is likely to move to a fee-based form over time, but I think to outlaw DSC commissions is not the way to do it. I think that would affect too many younger advisors and too many smaller clients, and both would be at a tremendous disadvantage.”

“I don’t think there’s anything inherently evil about DSC funds, provided they have been properly explained to clients.

DSCs are often the only way small investors can pay for advice without having to come up with funds out of pocket and still get a higher level of service.

There’s a thought that the removal of DSCs will somehow lead to a more ethical environment, but the advisors trying to do bad things will still find a way.

The focus should be on the value that clients are receiving. I really hope that CRM2 brings an opportunity for clients to judge the value they receive without putting too much focus on the cost.”

CHOOSING SIDES Deferred sales charges, or DSCs, are hardly new, but CRM2 and new talk about fiduciary standards have stirred debate about their ongoing use. Those opposed to DSC funds argue the fee presents seedy advisors with another opportunity to take advantage of unwitting clients. Those in favour, though, say these funds are a good starting point for new advisors looking to build a client base or for young clients in need of sound financial advice. Regardless of where individual advisors stand, CRM2, and its mandate to disclose all the fees and surcharges of each product, will make sure clients know what they’re getting into with DSC funds.

6

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Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Manulife Funds are managed by Manulife Investments, a division of Manulife Asset Management Limited. Manulife, Manulife Investments, the Block Design, the Four Cube Design, and Strong Reliable Trustworthy Forward-thinking are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under licence.

UPFRONT

STATISTICS

Bright future?

REVENUE RISING While the average advisor’s revenue and assets under management continue to rise, the numbers belie a significant gap: The top quartile of advisors increased production by 41%, while production actually declined 15% among the bottom quartile of advisors.

The latest numbers point to a thriving advice industry, but there are still many concerns lurking in the shadows PRICEMETRIX’S STATE of Retail Wealth Management report offers advisors many reasons to smile. The fifth annual report showed the wealth industry enjoyed a robust 2014 – advisors sharply increased revenue, assets under management soared to record levels, and recurring revenue streams showed improvement.

That said, there were some warning clouds on the horizon. For one, the average client is growing older, and for the most

13%

Percentage the average advisor’s revenue grew between 2013 and 2014

23%

Percentage of new clients under age 45, which hasn’t changed since 2011

part, advisors or firms don’t seem to have concrete plans to try to correct this trend.

Perhaps more important, successful advisors are propping up underperforming ones as a gap begins to emerge between the best and the rest.

Looking to the future, the data raises important issues advisors will need to address, from pricing differences between fee-based and commission-based models to the ideal number of clients.

25%

Percentage of clients doing some fee-based business with advisors

Average advisor revenue

$538,000

$537,000

$533,000

Average amount a new client has to invest

2012

$550,000

2011

2012

Source: PriceMetrix, State of Retail Wealth Management, March 2015

CLIENTS GETTING OLDER

LESS IS MORE

As advisors continue to chase higher-net-worth individuals, they inevitably gravitate to older clients – thus, the average age of clients continues to climb.

Advisors seem to be taking the mantra ‘less is more’ to heart, as they are serving fewer and fewer households – however, to cover the gap, assets per household are on the rise.

Average number of households served

Average household assets

200

$800,000

190 $700,000 180 170

$628,000 165

$600,000

$562,000 159

160

60 60.5 61.1 61.7 2012

2013

2014

Source: PriceMetrix, State of Retail Wealth Management, March 2015

8

156 150

Average age

2011

$491,000

www.wealthprofessional.ca

140

$500,000

$435,000

150 2011

2012

2013

2014

$400,000

Source: PriceMetrix, State of Retail Wealth Management, March 2015

$97 m

Average advisor assets

$90 m

800

$100 million

$81 m

$79 m $74 m

$80 million

700

$655,000

$60 million

$40 million 600

$578,000

$20 million

$0

500 2013

2014

2010

2011

2012

2013

2014 Source: PriceMetrix, State of Retail Wealth Management, March 2015

FEE-BASED MODEL GAINING GROUND The transition to the fee-based model looks to be going full steam ahead. In fact, 2014 saw the sharpest jump in the amount of fee-based business in the history of this report.

Fee-based revenue (% of total)

Fee-based assets (% of total)

60

CLIENT RETENTION INCREASING The best advisors recognize that client retention is the basis of a thriving practice – particularly if those clients are ‘premium’ ones with more than $2 million to invest.

More than $250,000 in assets More than $2 million in assets

50

40

2011

96.3% 97.4%

2012

96.1% 97.3%

2013

96.2% 97.4%

2014

96.7% 97.7%

30

20

2011

2012

2013

2014 Source: PriceMetrix, State of Retail Wealth Management, March 2015

0

20

40

60

80

100

Source: PriceMetrix, State of Retail Wealth Management, March 2015

www.wealthprofessional.ca

9

UPFRONT

NEWS ANALYSIS

Will CRM2 eat the young?

Many are concerned about the impact CRM2 could have on young advisors in particular, but it seems fears could be unfounded

AS CRM2 implementation starts to ramp up, the older generation has expressed concern that young, up-and-coming advisors could find themselves squeezed out of the business. But it appears younger advisors themselves aren’t worried at all – in fact, they consider themselves more prepared than their older counterparts.

fact that they have no bad habits to break because they don’t know any way of doing business other than CRM2. They’ve already incorporated the new regulations into their business models.

“Being fairly new and finding out this was coming down the pipeline, it’s already part of the conversation that I have with clients,”

“We’re looking to partner with older advisors who are less inclined to adapt to changes … and hopefully buy them out” Grant White, Craig and Grant White Family Wealth Management “We’re looking to partner with older advisors who maybe are less inclined to adapt to changes; we can help them with that and hopefully buy them out,” says Grant White of Craig and Grant White Family Wealth Management Group. “We’ve got two potential acquisitions we’re doing early next year, so hopefully those continue to progress. They’re keeping us pretty busy, but hopefully there will be more toward the tail end of next year.”

Younger advisors may in fact benefit from CRM2 as older advisors shed clients with modest investable assets to focus on the richer ones. If the younger generation is proactive, they can pick up these clients before robo-advisors get to them.

Younger advisors also are helped by the

10

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says Zac Murphy, an advisor with Younker & Kelly. “As younger advisors, we’re probably a little better prepared for it than some of the older advisors or advisors who have been in the business for a while.”

While many in the business have voiced concerns over the potential fallout when clients find out the fees they’re paying, young advisors are unperturbed.

“Everyone understands there’s a cost to doing business,” says Murphy, an embeddedcommission advisor. “Whether you’re going to get your car fixed or you’re going to the grocery store, there’s always a markup on something. You’re paying for the services that are provided to you. It should already be part of the discussion you’re having with your clients.”

If CRM2 is a harbinger of what’s to come, young advisors see the future in financial planning as part of a more holistic model, as opposed to what’s been the standard in the past.

“I think we’re moving more toward a planning industry,” Murphy says. “It’s already a difficult enough business as it is, but with things like this coming down, it’s really going to be about how much knowledge you have in the industry and what you’re bringing to the table.”

To hear young advisors tell it, knowledge is the added value, which will be key to justifying their role – and their fees.

“The biggest thing is that you need to know the value that you offer clients, but more importantly, you have to be able to articulate that, too,” White says. “If you can’t tell people what you do and why they should

SURVIVAL TIPS FOR YOUNG ADVISORS

pay you, then you’re going to have an issue.”

Part of that added value is going beyond the scant communication that might have been acceptable for some advisors in the past,

One of the ways a young advisor can get ahead is by partnering up with a mentor.

Murphy has been able to access a wealth of experience thanks to his father, a 25-year

“As younger advisors, we’re probably a little better prepared for it than some of the older advisors” Zac Murphy, Younker & Kelly and offering services that might not net immediate returns.

“The things you do for the clients throughout the year that may not generate you any income – it’s those relationship builders that are going to be the key moving forward,” Murphy says.

industry veteran. But he also has partnered with another advisor, Matt Younker, who has been guiding him.

“It’s definitely had a big impact on my business – just his knowledge and what he brings to the table,” Murphy says. “Tapping into those resources that you might shy away

Look for clients where others won’t

Know your value

Articulate your value

Find a mentor

Never stop learning – knowledge is power

Communicate with clients regularly

from is definitely a huge thing.”

The commonly expressed worry that a move to fee-based advising could be hard for young advisors is being overblown as well.

“There’s an assumption that a younger advisor has to sell mutual funds or is on a deferred sales charge basis in order to survive,” says Kirk Polson, an industry veteran with Polson Bourbonniere Financial.

“I don’t necessarily think that’s the case. I think a young advisor who comes in and starts immediately on a fee basis can still do very well.”

While it’s never easy starting out, advisors willing to look outside the cookie-cutter image of the ideal client will have a much better chance of finding success.

“The first few years, you have to get into the dirty areas and go where no other advisors want to go, or their B or C clients,” Murphy says. “Sometimes those end up being really good clients; it’s just that no one has ever really taken the time to sit down and have a real conversation with them.”

www.wealthprofessional.ca

11

UPFRONT

INTELLIGENCE CORPORATE ACQUIRER

TARGET

PRODUCTS

COMMENTS

Blackbaud

Smart Tuition

The provider of cloud software and services for philanthropic organizations has completed its $190 million acquisition of Smart Tuition, a provider of payment services for private schools

Brookfield Asset Management

Brookfield Business Partners

The asset manager will spin off 35% of Brookfield Business Partners, the business services and industrial operations in its private equity unit

CAP REIT

N/A

The REIT announced it has purchased 3,661 suites in Montreal for $490 million; the deal grows one of Canada's apartment owners by 80%

CPPIB

Wolf Infrastructure

Canada's largest pension fund manager is partnering with the Calgary-based firm, whose expertise is mid-stream acquisitions, to commit $1 billion to energy infrastructure in Western Canada

HBS Global Properties

Galeria

The joint venture of Hudson's Bay Company and Simon Property Group has purchased 41 Galeria properties in Europe for $3.9 billion

Home Trust

CFF Bank

Home Trust acquired the Schedule I bank, which specializes in single-family residential mortgages, for around $18.2 million

iA Financial Group

CTL Corporation

iA Financial Group has acquired the largest privately owned consumer vehicle finance company in Canada, which boasts loan portfolio totals of more than $100 million

RBC

City National

The bank received regulatory approval from the Federal Reserve System to complete its acquisition of City National, a regional bank based in Los Angeles

Towers Watson

Brovada

Towers Watson announced the completion of its acquisition of Brovada, a Canadian technology provider for property & casualty insurers and brokerages

TD does some trimming of private funds TD Asset Management announced that seven TD private funds would be merged into seven TD mutual funds. Unitholders of the discontinued funds will receive units of the corresponding TD mutual fund on a dollar-for-dollar, tax-deferred basis in February. Unitholders also will be sent a written notice related to the proposed mergers at least 60 days prior to the effective date. In addition to these changes, TDAM plans to terminate the TD Private Canadian Strategic Opportunities Fund at the same time, and to cease charging management fees on several TD private funds.

Fidelity changes its investment tune

Canadian Oil Sands turns down Suncor advances Suncor’s $4.3 billion takeover offer for Canadian Oil Sands has been summarily rejected. In reaction to the bid, which was announced on Oct. 5, COS created a poison pill that ensures its board gets at least three months to consider any takeover offer. While this so-called ‘shareholder rights plan’ makes it harder for COS to be acquired, Suncor and others aren’t expected to shy away from future bids, as the company’s biggest asset is a 37% interest in the Syncrude project. Should Suncor eventually be successful in its takeover attempts, it would own a controlling 49% stake in the project.

