Veteran industry leader sees possible “ulterior motive” in long fight to incorporate, argues advisor incorporation would help address key issues
Frank Laferriere has been in the fight for advisor incorporation for at least 27 years. Over his 37-year career Laferriere has held crucial operational leadership roles in the securities business, including as Chief Operating Officer at Manulife Securities, Portland Investment Counsel Inc., Mandeville Group of Companies, as well as EVP for Digital Strategy and Compliance at Wellington-Altus. He has witnessed and worked in this industry’s changing regulatory regime, including the creation of a single SRO for investment dealers and the creation of the principal-agent model. He has seen messy, difficult changes take place in the interest of greater efficiency and creativity.
Over 27 years of his career Laferriere has been in the fight for advisor incorporation. In a recent response to CIRO’s proposed rule amendments related to the potential for advisor incorporation, which Laferriere shared on his LinkedIn profile, he outlined a series of points around what he sees as the need for incorporation and the longstanding roadblocks to its adoption. In the response he says that no provincial securities legislation would be required to allow for incorporation and calls arguments to that effect a “false flag.” He says that efforts to allow incorporation have been subject to “a pattern of regulatory avoidance and obstruction” and calls on the Canadian Securities Administrators to own the file and have each provincial securities regulator state its position and commit to a timetable.
“I do not understand why this particular model has been effectively dragged out for 27 years, but it’s actually been much longer than that. Even when I got principal-agent across the finish line, I cannot see from my perch a degradation in investor protection,” Laferriere says. “There’s got to be a greater motivation than just that as to why this is a model that is not just adopted but celebrated.”
Who is responsible for slow progress?
Laferriere emphasizes that the slow movement towards incorporation is largely a product of patchwork systems of regulation. He notes that even the move to a single SRO took decades as the industry’s roots in myriad forms of business gradually converged into what we have now. The fact of provincial jurisdiction remains, as well, and while the financial services industry is global in its nature, Laferriere accepts that a provincial patchwork of securities regulators can result in very slow progress.
In seeking to explain why the progress to incorporation has been so slow, Laferriere notes the role of the big six Canadian banks in the broader financial services ecosystem. He notes that the banks are content with the status quo and that managing incorporation would be disruptive to their wealth management businesses.
“That oligopolistic structure has immense resources, both politically and financially and structurally. If somebody strikes up a committee and it’s a concern for the wealth divisions of the banks, they can staff that. They can put research. They can marshal resources well above what the independent second and third tier dealers have,” Laferriere says. “When I’m at committees, who is raising concerns and doubts? It’s generally not the independents.”
The CSA declined to comment on Laferriere's view when contacted by Wealth Professional.
What Laferriere thinks incorporation could do for advice in Canada
It’s Laferriere’s view that advisor incorporation will allow for advisors to address two key problems affecting this industry: the succession crisis, and the mass market unit economics problem. He admits that incorporation is not a panacea for these issues, but the growing wave of advisor retirements and the challenge in serving small client books could both be easier to tackle under an incorporated model. He notes that as things currently stand, advisors have a very hard time securing financing for their businesses because fee-based or commission income is not treated favourably by lenders. The risks that business owners are able to take under the auspices of their business have to be taken on by advisors under the tax rules that individuals face. The incentive, therefore, is to serve larger clients in larger centers where margins are higher.
Incorporating, Laferriere believes, should allow advisors to hire on more associates and secure their succession while improving the economics of their own practice and the overall competitiveness of the industry, which should allow them to serve more Canadians. He believes that the US experience of the Registered Independent Advisor (RIA) model should show the industry how allowing advisors more freedom to operate as business owners can be beneficial for the industry as a whole.
Laferriere accepts that progress has been made, inclusive of CIRO’s recent proposed rule amendments. To get incorporation over the finish line, however, he believes that the CSA needs to commit to accomplishing this goal and advisors, dealers, and industry stakeholders need to get involved and find champions in government. He notes how difficult that can be for independent dealers and advisors who are managing the day to day growth of their businesses, but he believes the advantages of incorporation make that kind of advocacy work worthwhile.
“I have binders of correspondence on this issue that go back 30 years. This is just the logical thing, and I have to keep explaining why this is good,” Laferriere says. “This concept is not novel and it’s not controversial. Accountants and lawyers, doctors can incorporate. I struggle with why there is such reticence to allowing this other professional group to use a tool that society at large views as normal. I’m actually dumbstruck as to why. It leads me to believe that maybe there’s an ulterior motive.”
