Customized One-on-One Business Coaching for Financial Advisors
Technology: Making It Work With What You've Got
Monday, February 3, 2020
Technology: Making It Work With What You've Got and When To Upgrade
A few years ago, an advisor told me that I was really good at helping his team leverage the technology in their office. In fact, he took a business card and on the back, penned the title of a book I should write, and I have kept it with me all these years. The title? "How to Make it Work With What You've Got" - 300,000 copies sold by Emily Bennett!
It is a reminder of how I approach technology in the office; you need enough of it to simplify the tasks and keep you compliant, but it should not be the ultimate driver. Having a solid foundational understanding of technology should be the goal. And, once technology fails to meet your needs and goals, it’s time to re-assess how you’re utilizing it in your every day.
I recently read the Top Technology Predictions for 2020 by World Economic Forum. The prediction that most resonated with me was “learning on the job will never stop.” Cloud technologies make it convenient and simple to stay current and to keep that learning momentum; however, most advisor practices fail to determine how technology can be applied and work FOR their business. Server and database technologies require regular upgrades to stay current and avoid any potential security issues. Still, it can be overwhelming to dedicate the time and headspace to keep on top of it. That brings us full circle in, ultimately, technology isn’t helpful if misused or fails to meet your needs and goals.
To understand your current situation, ask these questions:
1. Is your technology compliant? Consider that older servers, systems, and mobile devices run the risk of being non-compliant from a security perspective.
2. Does everyone have the right access to technology where they work?
3. Are you duplicating effort? For example, do you often copy and paste between applications or emails?
4. Are you able to produce reports, dashboards, or analytics in real-time to see how well client services are performing or to identify client opportunities?
5. How is technology part of every transaction with your clients? Are you interacting with your clients the way they want? Does everyone in the office have the ability to enter information about client interactions? Are these notes retrievable by those who need access? Are you reaching out to your clients enough? Too much?
The responses to these questions can help you determine if you need to upgrade your systems or make better use of the technology you have implemented in your office. A more detailed assessment can help find the gaps and build a plan to achieve your technical goals to make the most with what you’ve got.
From a degree in Geology to a career as a Business Consultant later a Financial Advisor, Sandra Schmidt has always been a master of change. Now, she embraces her most recent endeavor - retirement.
A native of London, Ontario, Sandra describes her upbringing as akin to a Norman Rockwell painting. The third of four girls, Sandra, reflects on her childhood as warm and loving. Her father was an actuary with London Life and her mother, trained as a teacher, chose to be a stay-at-home mom, as did many of that generation. Attending church was a big part of Sandra’s childhood, given that her father was a soloist in the choir, and her mother ran the Sunday school. Mostly, Sandra recalls both parents always encouraging their daughters to find their passion, to do it well and to remember that in life, there are no limitations – you can do anything you choose.
Inspired by her parents’ words, after Sandra graduated from high school she followed her father’s example and attended university at Western. There she received her Bachelor’s degree in Geology. A short stint in the Arctic, however, convinced Sandra that spending over half of each year in remote locations wasn’t all that appealing. She decided that a business education might be a path to consider and returned to Western, this time as a student in the Business program. It is here she met the love of her life, Duff Schmidt,
who hailed from the Okanagan in British Columbia. By January of the following year, the couple knew wherever they would go; they would go together. When asked how they decided between British Columbia and Ontario, Sandra says, “Duff said he wanted to be where the skiing was, so
away we went to Vancouver!”
Almost directly out of school, Duff started with Mutual Life in the Estate and Financial Planning Services (EFPS) area. Sandra accompanied him to various corporate events and conventions, and it was there she began to notice the
opportunities available in the financial services industry. Through the years, Sandra continued to develop close relationships with management at the local branch of what is now Sun Life Financial, who would consistently tell her,
“When you get tired of what you’re doing, come and work for us.” Fast forward five years, Sandra knew it was time for a change and left her role in Strategic Planning consulting and in June 2000, her career as a Financial Advisor began.