12

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Fidelity Investments’ Canadian division has announced proposed enhancements to its mutual and pooled fund lineup. To do this, it’s making changes to the investment objectives of its ClearPath Retirement Portfolios, commonly referred to as target date funds. One of the big changes is to the investments allowed within the portfolios, which are currently restricted to other Fidelity mutual funds. The new investment objective will open up the portfolios to include ETFs and derivatives; Fidelity hopes the additions will improve the retirement outcomes of investors.

PEOPLE Excel hands the keys to China AMC Excel Funds Management has announced that China Asset Management Company, one of the subadvisors to its Excel China Fund, has been appointed manager to all of the fund’s assets. Baring International Investment Limited and Baring Asset Management Limited will cease to act as co-subadvisors for the fund. China AMC is China’s largest mutual fund manager, and has an excellent performance track record, providing advisors an entry into Chinese investment opportunities.

Mackenzie changes risk ratings Mackenzie Financial has announced changes to the risk ratings of three of its funds.

The Symmetry Conservative Portfolio and the Symmetry Conservative Portfolio Corporate Class have been downgraded from a risk rating of low-medium to low, while the Mackenzie Gold Bullion Corporate Class Fund has been upgraded from medium to medium-high. These changes will be reflected in the renewal of the mutual funds’ simplified prospectus. The risk ratings of the funds are developed using IFIC’s Fund Risk Classification Task Force methodology.

CI makes fund mergers but postpones others CI Investments has completed the merger of its CI Alpine Growth Equity Fund into the CI Canadian Small/Mid Cap Fund. Unitholders of CI Alpine Growth Equity Fund will receive an equivalent dollar amount of units in CI Canadian Small/Mid Cap Fund. Following the merger, two segregated funds that currently invest in units of the CI Alpine Growth Equity Fund – Clarica SF CI Alpine Growth Equity Fund and Clarica SF Growth Fund – will invest in units of the CI Canadian Small/Mid Cap Fund. Other proposals for fund mergers have been postponed indefinitely.

NAME

COMPANY

COMMENTS

Pat Burke

Canaccord Genuity

As the new president of Canaccord’s capital markets division, Burke brings more than 25 years of experience, most recently with Scotiabank, to the role

Bob Choo

R&R REIT

Choo has been appointed to succeed Irfan Lakha as the REIT's CFO

Alain Côté

CPA Canada

The Deloitte partner has been appointed the new chair of the board of directors of CPA Canada; he has served on the board since December 2013

Roman Dubczak

CIBC

As head of global investment banking, Dubczak will now oversee M&A advisory, equity capital markets, debt capital markets and infrastructure finance for the bank

Christian Exshaw

CIBC

In his expanded role as head of global markets for CIBC, Exshaw will look after capital market sales, trading and research

Leo Gesualdo

Greenrock Real Estate Advisors

The former Ernst & Young partner has been appointed as CFO for the Toronto-based private real estate company

Eduardo Pacheco

Scotiabank

The Colombia native, who serves as CEO of Bogota-based industrial conglomerate Mercantil Colpatria S.A., has been appointed to the bank’s board of directors

Daniel Sooley

Deutsche Bank AG, Canada branch

The lawyer and former COO has been promoted to Deutsche Bank’s top job in Canada

Canaccord Genuity promotes CEO from within Canaccord Genuity’s board of directors has appointed Dan Daviau as the company’s new president and CEO. The appointment follows a thorough succession planning and evaluation process by outgoing CEO David Kassie and the rest of the board. Kassie will move into the chairman’s role, focusing on client-facing activities and strategic initiatives for the firm.

Daviau has a background in investment banking, and has served in various executive positions with Canaccord Genuity since 2005.

Prior to that, Daviau worked as a securities lawyer in Toronto before moving to CIBC for eight years.

Kensington infrastructure business looks west Kensington Capital Partners has announced the appointment of Harold Huber as senior vice president.

Huber joins the alternative asset manager from Torys LLP, where he was a partner and acted as legal counsel for Kensington’s infrastructure business.

Huber has been working in the acquisition and development of energy and infrastructure projects in North America for more than 30 years, and has extensive senior experience in the power, oil and gas, and pipeline sectors.

Based in Kensington’s Calgary office, Huber will rely on his understanding of infrastructure projects to help the company expand its portfolio of investments in Western Canada.

www.wealthprofessional.ca

13

UPFRONT

ALTERNATIVE INVESTMENT UPDATE

Will advisors be hurt by crowdfunding?

Equity crowdfunding platforms are threatening revenue for advisors focused on accredited investors

valuations of individuals like engineers or MBA candidates.”

Almost three-quarters of the entrepreneurs surveyed for the report said they had turned to equity crowdfunding as a result of other financing sources, such as banks and private equity firms, being difficult to tap.

More troubling, perhaps, was that many of these entrepreneurs admitted they hadn’t even attempted to seek bank financing.

The end result is clear – and one Canadian advisors working with accredited investors may have to deal with in the coming years as

“Banks are too expensive, and VCs want too high an amount of money”

A new UK study examining the equity crowdfunding scene suggests entrepreneurs are avoiding banks and traditional private equity firms and opting for the quicker route of alternative financing. Companies in the UK have raised $293 million this year, up from $183 million in 2014.

As the trend continues to spread in Canada, advisors focused on presenting accredited investors with those kinds of equity and IPO

NEWS BRIEFS

opportunities may find themselves shut out.

“Banks are just too expensive, and VCs want too high an amount of money. Also, they require you to have revenue, so when you don’t have revenue, it’s a pretty hard thing to crack,” states the report, authored by University of St. Andrews professors Ross Brown, Suzanne Mawson, Alexander Rowe and Colin Mason.

“And it’s not like Silicon Valley, where people will invest in pre-revenue companies based on

AGF’s infrastructure joint venture raising j`^e`ÔZXek ]le[j InstarAGF announced that it has seen stronger than expected demand from institutional investors for its flagship infrastructure fund, a joint venture between Instar Group and AGF Management, and is confident it will close the first round of fundraising by the end of the year. The fund plans to raise up to $450 million in the first round with a $1 billion cap. Focusing on North American infrastructure opportunities, InstarAGF has received good interest from pension funds, insurance companies and other institutional asset managers.

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equity crowdfunding steps into the spotlight.

It’s a development that’s already on the radar screens of industry veterans, as provincial securities commissions introduce new rules to allow unaccredited investors to put small sums into private investments.

“While the commissions have taken a few steps to reduce such costs for issuers, the commissions’ efforts are predominantly investor protection,” says former IIAC managing director Barb Amsden. “In this, crowdfunding rules seem to constitute burning the registrant candle at both ends: continuing to heat up the regulation of IIROC and MFDA dealers and advisors generally, while incinerating traditional capital-raising and support opportunities for these same registrants.”

Quebec’s biggest pension fund looks to Mexico The Caisse de depot is partnering with Mexican institutional investors in order to help reach its goal of doubling infrastructure investments by 2018. A total of $2.8 billion will be spent over a five-year period on infrastructure projects in Mexico. The Caisse will invest $1.43 billion for 51% of the partnership; Mexican pension fund asset managers will take up the remainder. The co-investment platform will focus on energy generation, including renewable energy, as well as water, transportation and public transit projects.

Q&A

Reid Duthie

MICs or syndicated mortgages?

Vice president of capital operations KV CAPITAL

Fast fact Duthie helps manage the KV Mortgage Fund MIC, along with direct syndicated investments totaling more than $100 million

What are the main differences between different MICs? A MIC is only as good as the mortgages that make it up. So you can have great MICs and you can have really poor MICs and everything in between. So really, it’s due diligence of the management team and what makes up the portfolio that really determines the quality of the MIC.

Is there a place in a portfolio for both a MIC and a syndicated mortgage, or do you think one is better than the other?

I think it depends on circumstances and what you’re looking for. Usually a MIC is a diversified pool, and syndicated mortgages are part of … one mortgage.

So certainly the risk profiles are a lot different, just on the basis of diversification. But it’s really hard to give an indication of quality because a great syndicated mortgage would be better than a very poor basket of pooled mortgages. It really is one of those things that it depends a lot on the circumstance. But generally, one is diversified and one is not. So all things being equal, the MIC would be more diversified.

What are the main things advisors should keep in mind when trying to decide between these products?

An investor’s personal circumstances will determine that. If the investor is extremely high-net-worth

KKR opens investments to smaller investors Kohlberg Kravis Roberts & Co. has announced it is partnering with Toronto-based Cygnus Investment Partners to bring smaller Canadian investors into the fold. Cygnus will gather the investments of smaller accredited investors and institutions to invest in KKR’s asset classes, including private equity, energy, infrastructure and real estate, through a Canadian domiciled fund. Each year, Cygnus will launch one new fund for its clients that will act as a catch-all for whatever KKR brings to market.

and wants exposure to a particular property or a particular interest rate, that might be a suitable option, but again, it all comes down to the investor’s needs and what fits their portfolio.

Do you think these two vehicles are an underrated asset class at the moment?

I think they’re underrated. I think with the volatility in the market and the low yields on bonds, the entire alternative investment universe is underrated, and it will become more prominent in the next 10 to 20 years.

What kind of progression and development do you see?

I think you’re going to see reporting more into public companies, so you’re going to see more kind of audited statements; you’re going to see sophisticated investors who have more detailed questions about portfolios, about how management monitors those portfolios.

I think there are going to be a few additional due diligences investors are going to come up with.

What do you see as the future for both investment classes?

This will play a prominent role for investors coming up, and I think it’s important they’re aware of the space and aware of their options. Due diligence is key, so they should definitely lean on their advisors to find out what the right products are.

GE gets out of alternative investments General Electric is selling its private-equity investment group to French alternative asset manager Ardian for around US$500 million. The sale takes GE out of alternative investments; however, the management team at GE Capital Equity will continue to manage the assets and likely will receive additional capital injections from its new owner. Since GE decided to get out of the lending business to focus on its industrial divisions, it has sold more than $35 billion in assets, including this most recent divestiture.

CPPIB invests in entertainment company The Canada Pension Plan Investment Board has announced it is acquiring 53 million shares of Entertainment One Ltd. from British private equity firm Marwyn Value Investors. Canada’s largest pension fund plans to spend more than $288 million to become the largest shareholder in Entertainment One, a Toronto-based multinational film and TV content company, which CPPIB believes is one of the bestpositioned entertainment businesses in the world. Entertainment One’s assets include the former Alliance Films business.

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UPFRONT

ETF UPDATE NEWS BRIEFS iShares adds four funds to Smart Beta ETF iShares has expanded its Smart Beta ETF product offering with the launch of four new iShares FactorSelect ETFs. The FactorSelect suite of ETFs tracks indices designed to outperform the market benchmark index over the long term by constructing portfolios based on four historic drivers of return: value, quality, momentum and low size. The strategy aims to provide targeted exposure to these four factors while maintaining a risk level similar to their respective market benchmark indices. Advisors can use the ETFs as core allocations in client portfolios.

Questrade beefs up its active management Questrade Wealth Management has added to its family of exchange-traded funds with the launch two actively managed mandates: the Questrade Fixed Income Core Plus (QCP) and Questrade Global Total Equity (QGE), both of which are global in scope.

Subadvised by Jarislowsky Fraser and One Capital Management, respectively, the additions give Questrade a total of eight ETFs. The fixed-income ETF invests in high-quality domestic and international securities issued by governments and corporations in developed markets, while the global equity ETF analyzes global economic trends to invest from a top-down perspective.

Franklin Templeton goes over the pond Franklin Templeton has launched the Franklin Mutual European Fund, a deepvalue fund that employs a bottom-

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up approach to investing. The fund gives advisors an exposure to Europe by investing in attractively priced opportunities with upside potential.

