​I like Being Disruptive

​I like Being Disruptive

​I like Being Disruptive Andrew MarshIn September, Richardson GMP became the largest independent wealth manager in Canada with the $132-million purchase of Macquarie Canada’s retail business. CEO Andrew Marsh tells Wealth Professional’s Christopher Myrick what prompted the deal and the big changes he sees for Canadian advisors

WP: When announcing the acquisition of Macquarie, you said the merger would help Richardson compete with larger players while retaining a boutique culture. How much of a threat do you think small and mid-sized players face from the large institutions?

AM: I would answer that two ways, but they don’t really fall in line with each other. To some degree, the risk stems from the dominant brand that the banks have in Canada and the resources that flow from that. I can say this from experience because we literally started up GMP Private Client, one of the predecessors of our firm, nine years ago. When no one knows who you are it’s tough to compete with the banks; the strength of the bank brands in Canada is extremely powerful. Clients in Canada are very conservative and they are convinced that the only place that their assets are safe is in the banks. We know that’s not the case, but that certainly is one of the challenges.

But the reason I think independents have more runway than we’re given credit for, is that we certainly see that the level of frustration is increasing every week, every month, from the best advisor professionals at the Canadian banks who are looking for a more entrepreneurial culture.

The reason I think that we now are in a position to be competitive is that those really good advisors at the banks who are frustrated have been looking around and they see that there are a bunch of independents competing with each other, but none seem to have the characteristics of stability or scale. So I think that we’re in a position now where an advisor looking to make a change can cross one thing off their concern list – is this company going to actually make it.

I think that independents can compete, and I think that interest among the best advisors about making a change from the banks is going to continue to grow. But it is difficult to compete against the strength and brands of the banks.

WP: Hence your desire to achieve greater scale?

AM: Oh yes. Scale is everything, and brand is everything. There is an acknowledgement that our new scale gives us a sense of permanence in the marketplace. 

WP: Ian Russell, president of the Investment Industry Association of Canada, said that the merger was “bad for the market.” He didn’t say anything bad about you or Macquarie, but he did say that it was bad to see two large firms disappear into one.

AM: I think it’s a good thing because we need to have at least one large independent that can stand the test of time than to have four or five independents that are all striving for the same thing and yet are competing with each other. What we found, with Macquarie, especially, was that if an advisor was looking to make a change they were going to either Macquarie or us. They weren’t talking to any of the other independents. So advisors will still look to make a change; they now have one choice, and it is a choice that is stable and offers clients that permanence. As opposed to clients going to one independent firm, and having that turn into another independent firm, and then into another independent firm.

I think the power of having at least one (large) independent in Canada is more important than having four or five independents who are barely hanging on.

WP: You say that people were either coming to you or Macquarie, but you also had people who were going from you to Macquarie. Are they being welcomed back now?

AM: Well, we are going to look at that on a personby- person basis. This isn’t the firm for everybody, we have certain standards that we’ve come to be known for, and people are the right to work where they want to work. Not everyone will fit in here.

WP: There have been 13 firms’ names that have disappeared this year and there were 10 names that disappeared last year. Where do you see things going in the next couple of years?

AM: We’re quite optimistic on the future of capital markets in Canada – the economy and business conditions – but it has been a number of very challenging years for businesses that don’t have a holistic and comprehensive approach to wealth management. So I think that it’s sad to see some of these firms go, but it is also the result of a dynamic and changing marketplace. The firms that will survive will be the ones that can embrace the future of wealth management and not be stuck in the past. Those that are stuck in the past, hopefully conditions will improve enough that they can skate back on side.

We’ve always had our attitude toward growth focused on three things: one is recruit one advisor at a time; provide the tools and resources for advisor teams to grow organically; and the other is to be opportunistic when consolidation opportunities come our way. I don’t know whether one will come our way again; we’re also very choosy as to what fits our model and making sure that we don’t dilute our brand.