Though a logical and natural transition, Sandra describes the first few years as an Advisor being “really tough.” Similar to what most advisors experience, Sandra also quickly exhausted her natural market. Prospecting was tough and, in need of people to talk to, she developed a game plan that was strategic and proactive. Scouring her Rolodex, Sandra approached individuals who were well-placed HR managers and could get her in the door for a 45-minute “workplace solutions” presentation. Attendance was high during these
sessions, and Sandra’s genuine approach and willingness to invest her time with clients resonated well and served as a foundation for her future success. At that time, the Financial Centre offered a mentorship program that paired new advisors with more tenured campaigners. It was during this program where Sandra met Al. Al not only served as Sandra’s mentor but soon became her friend and eventual business partner. In 2005, with the
partnership flourishing, they moved to a new location in downtown Vancouver.
In 2008, Al was approaching retirement and in the early stage of his succession plan, which included transitioning out of the individual business. Sandra had already been helping to service many of Al’s clients over the past several years; still, the formal transition was a significant change and Sandra felt that she needed some additional guidance and support. She reached out to a colleague who had been in a similar situation who referred her to The Personal Coach. Sandra says she has always treated her business like a business, but working with Juli Leith offered her a very different perspective on how best to organize, structure and manage her practice. This new relationship eventually led to an even higher level of success for Sandra. “Working with Juli ensured that I didn’t simply double how hard I worked just
because I had doubled my business” Sandra reflects. With her business bustling, ensuring her work-life balance became an even more significant challenge and necessity. At the end of each busy day, Sandra would come home, kick off her heels and sit on the floor in the kitchen and talk to her dog, Molly. “I would tell her all about my day - she won’t share my secrets.” Sandra’s business would continue to grow and flourish and the next 11 years flew by.
During the summers, Sandra and Duff would take some much-needed downtime to recharge their batteries. In 2017, Sandra found that she was growing increasingly less enthusiastic about returning to work. That’s when she knew it was time to start thinking about and planning for her succession strategy. Sandra’s daughter, Leigh, had worked for Sandra’s team as a summer student while studying business at the University of Victoria. Also, Leigh had covered a year of maternity leave for one of the staff. When asked if she would consider becoming an advisor, Leigh replied: “no thanks” – déjà vu from when Sandra was first asked! Leigh and her husband John followed their dreams and moved to New Zealand for two years for John to pursue a degree in winemaking. After returning to Canada, they settled in the Okanagan wine region, and Leigh decided the timing was right and pursued a career as a Sun Life Advisor. She has since taken on Sandra’s Okanagan clients as well as Lower Mainland clients Leigh was already supporting. The balance of her business transferred to colleagues whom Sandra had worked with for years. Citing as the vital element to choosing a successor, “We already had a great rapport, I knew who they were and what their values were. I knew my clients would receive the same level of integrity and respect
as I had shown them”. Sandra is so proud of Leigh and the Vancouver advisors. After her clients had moved to their respective new advisors, Sandra stayed on for three months to ensure it was a smooth transition. In May of 2019, Sandra officially retired. She has since run into former clients and receives emails and cards saying thank you for picking such great advisors to carry on the legacy.
Receiving accolades from her clients isn’t surprising. You only have to hear Sandra speak about her time as an advisor to understand how she cherished the relationships she built. She had several families where she serviced four generations! In her own words, Sandra shares, “It is such a privilege and
honor to participate in a small way in a family’s life – and with such an intimate topic. To be a steward is such an honor”. Reflecting on one family in particular, Sandra can’t help but become emotional. In 2004, the file of two clients was passed on to her - a husband and wife. Eventually, she gained the business of his mother, and then their children and grandchildren, too. One year, Sandra noticed a change with the wife; that she didn’t seem herself. It was then, when the client was in her early 50’s, that she received a diagnosis of early-onset Alzheimer’s. Amid this turmoil, it was comforting that the planning work done with Sandra allowed the husband to take his retirement early to care for his wife up until her passing. When asked what her guiding principle is, Sandra humbly shares, “you must have a solid sense of what is right and wrong. Be kind to one another and do the right thing. Show up when you’re supposed to show up and mostly, be the advisor you’d like to have”. What started as an attraction to business turned into a genuine love for people. “I had no idea how much I would fall in love with the clients. It was never about me; it was always about them”. For anyone thinking about becoming an advisor, Sandra shares the following sage advice “be prepared for the roller coaster. It’s not easy, and there are two tracks on the roller coaster; emotional and financial – they go hand in hand. Know what an honor it is. Clients will tell you things they won’t share with others; it’s all about trust”.