Phillippe Brugere-Trelat, a 30-year industry veteran, will co-manage the fund with research analyst and portfolio manager Katrina Dudley. The pair has co-managed the Franklin Mutual European Fund for European investors since 2007.

First Asset invests in the banks First Asset has delivered a new ETF that provides an attractive, risk-adjusted way to own all six of the big Canadian banks. Trading under the symbol CIC on the Toronto Stock Exchange, the First Asset CanBanc Income ETF incorporates selling call options to capitalize on volatility while retaining all the upside on a significant portion of the portfolio. This balanced approach is designed to perform in a variety of different market environments.

Bridgehouse Asset Managers adds to corporate class Bridgehouse has added four new products to its independent platform of multi-managers, which are available in corporate class for tax efficiency.

The Lazard Global Low Volatility Fund is an actively managed fund designed to address volatility. The Greystone Canadian Equity Income & Growth Class adds a unique growth approach in the Canadian dividend space. The Sionna Canadian Equity Private Pool offers reduced fees for volume investments in Sionna’s flagship institutional strategy, while the Brandes Global Equity Class provides exposure to the value style with the option of hedged or unhedged currency.

ETFs still going strong ETFs continue to gain popularity with investors, experiencing doubledigit growth this year The Canadian ETF industry grew more than 10% over 2014 to stand at $84 billion in assets under management, according to a BMO report. So far this year, equity ETFs have accounted for $4.5 billion in inflows, and fixed-income ETFs for $4.7 billion.

“The domestic ETF industry has seen strong momentum in 2015,” says Rajiv Silgardo, co-CEO of BMO Global Asset et Management. “Its user base has expanded d as investors grow more comfortable with h these funds. ETFs have been able to o maintain their popularity and continue to prove to be useful through changing market et conditions because of their flexibility and d diversification benefits.”

The report noted that the Canadian ETF F with the most net inflows to date in 2015 is the BMO MSCI EAFE Index ETF, which h tracks developed equity markets, excluding ng Canada and the US. The popularity of this type of ETF F demonstrates that ETFs are highly efficient nt vehicles for making allocation decisions. For or instance, in light of quantitative easing in n Europe, investors are using ETFs to gain a broader exposure to international markets..

The report found two key factors that at are impacting the ETF industry: trading g efficiencies and concentration concerns.

Given the natural liquidity between n e, ETF buyers and sellers on the exchange, the report said, it may be more efficientt to trade an ETF compared to the underlying asset class. Additionally, ETFs have

intra-day liquidity on the exchange, where the market bid and ask prices provide full transparency into the trading costs.

The report also noted that there have been questions regarding whether ETFs are driving up the price of securities within their benchmark. However, a properly designed ETF diversifies across liquid holdings and allows all investor types to participate in the asset class.

“ETFs’ user base has expanded as investors grow more comfortable with these funds” BMO expects that ETFs will continue to gain in popularity in various geographies because of their low cost and lack of fee complexity, which makes them particularly attractive in markets that are undergoing structural reform, such as the UK and Australia, as well as in North American markets with more usage by larger institutional players.

As global ETF markets mature and approach the status of the US market in terms of size and sophistication, the report concluded, there will be a positive cycle where increasingly diverse investor and user groups raise the liquidity and efficiency of trading ETFs.

Q&A

Christopher Doll Assistant vice president, product management POWERSHARES CANADA

Years in the industry 15 Career highlight Doll was part of the team that launched the first ETFs in Canada: PowerShares Low Volatility Portfolio (PLV) and PowerShares Global Shareholder Yield (PSY)

Factor-based strategies Is a single- or multi-factor approach better?

It depends. The way we look at it is, we want to give investor the option to select the factor or the outcome that they’re looking for when they’re making their investing decisions. On the flip side, they can take those tools and build them into a portfolio that blends the factors together. You’re effectively building a multi-factor model that gives you better risk-adjusted returns than the overall market.

We think approaching it from a single factor makes the most sense because it gives the advisor the power.

When it comes to the different factors like volatility, momentum and value, which ones are best?

Each of those factors has been shown to provide persistent sources of alpha versus the broader market. There are times when one factor will do better than another, but no single factor outperforms in all market environments. If you’re trying to meet a specific investment objective, consider each factor on the merits of its unique characteristics.

How many factors should you use? Can you have too many?

You can definitely over-diversify by employing too many factors in a single portfolio. The more pieces you build into the puzzle, the more you start to look like the broader market. Bundling volatility, momentum, size and value factors all add diversification benefits, as they have low correlations to each other. However, there aren’t many other factors that are additive, so by including them, you’re increasingly looking like the broader market cap index.

What’s the most important thing advisors should keep in mind when deciding?

The biggest implementation issue here is matching factor and investing styles to investor needs and objectives. The second issue is around building multi-factor models. A lot of the benefits of the approach come from the rebalancing policy. For example, the last few years have seen a momentum-based market. Your momentumthemed investments have performed well, but your value or volatility strategies haven’t kept up. By following a regimented rebalancing process, you’re systematically selling your winners and reallocating the capital to strategies that are out of favour.

This approach has been shown to help maintain the portfolio’s risk profile and generate excess risk-adjusted returns over time.

How can advisors manage the risks inherent to factorbased investing?

Each factor faces different sets of risks and performance drivers.

Advisors should have an understanding and appreciation for the various layers of risk – and potential rewards – that are being introduced by adding each factor into clients’ portfolios.

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UPFRONT

ETF UPDATE

Cap weight versus equal weight, part 2

Russell 1000 Equal Weight Producer Durables Index

A case study of the Russell 1000 Equal Weight Consumer Discretionary and Russell 1000 Equal Weight Producer Durables indices Growth of $100 800 700 600 500 400 300 200 100

Russell 1000 Equal Weight Consumer Discretionary Index The equal weight version of the Russell 1000 Consumer Discretionary Index is also more diversified than its cap-weighted counterpart. Despite holding the same 184 stocks, the weightings in the CW version are dominated by the mega-cap stocks. The top five stocks – Disney, Comcast, Amazon, Wal-Mart and Home Depot – represent almost a quarter of the index*. Further, the EW Index more closely represents the constituent companies: The median market cap for the index is $9.19 billion, but the average market cap for the CW index is

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IN THIS edition of the smart beta index review, we delve deeper into the analysis of the equal weight versus market cap weight debate by analyzing the return and risk characteristics of the Russell 1000 Equal Weight Producers Durable and Consumer Discretionary indices to their Russell 1000 Cap Weighted counterparts.

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$69.27 billion, whereas the EW average is closer at $19.12 billion**.

Many innovative companies that drive future trends in the consumer space may be overlooked when comparing the S&P 500 Consumer Discretionary Index to the Russell 1000 EW version and other large-cap indices.

One example is Tesla – the automaker is excluded from the S&P 500 Index, which includes General Motors. In the Russell EW Index, Tesla has an equal significance to GM. This is largely due to the fact that the Russell Index doubles the exposure of companies (184 versus 88) when compared to the S&P Index. This exclusion of smaller and potentially more innovative companies could lead to underperformance over the long term.

The Russell 1000 Equal Weight Consumer Discretionary Index outperformed the CW Index in each of the 10-, five-, three- and one-year periods to Dec. 31, 2014. Even more compelling, the EW Index had roughly 50% higher total return from July 1, 1996, to Dec. 31, 2014.

The diversification theme is carried over in the Russell 1000 Equal Weight Producer Durables Index. Again, the EW Index is a closer representation of the median market cap of the companies in the index. The median mark here is $6.32 billion; the EW Index has an average market cap of $17.63 billion, as compared to $68.97 billion for the CW Index.

As is the case for both the Russell 1000 Equal Weight Healthcare and Consumer Discretionary indices, the EW Producer Durables Index outperformed the CW index over the past 10 years to Dec. 31, 2014. It also beat the CW Index by roughly 50% for the longer period from July 1, 1996, to Dec. 31, 2014.

On the downside, overall risk is higher, as measured by standard deviation, for both EW indexes. The EW Consumer Discretionary Index had a 10-year SD of 23.55%, higher than the 17.39% posted by the CW Index. It’s a similar story for the producer durables indices – the EW 10-year SD was 20.26%, versus 18.84% for the CW**. After adjusting for returns, the numbers are similar to the 10-year Sharpe ratio, at 0.49 and 0.52 for the EW and CW indices, respectively. The numbers were better for the Producer Durables EW Index, which posted a Sharpe ratio of 0.50, versus 0.42 for the CW for the same 10-year period.

Conclusion In all three cases, the Russell EW indices outperformed by providing for more diversification while instilling a disciplined investment process. This is not without risk, which comes in the form of higher volatility, but on a risk/ reward basis, the returns are similar or better.

When expressing a bullish sector view, EW indices may provide higher growth potential than their CW counterparts in both absolute terms and on a risk-adjusted basis. *Russell Investments, as of June 30, 2014 **Russell Investments, as of Dec 31, 2014 Questrade Wealth Management Inc. (“QWM”) is a registered portfolio manager. QWM manages and issues the QWM family of exchange traded funds. The views and opinions expressed herein are those of the author and do not necessarily reflect the view of QWM. QWM does not guarantee the quality, accuracy, completeness or timeliness of the information provided. QWM assumes no obligation to update the information. QWM disclaims all warranties, representations and conditions regarding use of the information provided.

James Youn, CFA, is a senior portfolio manager with Questrade Wealth Management.

UPFRONT

GOT AN OPINION THAT COUNTS? Email wealthprofessional@kmimedia.ca

OPINION

Working with millennials Millennials’ investment strategies are different from their parents’ – so why are you treating them the same? Rosemary Horwood shares her tips and tricks for working with this elusive demographic MILLENNIALS ARE a very distinct group of investors, and they take a different approach to managing their finances than their parents did. This group makes up a portion of my investment advice practice and fits into two general categories: inheritors and young professionals.

Between the lack of time outside their careers and a lack of financial acumen, millennials have a lot of room for the direction of an investment advisor.

How millennials invest One of the mysteries of the millennial generation is the tendency toward risk aversion. For a young generation, this seems counterintuitive.

Most of the millennial clients I have worked with score a 2/5 or 3/5 on their risk profiles, and only a very small percentage are willing to take on more risk. Many of them keep their savings in their bank accounts, making very little interest, but are curious about investing.

They have seen the effects of a crash in the stock market on their parents’ finances and are still scarred from the experience.

My personal approach with millennial clients’ investments is to show them the non-accredited investments that I have in my personal portfolio and create a portfolio for each client based on their preferences. Many of my millennial clients have heard of ETFs. A portfolio of stocks and bonds, though, hasn’t fit well with my clients’ requirements for diversification and risk tolerance, considering the average size of their investment accounts.

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How millennials communicate Everything the millennial generation does is fast and in real time, which makes communication slightly different than other generations. Millennials don’t talk on the phone often or use their voicemail; they prefer email

The series consists of an introduction to investing, which covers setting up a savings plan, a risk tolerance questionnaire, efficient frontier, and the basics of stocks, bonds and mutual funds. The second seminar goes deeper into the importance of a diversified investment strategy, registered investment plans (both RRSPs and TFSAs), the costs of investing and tax-efficient investing.

I continue to bring in additional topics such as preparing for your first will and power of attorney, and have included an additional seminar to discuss the decision of renting versus buying your first home in Toronto.

Since most of the millennials who attend the workshops have the short-term goal of saving for a down payment on their first home, we discuss strategies for using the funds in their TFSAs and taking advantage of the Home Buyers’ Plan in the RRSP. I love to entertain and put together huge displays of cheese, charcuterie and fine wine for these events. It’s so much more fun and

“They have seen the effects of a crash in the stock market on their parents’ finances and are still scarred from the experience” and text messages. If there is a horrible day in the markets or an important announcement that affects their investments, they are talking about it. Keeping them up-to-date on the current news and market trends is important.