WP: What types of firms would fit your brand? Boutique agencies?

AM: I think the firms that fit our brand are as much the investment counsellors as they are the IIROC dealers. There are fewer and fewer IIROC dealers that would fit. There are a number of them, but I also think there are a number of investment counsellors and portfolio managers out there who would have set up their own individual shops, but are now looking at all of the regulatory and technological complexities that have grown into their business and are can appreciate a firm that supports the portfolio manager platform as well as anyone else. I think Richardson GMP is to combine the world of the portfolio manager under the OSC with the world of the IIROC wealth advisor.

WP: You said that not everyone is going to be a good fit with you after the acquisition. What steps are you taking to attract good fits?

AM: Well, since the announcement I forced myself on the road and put myself in boardrooms in front of people who were dealt a shocking piece of news that their company had just been sold to us. It created some challenging conversations, but I stood in front of them with humility and respect about what they were going through. It was a great exercise for me personally, because through that I was able to listen to what mattered to them.

I think if we had devised our retention package prior to the deal being announced, we would have come up with something that was wrong. After being in front of them and listening to their concerns and what mattered to them we’ve been able to take that back, devise something and take it to the most important people who we want to retain and offer them something that reflects the fact that we’ve heard them.

That will be a combination of cash – like most retention bonuses are – but it will also be equity in Richardson GMP. That’s a very important part of our culture and what we stand for. We’re the only firm in Canada that offers equity ownership to advisors. 

I know there are others who are a smaller scale that do, but from a large-scale IIROC firm we feel that we are a bit of a throwback to the days of McLeod Young Weir, Wood Gundy and Burns Fry. We own equity: I’ve got skin in the game, our advisors got skin in the game, and that’s important for our new partners to have.

But we have a lot of work to do to educate them as to what that means. So, if they do decide to stay or leave they will be doing so on the basis of full information.

WP: Earlier when you were talking about which firms will survive, you noted that it would be the ones who offer holistic services. Explain. Assuming that this is part of the way you see the industry going as a whole.

AM: Well, I wouldn’t so much say that I support a fee model. What I would say is that our advisory profession should be held to higher standards and that we should hold ourselves to higher standards. The reason I say I’m not entirely in support of a fee model is because I’ve seen a lot of advisors convert to a fee-based practice and then take summers off. I think that the work ethic than comes from being a more respectful professional means that people should serve their clients in the way that they expect. Whether you are a fee-based advisor or a transactional advisor, I believe that we should hold ourselves to higher standards and respect the fact that it’s not our money. And that we recognize what our specialities are.

I was an advisor for 14 years – from 1990 to 2004 – and as an advisor I wore seven or eight hats. I was half-decent at all of them, but not really great at any of them. So, now as demographics have changes and advisors have evolved, people are specializing in PM, in providing access to private venture companies, alternative investment managers, or just straight stock picking. I think that that’s ok, but I think that as a firm that recognizes where the specialities are, the real opportunities come from having the right teams to make sure that we can offer our clients a comprehensive solution. They may have four different advisors with us but they are getting complimentary services. That could be fee-based or transactional depending on the nature of the advisor and the client. So, I support fee based only if it represents a more comprehensive holistic approach to serving client wealth. 

WP: We’ve touched on this in other questions, but where do you see the industry heading over the next five years?

AM: I think the industry is heading toward a greater standard of professionalism, whether it is in terms of fiduciary responsibility, or disclosure and transparency of fees, our industry needs to step up.

I think that ultimately there will be fewer advisors – never mind firms, there will be fewer advisors in five or ten years. And I think that’s a good thing! I think a regulatory regime that allows poorly prepared advisors working out of their basements is not a healthy thing for our industry. I think that advisors have to hold themselves to a higher standard in professional accreditation. I think they need to have to hold themselves more accountable in terms of transparency and providing conflict-free advice. And Canadians deserve that.