“What we do as advisors matters.”
Since May, Sandra has been enjoying every moment of retirement. She reflects, “I used to hear from retired people and they would tell me how busy they were, and I wondered, how can they be so busy? I don’t wonder that anymore!” With Duff also retiring in the Fall of 2018, their days are spent
enjoying the outdoors, loving time with their expanding family, reconnecting with friends, traveling and truly living in the present.
Sandra, on behalf of The Personal Coach, congratulations on a magnificent career and your retirement!
Mergers & Acquisitions: A Roadmap to Maximizing Value
Thursday, November 21, 2019
The most frequently asked questions I get asked by advisors who are thinking about acquiring a book of business are – ‘Where do I start? And what steps should I take to ensure that I’ll be successful?’ Advisors are right to be concerned because most acquisitions involving professional services firms (anywhere from 70-90%) fail to achieve their pre-acquisition objectives. Whether it is a lack of strategic planning, poor integration planning, failure to pay attention to risk management, culture clashes, or spending too much, the truth is, acquisitions are hard to get right.
Set out below are 6 “must-do” best practices that will help you create value and increase the likelihood of your success when acquiring a book of business.
1. Understand Your ‘Why’
It is imperative that you start by clearly understanding what is driving your desire to make an acquisition. What are the outcomes and benefits that you hope to achieve? Whether it is to reposition your client base, enter into a new market, or simply to acquire additional assets for greater scale and increased revenue, understanding your ‘why’ will bring clarity and focus to your M&A strategy. It will ensure that your M&A strategy aligns with your vision and the strategic direction that you have set for your firm. It will also create a set of criteria for you to evaluate the merits of a particular opportunity and enable you to identify the profile and characteristics of your ideal target firm. Given the cost, time, resources and personal commitment required, you cannot afford to start your M&A journey by heading in the wrong direction.
2. Assess the State of Your Business
Prior to going to market, every advisor should first ask themselves a fundamental question: ‘Is my business truly ready to take on another book?’ Buyers who go to market before their business is ready are more likely to destroy value than create it. So take a hard look at your business and make sure that your workflows, processes and procedures are efficient, scalable and align with regulatory requirements. Make sure that you have a team in place that can help you to integrate and service a new book and continue to maintain your existing clients. Integrating a new book onto a business platform that is less than rock-solid is asking for trouble. In today’s market, sellers have choices, and they are looking for buyers who can offer their clients the most value. So lay the foundation for a successful acquisition by ensuring the strength of your business model and service platform.
3. Valuation – Don’t Rely On “Rules of Thumb”
Too many advisors rely on industry ‘rules of thumb’ (ie, a multiple of revenues or percentage of assets) when attempting to value a target firm. Do not fall into this trap. The actual value of a firm is not merely a multiple of revenues or a percentage of assets. Several key factors tend to drive value in every advisory business, including strategic and cultural fit, quality of the client base, recurring vs. non-recurring revenues, transition risk, goodwill (or enterprise value), and regulatory risk. Make sure you do your due diligence and assess these factors if you want to determine the true value of a target firm and prior to putting together your offer.
4. Pay Attention To Deal Structure
Every advisor spends much time focused on valuation and purchase price but relatively little on deal structure and how that purchase price is to be paid. While the purchase price is critical, it is very often the deal structure that determines whether a deal gets done. Most deal structures are comprised of three components: an initial (non-refundable) down payment, a financing repayment stream, and an adjustment to the purchase price if a minimum amount of assets fail to transition to the buyer. How these three elements are negotiated and structured will impact each parties’ perception as to the value of the deal, the buyer’s ability to pay for the deal and, therefore, whether a deal is made. It is also a key way for the parties to allocate risk in the transaction.