A best practice for communicating with the millennial masses is to simplify information and push it out as soon as possible.

Since many don’t have a financial background, I avoid using industry jargon and complicated technical analysis charts in my communications. Writing LinkedIn articles, Facebook posts and Tweets is a great way to reach them.

Attracting millennials For the past few years, I have hosted more than 100 millennials at an investment workshop series called Millennials and Our Money, and many are clients today. The millennial children of our current clients are invited to attend, as well as my personal network on LinkedIn and Facebook.

personal than simply ordering from a catering company. It also allows me to merge my passion for entertaining and my passion for helping people with their investments.

Offering a seminar series similar to Millennials and Our Money is a value-add to your current clients, and could benefit them by properly preparing them for the transfer of wealth into the educated and experienced hands of the millennial generation.

Hiring a millennial-aged assistant and asking them to be the main point of contact to attract and manage your millennial clients is another great strategy to grow this part of your business.

Rosemary Horwood, a 2015 WP Young Gun, is part of The Horwood Team at Richardson GMP, where re she serves her own roster of clients, including business iness owners, professionals and retirees, along with their multigenerational families.

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PEOPLE

INDUSTRY ICON

DONUTS TO DOLLARS Harley Lockhart went from owning a struggling donut shop to becoming one of the most respected advisors in the country – and a key ally in the battle against regulators

IN THE mid-1980s, Harley Lockhart was the owner of a struggling Robins Donut franchise in Burnaby, BC. “I was operating a donut shop and ran out of dough and went in the hole and had to feed my kids,” he says.

With his venture failing and a family to provide for, he didn’t have many options.

Someone suggested life insurance, but he was reluctant to make the jump, given the industry’s reputation.

“The big challenge was coming to grips with understanding what sales really is,” he says. “I had the impression that selling was manipulating people into doing something for my benefit, and I had trouble with that.”

But given his situation, he reluctantly took a job with London Life.

“I was provided with a six-month income guarantee. I figured in six months I’d be able to find a real job, so it was a stop-gap measure,” he says. “Little did I realize I’d be here 30 years later.”

Financial stress relief Over those three decades, Lockhart eventually started his own firm, carving out a reputation as one of the industry’s top advisors. Despite starting his career in insurance, he recognized the importance of wealth management in providing holistic advice to consumers.

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It was with this in mind that he started Quail Ridge Financial in 1999, following a stint with Canada Life.

Lockhart’s wife, Dale, has been part of the firm since day one, and his son, Jake, recently came to work with him after starting his career with the banks.

“I told him he should make the decision

financial stress.”

It’s an approach that can seem strange to the uninitiated.

“Since Jake came here, he has sat in on all my client appointments,” Lockhart says. “He asked me several times when I was going to start talking to the client about money. We would have two or three

“I had to make a decision: Either I quit or change it. I chose to get involved to fight the fight, and I like the association way better today than when I was planning to quit” for himself, but he should know that if he did decide he was going to come work with me, my feet might never touch the ground again,” Lockhart says.

Perhaps because of its family roots, Quail Ridge operates slightly differently than most advisory firms.

“I don’t focus on wealth management; my focus is on relieving financial stress,” Lockhart says. “So my clients don’t just try to chase after more money, more money, more money. We spend a lot of time talking about their values and how they can structure their finances to be in sync with their values. That gets rid of a lot of

appointments and never talk about money.

We just talked about who the client is, what’s important to them. When we had laid the foundation, then we bring the money into it, and you have a platform on which you can overlay their finances.”

For example, a client came in to speak with Lockhart recently, totally terrified by what she’d seen in the news. Her portfolio had dropped, and she was panicking, wanting to bail out.

“By giving her access to the money she needs without crystallizing losses from parts of her portfolio, she left here feeling way better about her circumstances, and

PROFILE Name: Harley Lockhart Company: Quail Ridge Financial Title: Financial advisor Years in the industry: 35 Industry involvement: Lockhart has been a member of Advocis since 1985 and served as chair in 2013

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INDUSTRY ICON

we relieved financial stress,” he says. “That’s the value that an advisor brings.”

Advisor advocate Lockhart might be best known for furthering the cause of advisors around the country through his work with Advocis, where he served as chair for a period.

Highlighting the value of financial advisors has been one of Lockhart’s missions in his work with Advocis – but

see that they create shadows, and there are cracks between them,” he continues.

“People who want to avoid the rules find those cracks and shadows, and the honest advisor … is left trying to negotiate a maze because of a few bad apples.”

While regulators are busy trying to implement unnecessary rules, Lockhart says, they’d be better off coming up with a solution or allowing the industry to identify

“The problem with specific rules is that if you study the rules long enough, you’ll see that they create shadows, and there are cracks between them. People who want to avoid the rules find those cracks and shadows, and the honest advisor ... is left trying to negotiate a maze” ironically, Advocis was nearly the reason he left the profession.

“As an individual who was so dissatisfied with the professional organization that I thought of quitting, I had to make a decision: Either I quit or change it,” he says. “I chose to get involved to fight the fight, and I like the association way better today than when I was planning to quit.”

Although Lockhart is now no longer officially affiliated with Advocis, he’s not shy on offering his opinions on what he views as the main scourge of the industry: regulators.

“Changing regulation is the biggest threat to a financial advisor’s ability to do their job,” he says. “It’s more than CRM2.

It’s the whole direction of regulation that is based on trying to come up with a rule to cover any scenario.

“The problem with specific rules is that if you study the rules long enough, you’ll

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the different kinds of advisors so consumers know exactly what they’re getting.

“I call myself a financial advisor because I provide counsel and advice to my clients over a very broad range of disciplines,” he says. “I think there’s a place for that. I also think there’s a place for financial planners, and I think there’s a place for life insurance salesmen. I also think there’s a place for investment advisors, but I think they should all be identified according to who they are. Frankly, they aren’t defined at this stage of the game, and that’s a problem.”

Lockhart is encouraged by comments about the financial industry in the UK, where they’re recognizing the unintended consequences that banning commissions has had on consumers. Despite that, he doesn’t see the battle ending anytime soon.

“It’s going to be an ongoing campaign,” he says. “There’s not ever going to be an end.”

HARLEY LOCKHART: IN HIS OWN WORDS ON SCANDALS “If you look at the biggest scandals in Canadian financial history, they’re not even people who are registered in the industry. For the most part they’re crooks, and that’s all they are. The regulators can pass whatever rules they want; they will never encompass those individuals” ON DISCIPLINING ROGUE ADVISORS “If the regulation is that advisor must work in the client’s best interest, when the advisor doesn’t, if it’s a result of a mistake, it should be corrected. If it’s a result of poor of education, that should be corrected. If it’s a result of deception, the advisor should be banned from the industry for life, no second chance” ON HIS INVOLVEMENT WITH ADVOCIS “One of the things that made me so passionate about serving Advocis was they place consumers first” ON GIVING BACK TO OTHER ADVISORS “I believe I cannot out-give myself, and the more I help others, the better off I am. And that’s proven with my experience within Advocis.

The people that I have associated with, the things I have learned, I never could have done on my own.

By helping other people, it’s put me in a position where I have gained tremendous benefit”

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FEATURES

COVER STORY: OUTSTANDING INDEPENDENT OFFICES

OUTSTANDING

INDEPENDENT OFFICES In the face of full CRM2 implementation and increased competition from the banks, these independent offices are finding new and creative ways to thrive

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THE WEALTH, size and might of the banks have stacked the decks against independent offices. But it appears that David is starting to outwit Goliath.

One of the trends across almost every office on WP’s second annual list of the country’s best independent firms is the willingness and desire to go above and beyond when it comes to servicing clients. The bare minimum is simply not an option for these companies, and that’s allowing them to tap into an undercurrent of malaise and mistrust many Canadians feel toward the big banks.

Given increased competition and the implementation of CRM2, being independent hasn’t been easy, which makes it all the more important to honour the independent offices in Canada that are thriving under very difficult circumstances.

IN THE MIDST OF AN N UNCERTAIN ECONOMIC CLIMATE, T WHICH PROVIDERS STILL M MANAGED TO SHINE?

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CRAIG & TAYLOR ASSOCIATES

Established: 1985 Number of employees: 8 Target clients: Private families Assets under management: $140 million Key performance metric: 40% increase in book size over five years The Martin family is keeping the Craig & Taylor Associates legacy alive.

“Our philosophy is financial planning first and foremost and to recommend products to fit the goals of the financial plan,” says Alexander Martin, vice president of Craig & Taylor Associates. “That philosophy was built by the two founders of the company, Shawn Craig and Jerry Taylor. We’ve held true to that philosophy and to the objectives that they created. Our clients know we’re not changing our story every time the market changes. It’s a consistency that has held true through 30 years of business.”

The company is built on a strong financial planning philosophy that provides individual portfolios for each client that meet the requirements and goals in their plans with the least amount of risk.

Given that Craig passed away at 44 and Taylor at 62, the practice is built on planning for succession. “Just like the previous owners, I have a succession plan in place for our practice to ensure our clients are taken care of in any event, no matter what happens,” says Jennifer Martin, the company’s president and senior financial planner. “A lot of smaller independents have very little prepared in the way of succession plans.”

Ottawa, Ont.

What are some keys to building an outstanding independent office?

Jennifer Martin: It really comes down to relationships, both with our clients and staff. With our clients, we are really connected to their lives and what matters to them. The connection is far beyond the day-to-day financial markets. We’re partners with them. It’s all about relationships. Our staff means a lot to us. We are a family, and our clients feel a part of it.

Do you think the independent office will have to grow in order to thrive, or will there always be a place for a range of independents?

Alexander Martin: I don’t believe that independents need to grow in size to survive or to compete against the banks. It comes down to a question of the value proposition more than one of size. The reality is that with an independent, you’re probably getting more tailored advice and a better experience from an expert that will be there for a longer period of time to provide that advice with an ongoing relationship. The difference between what clients are getting in value from an independent compared to a bank is not always clear to clients who have not previously experienced both sides.

That needs to change, and I believe that fee disclosure will help drive that conversation and more clients to the independent channel.

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FEATURES

COVER STORY: OUTSTANDING INDEPENDENT OFFICES LAWTON PARTNERS

Established: 1974 Number of employees: 47 Target clients: High-net-worth clients, business owners, entrepreneurs, successful professionals, multi-family offices and other young professionals who exhibit ambition in Western Canada Assets under management: $1.5 billion Key performance metric: Grew AUM from $850 million to $1.5 billion in five years Running an independent practice and being involved in other businesses ventures has really helped the advisors at Lawton Partners connect with their clients.

“By being independent, we really get a sense of where the clients are coming from,” says partner Wayne Townsend. “Every experience that our entrepreneurial clients are going through, whether it’s an HR issue, dealing with a bank or succession planning, we have lived every one of those experiences already. That’s a huge advantage for us to be able to have real value for our clients.”

Although Lawton Partners has found success with entrepreneurs, Townsend says there is no magic formula for developing a practice.

“There is no secret sauce,” he says. “It comes down to vision. You have to understand what the clients of today need and what they’re looking for. I think it comes down to your focus – so understanding who is an ideal client and making sure you focus your practice on working with ideal clients where you think you actually add real value.”

Sandy Chahal, manager of client services and one of Lawton’s newest recruits, made the jump from a big bank for independence. “I find more clients are looking for independent planners, independent advice,” she says. “People want personal touch, personal advice. They want to have a relationship with their advisor.”

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Winnipeg, Man.

