InFocus: CRM2 Insight

Why independent firms are best placed post CRM2

Why independent firms are best placed post CRM2

Every advisor needs to analyze how they’re going to remain competitive post CRM2. For many who work at large, rigid institutions, switching to an independent firm could be the move that helps them boost their client value proposition. Many advisors find working at an investment giant to be stifling and, in the wake of CRM2, advisors need the freedom and flexibility to concentration on their clients, not corporate bureaucracy.
Increasing numbers of advisors are being attracted to the dynamism of smaller, independent firms. With competition hotter than ever before, advisors want the flexibility to operate in the way that they know works. Advisors who actually want to offer guidance to their clients, rather than just sell their bank or insurance products, are taking the plunge and partnering with regional, independent firms.

“Over the past 20 years, the whole industry has been based on: the bigger you are, the better you are. Everyone has just been trying to accumulate assets,” says Tony DeThomasis, President of DeThomas Financial Corp. “But after CRM2, it doesn’t really matter how big you are. Big dealers and distributors that have a lot of expenses and outside shareholders can only cut costs so much. And when costs get out of hand, the first thing to get cut is advisor fees.”

In the past, pre CRM2, large corporate dealerships and bankers were able to employ numerous managers and lease opulent office buildings because they could spread those costs around. But today, big banks are under the same cost pressure as independent firms. Entrepreneurial by nature, operating costs have always been of paramount importance for independent firms, so after CRM2 these dealerships won’t be forced into severe cutbacks. At the big firms, advisors may be forced to increase their assets for the same revenue or accept a reduced portion of the fee to make up for organizational costs.

“For advisors, working with a smaller dealership is the way to best navigate these issues,” DeThomasis says. “Smaller firms usually don’t have outside shareholders, and most think like a small business owner. They understand that costs are important so they have a handle on that. If they cut costs it doesn’t have to impact advisors. A smart advisor has to look at more than the CRM2 advisory fee disclosure if they want to stay profitable in the business for a long time.”

In the current U.S. advisory market - and if we assume Canada is going in the same direction due to the new fee disclosure - 70% of the advisory business are done by independent RIAs not large corporations.

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DeThomas started in 1987 with a single office and four advisors. Today De Thomas manages over $1 Billion of assets with advisors and offices located across Canada. Even though we have grown in size, we continue to manage our business as if it were still a single family office. Each employee and advisor is valued and treated as family, where everyone has the opportunity to contribute and share their ideas.