5. Create a Joint Transition Plan
Every acquisition will ultimately be judged by the amount of client assets that transition from seller to buyer. The key to every successful acquisition is a well-designed and robust transition plan that maps out the roles and responsibilities of both parties, a precise client segmentation and communication strategy, the role of staff members, and key integration milestones and timelines. The more detail, the better. Do not underestimate the value of a well thought out transition plan. It may be the most important thing that determines the overall success of an acquisition. Start discussing transition planning shortly after you have completed your due diligence and agreed on the price. Make sure you finalize your transition plan before entering into a purchase agreement. You want to ensure that you hit the ground running as soon as possible.
6. Consider Non-traditional Strategies
There are different acquisition strategies you can employ to achieve your goals and objectives. Too many advisors lock themselves into a particular way of thinking about how acquisitions are done. They tend to believe every acquisition results from knocking on the door of a 65 year-old advisor waiting to sell his or her business. This is not usually the case. Broaden your thinking to include non-traditional strategies that can create opportunities where none might have existed. If you have a strong business model and service platform in place, you are in a position to offer a potential seller something more than just a down payment and a promissory note. You can offer them continuity, a safe haven for themselves and a viable option for their clients, all of which are very much in demand in today’s market. Having an open mind can lead you down a different path but towards the same objective.
If you are considering acquiring a book of business and want to increase the likelihood of your success, make sure you incorporate these ideas as part of your acquisition process. They will be foundational to your success.
Afsar Shah, Business & Regulatory Coach at 10:53 AM
Every once in a while, thankfully not that often, we get a stark reminder of the one factor that is so very critical to building a sustainable advisory practice: TRUST. It is fundamental to client acquisition and developing those clients into positive long-term relationships. Our view, of course, is that trust has to be “table stakes” as you build and manage your practice and that it is a currency to be fiercely guarded by yourself, your organization, and your suppliers.
In his book, The Speed of Trust, Stephen M.R. Covey offers many great thoughts about trust that might serve as food for thought on the topic.
First, the reality is that where trust is high, it increases speed and lowers cost. Where trust is low, it reduces speed and increases the cost. For an advisory practice, that often means ensuring that you have the right people in the right roles working with strong knowledge and well-developed practices and procedures.
That trusted formula is: (Strategy x Execution) x Trust = Results
The element of trust can be a tax or a dividend and, clearly, distrust has a cost attached to it. If your team members, or yourself, don’t trust your knowledge, your processes, or each other, the cost can be high.
It’s worth saying that self-trust is a crucial factor; if you don’t trust you, why would anyone else?
As you think about this topic, keep in mind that there are four critical elements to trust:
1. Integrity: Be honest, stand by your principles, and do what you say you’ll do. Increasing integrity starts with making and keeping commitments to yourself, standing for something, and being open.
2. Intent: Have good, positive motives. Let those motives inform and populate your agenda and ultimately, your behavior. You can continuously examine and adjust your motives and declare your intent.
3. Capabilities: Develop knowledge and abilities that evoke confidence and keep learning! Covey suggests that we use the acronym TASKS (Talents, Attitudes, Skills, Knowledge, Style) as we think about capabilities. Always be working on your TASKS. Increase your capabilities by running with your strengths, keeping yourself relevant, and knowing where you’re going.
4. Results: Establish a track record. Results are an indicator of how well you are doing in the other vital areas and you can think of them as the fruits of your efforts. They can also give you credibility. So, take responsibility for your results, expect to win and finish strong.
There is much more to the trust conversation but it all starts with ourselves. Looking inwards before pointing fingers elsewhere can often set the tone for making positive impacts.
At The Personal Coach, we utilize our Velocity IndicatorTM as an exercise for self-assessment on your business practice. We couple that with a Complimentary Consultation which confirms and clarifies some of your thinking and potential next steps. We believe that the advisory business can be a very lonely one when it comes to managing and leading your practice and it is beneficial for you to have a sounding board and another set of eyes and ears to help you set your course.
To learn more about your business and where you fall on the trust scale, request our Velocity IndicatorTM exercise by connecting at firstname.lastname@example.org.
Heather Amlin is helping teams address gaps in their processes and workflow.