What challenges does competition from the banks present to independent offices?

Dwaine King: If you’re independent of the banks, that is your challenge, but it’s also an opportunity. I’m an old historian. If you go back to the famous Spanish Anglo War in the 1600s, the Spanish Armada was the single largest navy ever built. I kind of think of them as the banks. The British Navy was smaller and very fleet of foot. They won the war on their ability to manoeuvre. It’s that flexibility that … the independent has as a value to the client, versus being part of the Spanish fleet – a large galleon that can’t turn as fast, can’t adapt and doesn’t listen. Every naval guy knows bigger is not better.

What advice would you give to advisors who want to set up or move to an independent firm?

Wayne Townsend: You do have to be independent-thinking and have an entrepreneurial bent to what you want to do, and I think if you interviewed any of our partners, they view this as a calling and a passion. If someone is just looking at this as a job and a career, frankly they are better off staying in the institutionalized system. For anyone wanting to do this, you really have to have a love of making impactful decisions on people’s lives.

DD HUMES

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Established: 1979 Number of employees: 10 Assets under management: $200 million Key performance metric: Grew AUM from $127 million to $200 million in five years DD Humes is giving new meaning to the family office model. David D. Humes started the company more than 35 years ago. His son, Matthew, joined 14 years ago, and two of his uncles are also part of the firm.

“When clients call in, we know who it is by their voice because our team has been around for so long,” says Matthew Humes. “When I call the bank, I could have dealt with them the week before, and they still have no idea who I am.”

The firm’s basic strategy is to take the focus away from numbers and try to help clients realize their retirement and lifestyle goals.

“We use our Dream Achiever Process,” Humes says. “It’s involves getting people to really focus on what they want to do and what they should be preparing for in their lives, rather than just saying you need a million bucks. Well, for what? Someone might need a million; someone might not.

It’s just trying to make it a lot more holistic.”

How difficult do you think it would be for an advisor to start a new independent office at the moment?

Matthew Humes: I think the barriers of entry have become higher over time, no matter where you start. I’m very lucky. I stepped into an established practice. If someone comes in to see me and is being sold funds in a DSC format, I can explain exactly how this works and how an advisor gets paid. In certain cases, they are being charged more than using a frontend version, and I can offer it to them in another format. I have more power to do that than someone just starting out. With CRM2 coming out, I wouldn’t be surprised if margins get squeezed across the board. I don’t think it’s going to get easier; it’s going to get tougher. Increased compliance requirements also have proven to be difficult.

How is bank competition affecting independent offices?

MH: There’s definitely more competition from the banks. News of fraud will increase the chance of clients wanting the comfort of a brand name. The banks are lowering costs of their product shelf, and in Quebec, they also seem to be spending more money on educating their in-house staff. Many are becoming licenced financial planners with the IQPF. One thing I see frequently is that cross-selling is still taking place, which doesn’t create a level playing field for the independent office. I have clients mentioning that the bank will sweeten deals such as loans if they move their money from us to the bank.

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FEATURES

COVER STORY: OUTSTANDING INDEPENDENT OFFICES DE THOMAS FINANCIAL CORP.

Established: 2011 Number of employees: 31 Target clients: Whether younger or older, wealthy or just starting out, our advisors believe all clients deserve someone dedicated to planning for their future Assets under management: $200 million Key performance metric: Grew AUM from $83 million to $200 million over five years Advisor Gerald Goertsen has been in the industry for 15 years, and he’s still trying to build the perfect office. He knows he’ll never get there, though.

“A successful, healthy business takes thoughtful planning and meaningful action; it is an ongoing, never-ending process,” he says.

“Successful offices are constantly assessing their strengths and weaknesses – then building on these strengths and working to diminish and eradicate the weaknesses. Adaptation to an ever-changing environment is necessary to build strong and stay strong.”

As part of De Thomas Financial Corp., Goertsen’s Kelowna branch is one of eight in the company, including the head office in Toronto.

“Being independent, I personally have been able to take a ‘no fees in, no fees out’ approach for my clients, keeping us as one of the most competitive offices in the marketplace,” Goertsen says. “We offer a holistic approach to our clients, covering all aspects of their financial future, including an in-house mortgage specialist.”

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Kelowna, BC

What trends have impacted your business this year, and how have you had to adapt?

Jason De Thomasis: Compliance is always evolving, and as soon as you think you’ve caught up, there’s always a new rule or amended rule. I think compliance has become a huge feature in any business.

Compliance has been the biggest hurdle for us, but we’ve put a team in place, and we’re always adding new members to our compliance team to ensure that we’re on top of it and we’re proactive rather than reactive.

What’s the future for independent offices?

JDT: Unfortunately, a lot are closing their doors, and it’s not by choice; it’s just that they can’t remain profitable.

If they amalgamate with other independents and form a medium-sized firm, I think [independents] have a pretty good competitive advantage. If an independent can be a wealth management firm and offer estate planning, tax services, accounting services and insurance, that’s going to be the only way to be profitable and successful.

THE TYLER GROUP

Established: 2003 Number of employees: 5 Target clients: Individuals and families who appreciate the value of independent professional financial advice Assets under management: $250 million Key performance metric: Averaged 12% growth per year over five years The Tyler Group is taking a page out of the playbook of one of the most successful business owners in history.

“We’re really big devotees to a Warren Buffet approach: getting our client behaviour aligned correctly so you’re not in a reactive mode,” says advisor Rod Tyler. “But it’s a thousand little things you do that make a difference.”

The Tyler Group recognizes the value of a managed money approach to clients’ financial assets and the critical need for a written financial plan.

“I think in a world of complexity, what people seek is simplicity,” Tyler says. “They come to us with a certain issue, but pretty much what they’re asking us is, ‘Am I going to be OK?’ Our response is to listen intently, get the facts straight and understand where they want to go, who they are as a person – all of the dynamics – and then respond to that.”

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Regina, Sask.

What are some of the keys to building a successful office?

Rod Tyler: One of the most important lessons I ever learned – and I came to it in a fair way because I was a business owner before I was a financial planner – was how to delegate. Find people who are smarter than you at reception or spreadsheets; keep delegating to bright people who love the work they do, and keep moving yourself toward the thing you’re best at.

Will independent offices have to grow to thrive?

RT: You need to grow in the sense that you need sufficient revenue to keep reinvesting in your business. If you don’t, it’s only a matter of time until you become less relevant and you begin to wither. That may be in your staff, your back office or your software, and if you do that, then you can continue, probably because you’re smaller and more nimble to be able to compete with large financial entities.

But in the absence of that, you’re going to end up picking up the scraps.

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FEATURES

COVER STORY: OUTSTANDING INDEPENDENT OFFICES PRAIRIE WEALTH MANAGEMENT

Established: 2008 Number of employees: 11 Target clients: Investors who prefer to have trusted professionals make the day-to-day investment decisions for them Assets under management: $465 million Key performance metric: Net-to-rep revenue has grown from $2.3 million to $4.5 million since 2009 Moving to a discretionary practice has definitely paid off for Prairie Wealth Management.

“Since we moved to a discretionary practice, we’ve seen a massive difference in client size,” says senior investment advisor Kevin Haakensen. “I think that’s what they want. The model of a few mutual funds for high-net-worth clients doesn’t really cut it anymore. They want asset management, they want creative strategies, and they want hands-on management.”

It’s a strategy that appears to be working, as the firm was ranked first in AUM and second in revenue for HollisWealth from January to July 2015.

The full-service firm also offers everything from insurance to a tax practice. “We’re as full-service as we can get without having a lawyer on staff,” says senior investment advisor Kevin Hegedus. “But even then, we’re developing our network of great people that we trust to help our clients as well.”

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Saskatoon, Sask.

What are some keys to building a successful office and team?

Kevin Haakensen: Never cut corners when you’re building a team. For example, when we started discretionary management, we hired a CFA. Kevin and I spend a lot of our day with clients. We realized right away that we needed someone during the day who was watching the portfolios – looking at the metrics we set up, looking for new ideas to report to us and different things like that. We could have hired a bachelor of commerce or something like that, but we knew the importance of that role, so we were willing to spend what we need to spend to get the best talent we could find in the city.

What are some of the advantages of being independent?

Kevin Hegedus: Just being able to hold yourself out as independent advisors where you’re not representing one particular company. It gives the public the right view of us, knowing we can handle any type of investment out there.

What advice do you have for advisors who are looking to go independent?

Kevin Hegedus: Have a serious look at being a discretionary wealth manager. Going forward, that’s the future of the industry. Also, spend the money where you have to and don’t cut corners.

WISE RIDDELL FINANCIAL GROUP

While many advisors and offices are focusing on the high-net-worth client, Wise Riddell Financial Group hasn’t forgotten about the common man.

“We are planners and feel that everybody … needs to be taken through a process,” says advisor Christopher Riddell. “That process should be available to the guy on the shop floor earning $40,000 a year. It’s something that lower-net-worth individuals don’t necessarily have access to. They are left to put their money in the bank, and that’s it. Nobody’s targeting that $40,000-a-year [person] putting five grand away for savings.”

Wise Riddell’s pension model, which was developed 13 years ago, takes members through a similar planning process as high-net-worth clients.

“We dedicate an advisor to each one of the pensions that we manage to actively pursue members, sit them down and build a financial plan for them, starting with their pension assets,” Riddell says. “If those members feel they would like to divulge other assets, RRSPs, RESPs or outside savings to build into the plan, that’s at their discretion, but our advisor is there to build them a plan – but, more importantly, help them navigate the investment world and understand what it all means.”

The plan has seen tremendous success: Average contributions per member are twice those of the industry average, and the actual amount of assets per member, based on salary and age group, is three times the industry average.

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Oakville, Ont.

Established: 1982 Number of employees: 14 Target clients: High-net-worth individuals Assets under management: $250 million

“Nobody’s targeting that $40,000-a-year person putting five grand away for savings” What are the advantages of being independent?

Christopher Riddell: Being independent gives us access to all products available on the market. It allows us to choose the right products for the clients’ particular needs, and maintaining that independence allows us to offer our clients what is best for them for their personal objective. We have never been product-focused, and our independence allows us to maintain that freedom.

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FEATURES

COVER STORY: OUTSTANDING INDEPENDENT OFFICES PWL FINANCIAL

Toronto, Ont.

TOTAL WEALTH MANAGEMENT GROUP – HOLLISWEALTH Lachine, Que.

Established: 2003 Number of employees: 4 Target clients: Managed portfolio service for professionals, families, next generation, plus DIY investor service Assets under management: $157 million Key performance metric: Average annual growth of $21 million PWL Financial took a gamble a few years ago.

The firm wanted to revamp its marketing by giving away all their knowledge online, writing white papers and blogs on different subjects.

“We didn’t want to have that secretsauce, hold-your-cards-to-your chest kind of persona,” says portfolio manager Justin Bender. “That’s what started the whole do-ityourself service that we launched, which was pretty original in the marketplace. That ended up bringing a lot of new business in and led to a lot of our growth.”

While the gamble paid off, it was definitely not without risk.

“There was a lot of pushback, even from advisors at our own company, not really thinking it was a good approach,” NAME says.

“There were other advisors in the industry saying they had tried and failed, and we didn’t really agree with them, so we pushed forward anyway.”

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How do you see independent offices evolving?

Justin Bender: Probably a lot of them will start getting bought out by the bigger companies. You see that happening all the time. I think there will always be new ones popping up and then growing to a size where they become a bit of a threat, and then enough money gets thrown at them and they get bought out.

What advice would you give an advisor looking to start an independent office?

JB: It’s very difficult to go out and start your own office. I’m sure that’s what stops a lot of people from doing it. Usually it’s best to find a practice that’s mature, or at least maturing, where you can learn the ropes and try to make some mistakes along the way without having to build a book right away.

