Despite levelling the playing field between formerly MFDA and IIROC registered advisors, Colin White cautions against seeing incorporation as a silver bullet
When Colin White served his four years on the National Advisory Council to IIROC, he put advisor incorporation on the agenda at every meeting. White, CEO & Portfolio Manager at Verecan Group of Companies in Halifax, says that each time the subject was discussed, the SRO found ways to avoid taking action, in what he calls a ‘stalling tactic’ that favoured bank-owned wealth management firms that run on an employee model for their advisors.
When IIROC merged with the MFDA in 2023 to form CIRO, advisor incorporation became a commitment. The MFDA had extended this benefit to its members for years, and in the interest of fairness formerly IIROC-registered advisors would be able to incorporate. CIRO recently took a major step towards that goal, announcing proposed rule amendments in early July that would open the door to advisor incorporation. While White is pleased to see that progress being made and believes this development will create greater fairness between advisors, he cautions against viewing the development as a game changer for the whole industry.
“If we get to the spot where CIRO drops its prohibition over incorporation, then it just becomes more accessible and it becomes a more obvious choice for a bank advisor as to how they want to structure,” White says “This has always been an unnecessary restraint on commerce. That was in place because a very significant percentage of the market participants who control the SRO were not in favour of allowing it because it conflicted with their business model.”
Does incorporation change the bank-independent dynamic?
While White says that the banks and bank-owned firms offered the most significant resistance to advisor incorporation, he doesn’t believe the eventual option to incorporate will see a flood of advisor talent moving from bank firms to independents. He notes that the banks in Canada have a strong grip on client relationships across a host of different service areas. As well, incorporation comes with its own slew of risks and costs that may make its adoption in advisory practices more challenging.
White does believe that the simplicity that incorporation brings to running a business should allow incorporated independent advisors to operate more efficiently. Those advantages in running a business ought to translate into wider or deeper client service and a competitive advantage. It should also help attract more talent to the industry as a whole, as financial advice takes another step towards being treated like a profession similar to law or medicine.
While White sees the banks as unlikely to lead the charge on incorporation from this point, he admits that the eventual advantages that incorporation might bring may result in the option being extended to bank-owned brokerage advisors. He accepts that the banks have a tightrope to walk between managing their employee models and keeping advisors at their brokerage firms happy and competitive. An embrace of incorporation at the banks, he says, is likely to occur all at once or not at all, as competition between bank owned firms drives that decision.
Incorporation’s advantages for practices
Incorporation may be a useful tool in helping to manage ongoing advisor successions. While this wave of practice succession is sometimes presented as a ‘crisis,’ White says that the industry has been seeing a succession crisis for the 30 years he’s been in business. Nevertheless, there may be more flexibility for practices with incorporated advisors, even if it doesn’t solve the fundamental problem with a one-to-one succession: the retiring and succeeding advisors need to be at the exact right spot in their careers at the same time, and the successor needs enough cash to buy the business whatever its structure might be.
“It's going to allow for more structures and more tax efficiency for sure,” White says, “but you still have this fundamental problem about an advisor trying to sell their book.”
Where incorporation can add real simplicity, White says, is in the management of advisory teams. Having operated his business under a partnership structure and a corporate structure, White says the corporate structure makes growth and management far easier.
The ease of doing business that comes with corporate structures, too, should result in better client service. White argues that if a corporate structure allows practices to onboard more staff, build career and succession paths, and allocate capital better then those efficiencies and advantages will result in better service to clients.
Making the decision to incorporate
For advisors looking at the new option to incorporate, White cautions against jumping in headfirst. For all the advantages it may bring to certain practices, incorporating comes with its own set of costs and headaches. Not to mention there is likely to be a long stretch of regulatory wrangling and compliance policy writing before even independent firms open up the incorporation option to their advisors.
Fundamentally, White believes advisors should approach their own decision to incorporate in much the same way they would if a physician client wanted to incorporate. They should look at their own lifestyles, their earnings, their spending, and ask whether a corporate structure benefits their overall financial lives. If an advisor spends all they earn, for example, then incorporation is likely not worthwhile. Applying their own planning expertise to this decision may determine its success or failure for an advisor.
“It's not a slam dunk that this becomes a thing that every advisor is going to. You really should spend some time figuring out if it makes sense in your circumstances,” White says. “Recognize that there is a cost to setting it up and a cost to maintaining it, and it's depending on your circumstance may not yield you any benefit.”