Our Operations and Efficiencies Coach, Heather, has created a Back Office Checklist to identify the gaps in advisor team processes and workflow. Heather has divided the Checklist into 3 key areas; Technology, Office Procedures and Client Services. When is the last time you reviewed your own processes? The timing could be perfect to finish the year strong. Book your back office assessment with Heather today!
Welcoming our newest team member.
The Personal Coach team has grown again! Our Marketing Specialist, Kelly Maxwell, delivered a beautiful boy this month. Welcome to the world Parker Michael Maxwell and congratulations to Kelly, Paul and big sister Aubrey.
Are you looking to grow your business? Save the date for our Generator Event! Tuesday November 26, 2019
This TPC event is for advisors who are looking to grow their business, double their revenues, and achieve time and money freedom. For full event details and registration information, visit www.tpcgenerator.ca.
I was invited to speak at a dealer conference to discuss the importance of having the right people around you and how to create a great team. All of the attendees at the conference received a complimentary copy of The Personal Coach booklet, The Right Fit, which is a guide to help advisors make great hires.
At the end of the presentation, “George,” one of the attendees, approached me and asked if I could help him with a hiring project. We booked a conference call for the following week so I could learn more about why he felt that he needed to make a hire for his team, which already consisted of four support staff.
During our call, George shared with me that because of his large clientele and significant asset book, his current team could not handle all of the transactions and client requests. George had concluded that he needed to hire another team member.
I asked George one of my favourite questions, “Do you have too many clients or do you have too many non-ideal clients?” George had never heard this question before and asked what I meant. I shared with him that, as coaches, we see many advisors like him building a large clientele. However, as they evolve and mature as a financial advisor, many of the clients do not fit their ideal client profile. I suggested to George that before we move forward with a new hire, we complete an exercise called Best Case Scenario from Cotton Systems. This exercise examines the 10 best sales that an advisor has made over the last 6 to 12 months. George agreed to complete this exercise with the help of his team.
At our next meeting, I could tell that George, having completed the Best Case Scenario exercise, had experienced an epiphany. He was happy to have spent time reflecting and better understanding who his top clients are and more importantly, was excited to see how we could apply this information to his business model. We used the information from the exercise and completed an Ideal Client Profile (ICP), which we committed to paper. We referred to this for the next exercise by starting to use this ICP as part of our referral/introduction process.
I asked George, “Tell me about how you’ve built your contact management system and when it was last updated?” George said that he has a program called Act! and has been using the system for 8 years. I shared with George that a contact management system is not just a technology tool. It needs to be viewed as a business process encompassing 4 steps:
Building a relationship management strategy for each segment
Identifying a champion to manage the system
Using technology to manage the process – in this case,
it was Act!
George said, “This is all fine but I really need your help in making a hire.” I said to George that I understood this but before we made a hire, we needed to “right size” his practice. I shared with him a number of stories where we had completed this exercise with advisors with large clienteles and in many cases, the advisor decided to right size the practice and by doing so, decided that he/she did not need to make an additional hire. I asked George to go along with me on this one and work on his contact management system before we discuss hiring. George begrudgingly agreed to take this step. I then showed him some sample customized segmentation scorecards that we had created for other clients and I suggested that we build a customized segmentation scorecard for him. He agreed and we built this scorecard with a particular focus on the following items:
Size of assets
How clients value the services
The client history of providing referrals
One of our support team members at TPC created a scorecard with the above items and a rating system to grade each client from 1 to 5. We had 7 items with the maximum score on each item being 5, which meant that the best client score could be 35. We then created a rating system using the numbers so that we could create 5 different segments – platinum, gold, silver, bronze and lead. I left this exercise for George and his team to complete and within a month, George sent me an email outlining that he had the following clients in each segment:
With this exercise behind us, I arranged to book my next face-to-face coaching meeting with George and asked him to have his employee responsible for booking appointments to join the meeting. This employee, “Kathy,“ is very engaged in the business and was quite intrigued with what we were going to achieve during this meeting.
Next, we built a relationship management strategy with each segment. I showed Kathy and George some sample relationship management strategies. We spent the balance of the morning outlining a relationship management strategy that Kathy thought she could implement for each of the segments. Our most concentrated relationship management strategy would be focused on Platinum clients and minimal for Bronze and Lead clients. As part of this exercise, I asked for names of clients that fit in each of these categories so George and Kathy could think about these clients when delivering their strategy. Putting client names to the categories helped us immensely in creating strategies for each segment.