There’s not a magic answer. I think the structure of the industry is a little off. If it were more like, say, an accounting firm or a law firm, where you have senior lawyers who are running things and then junior ones kind of work their way up, that might be a better approach. Just get as much education as you can and learn as much as you can.

Established: 2005 Number of employees: 22 Target clients: Those with more than $500,000 to invest Assets under management: $350 million Key performance metric: 100% growth over five years The focus at Total Wealth Management Group isn’t on the here and now, but on the future.

“Our big focus is on what the client’s goals are for their money over the next five, 10, 15, 20, 30 years,” says Nader Hamid, portfolio manager and director at the firm. “We have a lot of clients who build up a large amount of wealth, and in some cases, it’s more wealth than what they’re actually going to spend.

It’s important to understand what’s going to happen over the long term and properly account for it.”

“It’s important to understand what’s going to happen over the long term” Total Wealth Management does that by providing complete wealth planning for clients, going beyond investments and getting involved in everything from reviewing clients’ wills and mandates to making sure they have sufficient cash flow for retirement.

SHORT FINANCIAL – HOLLISWEALTH

St. John’s, NL

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HOLLISWEALTH BERESFORD Beresford, NB

Educating clients is a focus at Short Financial – and while that might sound noble, self-interest also plays a part. The firm runs seminars with guest speakers on everything from tax reduction strategies to market outlook.

“It may sound altruistic that we’re doing these seminars to educate our clients, but it’s actually in our own interests to have educated clients who understand their money and are able to make those investment decisions,” says advisor Larry Short. “We manage on a flat-fee basis, so the more money they have, the more money we get to manage and the more money we make.”

And, Short adds, “we’ve been able to build a client base that is not intimidated by the market, that understands what’s happening out there.”

Their strategy paid dividends in 2008 when they were trying to pull clients out of the market. “Clients who worked with me for many years, often I’d call them up and say, ‘Hi, just want to chat,’” Short recalls. “And they’d say, ‘You’re trying to get me out, aren’t you?’ They knew the indicators we use for wanting to get people out.”

It was the same story in January 2009 after the market fell 50%. “Again, the clients who had been with me a long time said, ‘Yeah, I understand that; now let’s put our money back in.’ It was a glorious time to get back in, but at the time, the headlines were horrible. But those who weren’t as experienced hesitated and in most cases didn’t reinvest.”

Established: 2008 Number of employees: 6 Target clients: Business owners and professionals with a minimum of $500,000 of investable assets Assets under management $127 million Key performance metric: Grew AUM from $79 million to $127 million since 2008 How is competition from banks affecting independents?

Larry Short: It all depends on what the core value of the independent is. If they are a traditional mutual fund salesman, they’re in trouble. There’s no doubt about that. The bank will undercut on fees. If they start adding value and provide planning that is different from what is provided at the banks or returns that are better, or add knowledge, guidance and contact that the banks traditionally don’t do, then they have an incredible opportunity in front of them.

Why do you think there’s an incredible opportunity?

LS: CRM2 changes will have the same affect in Canada as in Britain, where many investment advisors left.

Anyone who stays behind is going to be faced with much less competition and room to grow a great practice.

Established: 1993 Number of employees: 7 Target clients: Clients needing financial planning and wealth management services Assets under management: $145 million Key performance metric: Grew AUM from $100 million to $145 million over five years As a young advisor, Serge Sonier of HollisWealth Beresford learned the importance of a team.

“I don’t do it alone,” Sonier says. “I work with a team. That’s what my mentor was able to teach me, and that’s what I’m trying to teach my associate advisors. With time and age, you get knowledge and experience, and you try to communicate that. Nobody in the office works alone. We try to share our best practices.”

The transition between generations of advisors is nothing new at this office, which was started in 1990 and has successfully navigated the retirement of two advisors.

Sonier took over in 2007.

“The consistency would be something that we’re happy with because we had a very successful transition from his retirement to my taking over,” Sonier says. “It was big success story for us.”

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FEATURES

COVER STORY: OUTSTANDING INDEPENDENT OFFICES THE HORWOOD TEAM – RICHARDSON GMP

Toronto, Ont.

POLSON BOURBONIERRE FINANCIAL Burlington, Ont.

What’s the advantage of being independent?

Rebecca Horwood: There’s no pressure at Richardson GMP to sell in-house products.

We have a 360-degree investment selection process – subject to compliance – so we can research and invest in private placements, hedge funds and private equity.

Also, there’s no cross-selling.

Established: 2003 Number of employees: 11 Target clients: Accredited investors, business owners, professionals and wealthy families Assets under management: $758 million Key performance metric: Grew AUM from $378 million to $758 million over five years Many offices in Canada claim to be a team, but the Horwood Team at Richardson GMP really does rely on everyone on staff.

“We are truly a team with multidisciplinary members and skills,” says Rebecca Horwood, portfolio manager and director of wealth management. “As an example, team members bring investment recommendations to the table, and together we decide collaboratively to invest or divest.”

An emphasis on forward planning has allowed the team to succeed.

“What sets us apart is in our DNA; it includes succession in the process,” says John Horwood, director of wealth management.

“If you think about a traditional advisor, it’s a single purpose. I think we’ve developed a team. We are one of Canada’s only true teams, where information is disseminated freely and responsibility is passed down. Now we’re at the point where it becomes a co-op where everybody has input into the decisions that are made.”

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Do you think the independent office will have to grow in order to thrive, or will there always be a place for a range of independents?

RH: An independent model supports better service for clients, especially high-net-worth clients and entrepreneurs. The independent office will definitely need to grow to survive in order to beat the increased burden and cost of regulation. The larger the firm, the more depth of resources that is needed. The need for independents in Canada is coming due to changes in bank capital and regulations.

The large banks are not able to service the capital needs of small businesses. Independent firms, like us at Richardson GMP, understand that our clients want personalized, disciplined strategies and financial plans to meet their long-term goals.

What advice would you give to advisors who want to set up or move to an independent firm?

RH: It’s a huge step and requires considerable research, and I suggest advisors speak to a few independents before making a decision. As a starting point, do you see yourself as an employee or an owner? If you see yourself as an employee, stay where you are.

Established: 1997 Number of employees: 14 Target clients: For senior advisors, clients with minimum of $750,000 of investable assets; for associate advisors, clients with minimum $250,000 of investable assets Assets under management: $390 million Key performance metric: AUM increase of 19.3%, revenue increase of 51% and profitability increase of 83% over five years Part of the allure of Polson Bourbonierre is that every advisor is on the same page.

“We all share the same investment philosophy and the same beliefs with regards to financial planning, so the client is going to get a consistent approach,” says financial advisor Derek Polson.

Those beliefs are structured around a full-service, holistic wealth management approach.

“With our office, we’re a little different because we have six advisors here, but we do take a team approach,” Polson says. “If someone’s away or on vacation, another advisor can pick up the file and help that person who’s on the phone or who has a meeting.”

HORIZON WEALTH MANAGEMENT

White Rock, BC

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NORTHLAND WEALTH MANAGEMENT Markham, Ont.

Established: 2011 Number of employees: 12 Target clients: High-net-worth and ultrahigh-net-worth family business owners Assets under management: $370 million Key performance metric: AUM growth of 20%+ per year; staff growth from 7 to 12

Established: 2013 Number of employees: 6 Target clients: Investment and insurance Assets under management: $140 million Key performance metric: Grew AUM from $0 to $140 million in two years Despite having a team with more than 100 collective years of experience in the industry, when Myles Connaughton and his partners started Horizon Wealth Management, they had to start from the beginning.

“The idea was to control our own destiny,” he says. “We basically started off with zero, and the clients who followed us or came after us, they basically came in new. When you’re with the banks or the credit unions, they really have the clients, so you have to start off from scratch. We’ve built the business from zero to $140 million.”

Horizon Wealth Management is trying to set itself apart from the competition by forming deep bonds with clients that go beyond the norm.

“Our relationships are what make us unique,” Connaughton says. “We’re four independents who work as a team. When someone comes in, they know all four of us; they know they deal with all four of us. It’s a different type of relationship than just an independent.”

What are the main advantages of being independent?

Myles Connaughton: Aside from owning your own book and having control over what you do, the main benefit is we report to ourselves. We have four equal partners, and if we want to make a decision, we make it right there and then, and we don’t have to go through multiple levels of hierarchy to beg and plead.

What advice would you give other advisors joining an independent firm or starting their own?

MC: Just not being afraid is probably the key, because fear is the biggest enemy in this business.

You’re afraid to make a change; you’re afraid to move; you’re afraid your clients won’t follow – all those are serious questions, and once you make the move, you realize there was really no fear there except what was in your own head.

Slow and steady is winning the race for Northland Wealth Management.

“It’s not about having the fastest growth,” says CEO Arthur Salzer. “It’s not about becoming the biggest. It’s about becoming the best and giving families what they deserve.”

At its core, the firm is a family office, offering a range of services, from family governance to concierge service to investments. “The typical bank brokerage doesn’t have those capabilities,” Salzer says. “They don’t have the scope.”

As far as Salzer is concerned, his office is unique in Canada.

“To provide something comprehensive is really, really important and is the key to serving families properly” “There are firms like us in the United States, but they’re really not available anywhere in Canada,” he says. “Many firms in Canada will call themselves a family office, but most of them are just serving wealthy people. Really, a family office goes beyond that and focuses on all the aspects of family wealth. To provide something comprehensive is really, really important and is the key to serving families properly.”

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FEATURES

COVER STORY: OUTSTANDING INDEPENDENT OFFICES WILLIAM DOUGLAS GROUP – MANULIFE SECURITIES Burlington, Ont.

Established: 1990 Number of employees: 5 Target clients: Business owners, executives and retirees Assets under management: $90 million Bill McElroy, president and principal of the William Douglas Group, a full-service boutique firm, has been able to carve out one of the top independent offices simply by listening.

“Just from what I’ve seen with other advisors, they’re so busy thinking about what they’re going to say next while you’re talking that they’re not listening to what you’re saying,” McElroy says. “I start the conversation with people and just sit back and listen to what they have to say, and find a solution for them. We all sell the same products and we can all do our research, but if you’re not listening to what the clients are saying, you have a problem,” McElroy says. “There’s only so many ways you can differentiate yourself in this industry, and I think and listening is one of the keys.”

What are some trends you’re noticing, and how are they impacting your business?

Bill McElroy: Social media is definitely a very powerful tool we are embracing 100%. I have an assistant, and maybe 60% of her time is spent on social media.

Getting your name out there and having your name recurring online, that’s what you need. People don’t have time to sit down and interview a bunch of people, but they have time to go on the Internet and decide who they’re going to deal with just by what’s out there on them.

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EMERITUS FINANCIAL STRATEGIES

Burlington, Ont.

Established: 2009 Number of employees: 12 Target clients: Baby Boomers transitioning from saving years to spending years Assets under management: $250 million Key performance metric: Quadrupled AUM over six years What are some keys to building an outstanding independent office?

Doug Dahmer: One is just plain focus. You have to believe you’re heading in the right direction. I set out with a very specific set of goals to achieve and stayed true to them, believing that at the far end of it, other people would aspire for a similar type of solution. Sure, we hit a few bumps along the way, but we just picked ourselves up and kept going. There have been many people who have tried to sway me in terms of saying that this isn’t the way the industry works, and I’ve just ignored them.

Emeritus Financial is changing the clientadvisor relationship.

“We’ve really completely changed the role of the advisor,” says CEO Doug Dahmer.

“They’re no longer the person who prescribes the solution; instead, they work as collaborators, someone who facilitates the client making better decisions.”