I think the future is more of a professionalization of our advisory profession. I can say that because, as I said, I started in the 90s and I was a sales guy. I would recommend mutual funds and I would get paid for recommending mutual funds. What I realized after 10 years of doing that was that I really built portfolios out of what seemed to be a good idea at the time. You learn as you go, of course, but by the time I got my practice to a decent level, I had to re-engineer the whole thing. Because what I realized is that what clients deserve is that you have to focus on the process of wealth management first and not focus on the products.

I think the problem that we have with the banks – and the problem that we have with a lot of advisors – is that they are selling the products. That has to come second. The process has to focus on making sure that there is a plan and making sure that you have an investment policy statement, and really making sure that you are taking the level professionalism in your approach to focus on that process. It requires disciplined risk management that you can articulate.

Advisors who are still stuck in sales mode, I think the business is going to pass them by. The advisors at our firm who have really been able to grow their business fit in that process bucket. The ones who are really struggling are the ones who are still thinking of something to sell.

WP: We have 13 regulators, so many multiple industry associations, and various regulatory streams for the different channels, let alone all the different firms. Where would the push for professionalization come from, would it come from industry, from the regulators, comsumers?

AM: I think there are demographic changes happening where Canadians are more wealthy than they ever thought they would be. The generational approach to that wealth creates people who think more like stewards rather than “I made this money and I’m going to spend this money.” Over the next 10-20 years there is going to be more wealth stewardship that our clients are going to have to talk about.

I also think that the technological information advancement will lead to better educated clients. They are going to demand quality.

At the same time the regulators are going to want to ensure that they are delivering quality. There is still a ripple effect hangover from 2008. And the feeling among clients that they are not being treated properly by banks remains very high.

At the same time the generation of advisors who started in the 80s selling stocks is going to be retiring in the next 10-20 years, and they’ll be replaced by people who are better educated than they were, better trained than they were, and more interested in that holistic approach.

So, I don’t think it is anything that is going to happen in six months. I think the regulators as usual will respond to market forces, but those market forces will come from competitive pressures that we intend to apply to the Canadian marketplace but also the demands for quality that is coming from our clients. Factor in the demographic shift of the advisors themselves, and I think we will see a whole new look and feel to a professional investment advisor in the next 10 to 20 years.

WP: Isn’t this part of the reason the banks – and yourself – are pushing more toward fees?

AM: The problem is, I think the banks push toward fees is actually more self-interested. I actually believe in going to fee only if you are offering something of value that that fee can be ascribed to, like a risk-management process that a portfolio manager can articulate. Don’t get me wrong, the fact that we get 68 per cent of our revenue from fees has made us more profitable than some of the really, really terrible transactional businesses. From a business perspective, I like fees, and I think that’s why the banks are pushing that, but it isn’t right for everybody and it leads to an advisor who builds a nice little lifestyle based on fees but they forget that it’s someone else’s money and their work ethic and dedication to their clients can sometimes diminish.

I like advisors who are professional, who work hard and focus on their clients’ wealth. Fees are not always the way to go. To charge a fee on a portfolio that doesn’t trade much? You’d really better be able to articulate what value there is for a client and there has to be a wealth plan or an investment policy statement, a risk management process, or what is the client paying the fee for? A bank can’t just say “we’re interested in fee-based business because it’s good for the client.” There has to be actual value to the client, and if they can demonstrate that I’m all for it.

WP: Is there anything else you would like to conclude on?

AM: I like to joke that we started GMP Private Client nine years ago, with me in my role as national sales manager – but we had no sales or sales people. I’ve been flying around recently and I look back at the nine years and the blood, sweat and tears we’ve put in to building a really strong independent platform, and with this acquisition we’ve made it. We still have a lot of work to do, but the landscape changed dramatically when we announced this acquisition. And I like being disruptive and I like changing the nature of the landscape. I think Richardson GMP is in a strong position and we will continue to be real strong competitors.