Emeritus has carved out a niche in an industry where most advisors focus on clients’ savings.

“We’re going after the people who are going from their saving years to their spending years,” Dahmer says. “We’re serving the people who say, ‘I want to get my money back and in as safe and secure a manner as possible.’ So by zigging as they zag, we’ve found ourselves a nice opportunity.”

CONFIDO WEALTH MANAGEMENT GROUP Oakville, Ont.

Established: 2008 Number of employees: 13 Target clients: Business owners, professionals and corporate executives Assets under management: $300 million Key performance metric: Average annual growth of 20% The little things matter for Confido Wealth Management. The company offers a comprehensive and integrated approach to wealth management, including debt management services and consultations with a lawyer and an accountant.

While their services are paramount, branch manager and senior financial advisor Don Levy puts a tremendous amount of stock in creating an environment at the office that puts clients at ease. From having ample free parking to offering to pick up a sandwich for a client coming into the office during lunch, Levy sees this as integral to the client experience.

“Those little things help,” he says. “We’re in an environment where technology is very important. We’ve seen it with many institutions where they’ve gone high-tech, but they’ve forgotten high-touch. We think being able to offer the combination of both high-tech and high-touch is invaluable for the client.”

What does the future hold for independent offices?

Don Levy: The future for independent offices can be a bright one if they recognize the changing landscape that is coming.

If they’re with a provider that is in tune with all the regulatory changes and prepared and on schedule, there can be great opportunities. For those that are not, then it will be a very challenging time.

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FEATURES

COVER STORY: OUTSTANDING INDEPENDENT OFFICES NICOLA WEALTH MANAGEMENT

Vancouver, BC

Established: 1994 Number of employees: 127 Target clients: High-net-worth and ultra-high-net-worth families, entrepreneurs and professionals Assets under management: $4 billion Key performance metric: AUM increase from $1.2 billion to $4 billion, and staff increase from 58 to 127, over five years Nicola Wealth Management is offering a different approach for advisors looking to be independent.

“For the advisor community, we are a fee-based firm with advisors who work as a team to serve the firm’s clients, as opposed to being an umbrella for solo or siloed individuals,” says David Sung, president of Nicola Wealth Management.

This approach, coupled with the firm’s value-adds in the form of real-estate investment and asset management teams, additional portfolio diversification through commercial grade real-estate, and institutional pension approach, has resulted in huge growth.

“We recognize that extra attention and strategy has to be directed toward maintaining/improving our corporate culture,” Sung says.

“We’ve placed a significant focus on ensuring our entire staff understands the company’s vision and ensure that they are aligned, both in terms of engagement and workflow.”

How is competition from the banks affecting independents?

David Sung: At the end of the day, independent firms have an opportunity to differentiate themselves from the big banks, whether it’s through product offering, fee schedule or service standards. Competition will always exist; it is incumbent on any business to innovate, differentiate and elevate.

What advice would you give to advisors who want to set up or move to an independent firm?

DS: Find the right fit for you. Look for a firm that fits your personal advising philosophy. Understand the compensation structure and what that firm brings to the table that will allow you to grow not only your business, but also your skill set.

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CIC FINANCIAL GROUP

Ancaster, Ont.

Established: 1986, incorporated in 1990 Number of employees: 4 Target clients: Typically over 50, mass affluent retirees or near retirees Assets under management: $104 million, plus GICs & insurance Key performance metric: Business has doubled in past five years CIC Financial has positioned itself ahead of the pack on CRM2 – it’s been using a comprehensive, holistic planning approach since 1986.

This approach, combined with a ‘conflict-free’ and ‘flat-fee’ model with IIROC dealer Aligned Capital Partners has allowed the firm to build healthy, trusting relationships with clients, forging a genuinely full-service practice that includes investment services, estate planning, tax preparation, financial planning and insurance.

“It seems to be a true measure of where the industry should go,” says senior financial planner Brad Jardine. “Regardless of the advisor’s revenue, the dealer receives a flat fee. We’re not going to risk the firm’s reputation on any advisor who may generate a lot of revenue, because every advisor generates the exact same amount of revenue.”

This model allows the firm to customize the office and staff to suit the client base by leaving more funds in the hands of the advisor.

Will bank competition force independent offices to grow in order to thrive?

Brad Jardine: Bank-owned brokerages certainly have some economies of scale, but we’ll all need larger practices with lower compensation and more staff to manage growing expectations from our clients.

On a longer-term basis, smaller advisor books will not be sustainable, and there will be consolidation. At a retail level, local bank branches tend to be a supplier of our new clients, not competitors. Retail bank clients in their 50s and beyond tend to migrate toward comprehensive and independent options as their savings levels increase.

What advice would you give to advisors who want to set up or move to an independent firm?

BJ: Choose very carefully. You can lose a lot of credibility by choosing the wrong firm, not doing your due diligence and then realizing it after you arrive. If you have to [move again] … you’re going to lose clients. It’s very, very important to make sure the culture, philosophy and the pricing structure of the new firm is going to match up well with what you do. And if you’re actually going to go through with it, you have to make sure you relay the benefits to the client clearly, because as much as we hate doing paperwork, they hate it too.

TRILOGY WEALTH MANAGEMENT

Winnipeg, Man.

MCCURDY FINANCIAL PLANNING Vancouver, BC

Established: 2012 Number of employees: 4 Target clients: Business owners Assets under management: $120 million Trilogy Wealth Management is modelling itself on the province it calls home.

“Manitoba is kind of nicknamed ‘the recession-proof province’ because there’s not really a main industry here. Manitoba is pretty much slow and steady,” says financial security advisor Sean Harrell. “It’s the same thing with our clients. We don’t really follow trends.”

With a book of 500 clients, Trilogy’s advisors are able to offer quality service, and given the importance they place on educating clients, they rarely get panic calls when the market dips.

“We set up diversified, well-balanced portfolios,” Harrell says. ““We teach our clients that not every portion of their portfolios will be the ‘in’ investment at any given time. We don’t chase trends. Our financial plans are ridiculously conservative. We really, really strive to make sure our clients understand what’s going on with their portfolios so they don’t have that moment of panic when something in the market changes.”

What are the secrets to building a successful office and team?

Sean Harrell: Clients have to like you. Co-workers have to like you.

Building a team is probably tougher than acquiring clients because a team is around you every day. I’m lucky – my assistant, Lisa, is a rock; she’s always there for me. And Andrew and Melissa (who happens to be my wife) are great. Our advisory skills and personalities complement each other well. One advisor in our office (not part of Trilogy) has been in the business as long as I’ve been alive. He’s a wealth of knowledge. Surrounding yourself with good people is the key; our team is truly amazing.

What advice do you have for other advisors looking to make the jump to an independent practice?

SH: If your goals aren’t aligned with your staff, you’re not really going to be able to work together to reach them.

It’s a tough exercise if there’s some resistance, but it pays off in the end.

Established: 1985 Number of employees: 5 Target clients: Closely held private corporations, professionals and executives Assets under management: $210 million Key performance metric: 50% growth over the last five years After building a business solely through word of mouth, McCurdy Financial Planning plans to ramp up their advertising in the pursuit of new clients. “We’ve positioned our systems, our CRMs, everything – we’re changing our website to make sure people really know we’re open for business,” says Diane McCurdy, the firm’s president.

The firm espouses a diversified approach and conservative strategies that maximize overall returns. “I think the strength of our firm is that we really seem to know the direction our clients want to go and how to help them get there,” McCurdy says.

How do independent offices need to adapt?

Diane McCurdy: I think your clients mainly tell you where you’re going to go. The industry as a whole might choose to go one route, but if it doesn’t appeal to the clients, it’s not going to fly.

Change is an opportunity, but I think it’s really driven by your clients.

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FEATURES

ETF PORTFOLIO CONSTRUCTION

ETF PORTFOLIO CONSTRUCTION WORKSHOP Wealth Professional’s regular look at building a better ETF portfolio

WELCOME TO Wealth Professional’s ETF portfolio construction workshop, a regular feature that taps the plans and thoughts of Canada’s biggest ETF providers and most successful advisors.

This month’s feature uses the experience of Bob Sewell, president and CEO of Bellwether Investment Management.

The subjects of this month’s case study are the Quaids, a fictional Toronto couple.

They’re in their mid-20s, recently married and looking to buy a house in the city while continuing to grow their assets.

Overall asset allocation The Quaids’ total investment assets are $120,000; the asset mix is 20% cash, 20% fixed income and 60% equities.

Portfolio construction Bob Sewell has more than 20 years of experience in the discretionary investment management and brokerage business, and has established a reputation as a

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INVESTOR PROFILE Douglas Quaid and his wife, Jane, are a young, recently married couple in their mid-20s. They’re both young professionals working in Toronto, paying $1,800 a month in rent. They have a household income of $180,000. They have $120,000 saved – $60,000 in TFSAs and $40,000 in taxable investments.

The Quaids have a couple of major financial goals. They’re looking to buy house in next few years, and they also want to grow their investable assets so they can retire early.

The risk tolerance for both is medium to high, and their investment knowledge is low. turnaround specialist and business builder.

His managed ETF strategy employs a core and satellite philosophy, where he maintains approximately 60% of the portfolio in core positions, generally in Canada, the US and international markets. The remaining (satellite) 40% is tactical allocations to sectors, countries and/or commodities. The satellite allocations tend to be shorter-term investments.

“Dividend growth investing is central

to all of Bellwether’s mandates,” Sewell says, “including the core of our ETF strategy, as we see this to be an effective means of managing downside risk in client portfolios.”

Conclusion The balanced portfolio shown at right should give the Quaids the portfolio they need to achieve their ambitious goals of buying a house while growing their assets.

PORTFOLIO BREAKDOWN CASH

20% Preferably in a money-market fund for better yield and no trading costs. If we had to use an ETF, we would use the BMO Ultra Short Term Bond ETF (ZST), which has a good yield at 1.48% and weighted average term of 0.75

FIXED INCOME

10% BMO MID CORPORATE BOND INDEX ETF (ZCM) Favours corporate debt versus government debt; yield to maturity is 2.79%

5% BMO TSX LADDERED PREFERRED SHARE INDEX ETF (ZPR) The preferred share market has been beat up this year, but that provides a good entry point to invest in this illiquid market. Distribution yield is 5.31%

5% PIMCO 0-5 YEAR HIGH YIELD CORPORATE BOND ETF (HYS) This is US dollar-denominated high-yield debt with a yield of 5.15%. With highyield spreads now normalized, an allocation to this ETF makes sense

EQUITIES

20% ISHARES US CORE DIVIDEND GROWTH ETF (DGRO) Broadly diversified across sectors and market capitalization; companies must pay a dividend and increase it over time

10% ISHARES TSX CANADIAN DIVIDEND ARISTOCRATS INDEX ETF (CDZ) A small allocation to Canada, focused on dividend growth companies, which tend to be a more conservative investment

10% DEUTSCHE X-TRACKERS MCSI EUROPE HEDGED EQUITY ETF (DBEU) Provides broad exposure to European equity markets, hedged back to the US dollar to protect against a weakening euro due to the ECB’s quantitative easing policy

10% WISDOMTREE JAPAN HEDGED EQUITY ETF (DXJ) Provides broad market exposure to Japanese equities, hedged to the US dollar to protect against yen weakness due to the Bank of Japan’s quantitative easing

ETF Q&A Christopher Doll Assistant vice president, product management PowerShares Canada Why are ETFs a good investment vehicle for new investors?

ETFs are an excellent vehicle for investors of all knowledge levels – seasoned veterans and rookies alike. For new do-it-yourself investors, they offer the opportunity to learn many of the basics of investing, from portfolio construction to trading and execution. For those looking for more of a handsoff approach, globally diversified strategies, like PowerShares Low Volatility Portfolio (PLV), and new online advisory and portfolio construction services, offer to take care of the guesswork in trading and ETF selection.

How do PowerShares help young investors in particular?

PowerShares’ smart beta strategies represent a disruptive approach within a disruptive industry. Younger investors are always eager to find new ways to get an edge in the markets and avoid the pitfalls faced by previous generations, like high fees and low value for your money. Smart beta strategies turn these problems on their head by offering strategies that materially outperform old-school market-cap indices, for only nominally higher fees – usually 10-25 basis points.

Because this couple has a larger risk appetite given their longer investment horizon, what sectors should they be looking at?

Emerging markets are particularly attractive right now for investors with long time horizons and a healthy risk appetite. Valuations have been driven down around the world, notably in Russia, Brazil and China, due to a combination of negative geopolitical and economic headlines. While the short-term pain may persist, the long-term opportunity is undeniable, as the emerging markets of today may be the economic powerhouses of the future with their rapidly growing economies, low debt loads and attractive demographics.

Are there any specific types of ETFs that would be a good recommendation for this type of investor?

Small-cap stocks also offer an excellent opportunity for maximum upside participation, if investors are prepared for a bumpy ride along the way. Smaller companies have proved their ability to lead the charge over many bull markets.

While they may give back some gains when the bears come out, they’ve tended to rocket back when the risk pendulum swings back from fear to greed.

5% ISHARES US HOME CONSTRUCTION ETF (ITB) US consumer spending continues to improve as a result of strong employment growth; rising rental costs and low interest rates that should drive continued recovery in housing sector

5% US FINANCIAL SECTOR SPDR ETF (XLF) US rate hikes in 2016 will drive better spread revenues for the US banks and insurers; this ETF should do well as interest rates begin their inevitable rise

ABOUT POWERSHARES CANADA PowerShares’ Fundamental Index smart beta ETFs are a great solution for taking a long-term strategic position in small-cap stocks. PZW and PZC ensure investors are getting a broadly diversified portfolio that ignores overpriced and overheated sectors by focusing on company fundamentals like sales, cash flows, dividends and book value.

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PEOPLE

ADVISOR PROFILE

The doctor is in It might not have been her first-choice career, but Sonia Wu has become a shining example of the good work financial advisors can do CHINA WAS in the midst of change during the mid-1980s. The country adopted an increasingly open market environment, but the population was still relatively isolated from the rest of the world. Yearning to experience the Western world, 24-year-old Sonia Wu emigrated to Canada in 1989 – the same year as the Tiananmen Square protests.

“At that time, China was a very different country,” Wu says. “It was poor; it was a developing country.”

Having already completed medical school in China, Wu planned to take the Canadian medical exam and continue her work in the field. But the language barrier and the cost kept her from realizing that dream.

In 1993, after a few years of working as a nanny, a friend of Wu’s invited her to an interview at the Harbour Centre in Vancouver. She was enthralled, to say the least.

“Today, [Shanghai] is one of the biggest financial centres in the world, but [when I was growing up there], there were only two high rises, and you couldn’t just walk in,” Wu says. “So I walked into the high rise [in Vancouver] and thought, ‘This must be the best job!’”

the centre was not performing well when Wu came on board is an understatement; she estimates it was in the bottom 25% of all Sun Life centres.

But, after just one year under her guidance, the centre was third in the company. Two years later, it was the top-performing financial centre and won the coveted Sun Life Cup. Office culture was crucial to that success, Wu says, and it started with the end goal in mind.

“When hockey season starts, no coach says, ‘Just play and have fun’ – no, every team wants to win the Stanley Cup, so they use the strategy and build the team,” she says. “When I started, we never talked about winning the Sun Life Cup, but I started talking about it. People thought I was crazy.”

She got senior advisors and the management team on board, then started recruiting. Now, the company employs more than 55 advisors – up from just 21 when Wu took over – plus eight associates and six managers.

“A majority of people want to work in an environment that has a winning attitude and high standards; people want to be successful,” Wu says. “You need to provide the environment of a winning team with great support.”

Creating that supportive environment was not easy – Wu found herself working 15 hours a day at the start of the transformation – but the payoff of winning the Sun Life Cup was certainly worth it. Wu was the first female manager to lead her team to a Sun Life Cup in the company’s 150-year history.

“I cannot describe it,” she says. “It’s a dream come

“With financial planning and advising, we are financial doctors.

We want people to be financially healthy”

Getting results At first, working in financial services was a lot harder than Wu expected – she had to learn the language and pass a variety of securities courses to get licenced – but she’s since developed a career she’s not only passionate about, but also really good at.

In 2010, Wu was promoted to manager of a Sun Life financial service centre in Burnaby, BC. To say

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BURNABY FINANCIAL SERVICE CENTRE BY THE NUMBERS Sonia Wu has worked tirelessly to boost the profile of the financial service centre in Burnaby – and she’s certainly succeeded. Not only has the centre achieved top ranks among Sun Life’s 90 centres across Canada, but Wu was named Recruiter of the Year for three years in a row, starting in 2011 – another first for the company.

33 Number of full-time advisors

6 Number of managers

13 Number of languages spoken true. The entire team is so proud of what we have accomplished.”

Promoting financial health But Wu isn’t stopping there. The centre launched a Chinese-language site in 2014 to help immigrants settle in Canada, a move that many other Sun Life offices are following.

That desire to help people achieve financial stability, Wu says, is no different from her reason for initially pursuing a career in medicine.

“With financial planning and advising, we are financial doctors,” she says. “We want people to be financially healthy. Doctors ask about the symptoms, they do a check-up, and then you get a prescription.

When we see the clients, we ask where they are today and what’s their goal, we see the gap, and then we offer a solution.”

People often ask Wu if she was disappointed that she couldn’t continue her medical career, but she swiftly answers a resounding ‘no.’

“Whatever happens, good or bad, will help you become who you are – tough times are good,” she says.

“When I came here, I was a nanny, a waitress – you name it. It helped me become who I am and want to help people.”

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PEOPLE

CAREER PATH

ACHIEVING HIS ENDGAME From his first job in the business, Marcello Varano knew exactly what he wanted to do – and he’s excelled at it ever since 2014

BECOMES A PARTNER AT LAURENTIAN BANK SECURITIES PORTEFEUILLE PRIVÉ Varano’s hard work at Laurentian Bank Securities has hardly gone unnoticed. Last year, fellow Laurentian financial advisor Pasquale D’Ambrosio asked Varano to join him in his business that caters to private and high-net-worth clients

“I think I’ve hit a big milestone right now, which is being associated with someone who has grown his business exponentially. I want to continue to service these clients, hopefully grow our book, double the size of the assets that we have and add services like portfolio management” 2003

JOINS SOVEREIGN CAPITAL Varano was hardly the only financial services professional impacted by the events of September 11. A group of investment advisors who had also been laid off following the attacks took matters into their own hands and opened a firm called Sovereign Capital “They offered me an opportunity to learn the business there, and start off with some of my own clients – who were my parents, my brother and my uncle. But they were the first to give me the opportunity and the taste of what it is to be someone’s financial advisor”

2007

JOINS THE BOARD FOR THE CENTRE CULTUREL DE LA PETITE ITALIE In 2005, the historic Casa d’Italia in Montreal, which served as a community centre for the wave of Italian immigrants arriving in the city during the 1930s, was restored and reopened. Seeking new networking opportunities, Varano decided to volunteer with the organization that led the Casa d’Italia initiative. By 2007, he was sitting on the organization’s board of directors

2004 MOVES TO LAURENTIAN BANK SECURITIES In 2004, Laurentian Bank Securities started a rookie program for advisors. After a year-long training program, new advisors could begin taking on their own clients. Varano, who took part in the program, calls it a thrill; he’s been with the company ever since “It was an adrenaline rush from there. I loved it, and I wanted more” DISCLAIMER: Marcello Varano is an investment advisor with Laurentian Bank Securities. Member of CIPF and IIROC and a wholly owned subsidiary of the Laurentian Bank of Canada.

2001

GETS LAID OFF AFTER 9/11 Business at BMO InvestorLine was booming during the first half of 2001 – more than 200 new accounts were opened every day – but following the tragic events of 9/11, the company’s business declined. Like many financial institutions, it was forced to make layoffs; Varano was one of the casualties. He decided to use his unexpected free time to earn the appropriate designations through the Canadian Securities Institute

After studying social studies at Dawson College in Montreal, Varano 2001 became a teller at National Bank, an GRADUATES FROM interest that eventually led him to CONCORDIA UNIVERSITY BMO InvestorLine, where he took on While working at National Bank and then BMO, Varano was also an operational role, supporting studying political science at Concordia University; he earned his traders and establishing online degree in 2001. At Concordia, Varano briefly had a change of heart. account openings WORKS FOR He decided to attend law school at the University of Ottawa, but “I loved it; I knew then that this is what I wanted to do. That’s NATIONAL BANK found the financial and time commitments to be too gruelling, so how I knew what courses I had to take – it was a way of AS A TELLER he returned his attention to financial services understanding what I am doing today”

1998

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PEOPLE

TELL US ABOUT YOUR OTHER LIFE Email wealthprofessional@kmimedia.ca

OTHER LIFE

DRIVE TIME Restoring cars and advising clients might not seem related, but for Edmund Chien, they’re practically one in the same AT FIRST glance, Edmund Chien’s fleet of Honda Civics might not seem like much – but, even beyond nostalgia, the cars serve as an exercise in investment planning. While in school in the 1990s, Chien, now an advisor with Sun Life Financial, took a liking to tinkering with cars – especially Civics.

“Civics were so popular back then because they’re easy to work on and they’re customizable,” Chien says.

“You can swap the engines back and forth; a lot of the anchor points are very similar. We used to call them ‘Lego cars.’”

Chien has found that examining the inner workings of an old car is very similar to working with a client’s portfolio. “Restoring cars is like problem solving,” he says. “An old car tells you a story … then you have to try to problem-solve based on that history. That exercise is very similar to meeting new clients. When you meet a new client, they have an investing history … and you have to be sensitive to who they are and their past experience, so you are careful with how you turn the portfolio around.”

1973

The year the first Honda Civic was launched

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16.5 million The number of Honda Civics sold worldwide, as of 2006

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The number of years the Civic was the top-selling car in Canada

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For Advisor Use Only. © 2015 Morningstar Research Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. 1Morningstar RatingTM is the overall rating for Class F units as at August 31, 2015 and is subject to change monthly. Renaissance Optimal Income Portfolio, Class F received a Morningstar Rating of 5 stars over 3 years (323 funds rated) and 5 stars over 5 years (233 funds rated). The overall 5 star rating is calculated from a fund’s 3- and 5-year returns measured against 91-day Treasury bill and peer group returns. The top 10% of the funds in a category get five stars. For greater details see www.morningstar.ca. 2MER annualized as at August 31, 2014.

Please refer to the annual Management Report of Fund Performance for further details. 3Source: Morningstar Direct as at August 31, 2015. Risk-adjusted returns are measured by the Sharpe ratio for the Class F units of the fund over 5 years to August 31, 2015 and compare the ratio of the fund against the ratio of the average for the Canadian Fixed Income Balanced Category. (Fund: 1.54, Category Average: 1.19). Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. The information presented is accurate at the time of first printing, and is subject to change without notice. Please read the Fund Facts or the Renaissance Investments Simplified Prospectus before investing. Mutual funds are not guaranteed, their values may change frequently and past performance may not be repeated. ®Renaissance Investments is offered by, and is a registered trademark of CIBC Asset Management Inc.