The third step in building the contact management system is identifying a champion. Kathy was up for the challenge and she was excited that she had clarity around managing clients going forward.
The next step after completing this project was to focus on helping with a new hire. George was no longer as eager to work on this project because he discovered what so many advisors discover after this exercise – he felt that a number of clients should be sold off because they did not fit the ideal client profile and decided he wanted to focus on “right sizing” his business.
After having a thorough review of the business, not surprisingly, George and Kathy determined they could sell off 25% of their clientele. This would only reduce their revenue by 10% and then they could focus on bringing in more Platinum and Gold clients. We helped identify advisors that would be interested in buying these clients.
At the next meeting, we shared with the full team what we had been doing. After announcing that we had right sized the business, the other team members were in total agreement with selling off 25% of the clientele. Guess what happened next? They decided that adding a new team member was no longer necessary if they pulled the trigger on the sale!
I suggested to George that we take a coaching break and give the team time to implement what we agreed upon. I followed up in six months and George shared with me that he had almost replaced the 10% of lost revenue because he was now focused on his best clients. Additionally, those best clients are providing him with introductions to people just like them. His team is now more energized, has less stress and everyone is feeling like they are running the business whereas previously, they felt like the business was running them.
Good advisors do an excellent job of building their clientele but quite often, they do not take the time to review their clientele and see if these clients are a good fit for their current practice. Also, some advisors have “FOMO” - a fear of missing out. In other words, they think that they will miss opportunities if they release some of their non-ideal clients when in fact they will find more opportunities when adding Platinum clients in their place.
Business & Personal Planning for 2019: LATEST NEWSLETTER
Thursday, November 22, 2018
Check out our Fall 2018 Newsletter including helpful tips for advisors. This edition is focused on personal planning, business planning as well as branding for 2019! Please connect if you have any questions or comments.
Referral Arrangement Rules (Part 1): What You Need to Know
Earlier this year, when the Canadian Securities Administrators (CSA) delivered their long-awaited proposals regarding embedded commissions, they also published a proposed set of rule changes aimed at enhancing advisor and dealer obligations toward their clients (Client Focused Reforms).These Client Focused Reforms will no doubt significantly impact the economics of advisors’ business models and how they address key issues such as KYC, KYP, suitability and conflicts of interest, all of which we discussed in a previous article.
An area of particular interest and concern to many of our clients, however, were the proposed rule changes dealing with referral arrangements. Many advisors have arrangements with third parties either as a means of client acquisition or to provide their clients with services that they are not authorized to perform. For example, it’s very common for an MFDA advisor to have an arrangement with another professional services firm (i.e. an accounting firm) for purposes of client acquisition. They may also have arrangements with either an investment counsel or brokerage firm for certain high net worth clients who want either products or services that the MFDA advisor is not licensed to provide. The Client Focused Reforms will impact each of these relationships.
The Big Picture: Regulators are proposing major changes to rules governing how financial advisors and dealers deal with referral arrangements. Referral arrangements will be permitted but only if advisors comply with specific requirements.
Here are five key takeaways from the CSA’s proposals:
1. A Referral Fee must not:
Continue for longer than 36 months;
Constitute a series of payments that together exceed 25% of the fees or commissions collected from the client;
Increase the amount of fees or commissions that a client would otherwise pay for the same product or service.
2. Advisors cannot pay a Referral Fee unless:
The recipient of the fee is a registered individual or firm;
The terms of the referral arrangement have been set out in writing between the registered firm (i.e. dealer) and the other party. The advisor may (but need not) be a party to the agreement.
The dealer keeps a record of all referral fees; and
The client receives in writing and understands the terms of the referral agreement.
3. The definition of what constitutes a referral arrangement goes beyond that of providing financial products and services. It also includes client names and information.
4. The regulators view all referral arrangements as a conflict of interest that must be resolved in favor of the client.
5. The rules governing referral relationships will come into effect immediately once the Client Focused Reforms come into force. Advisors will have 3 years to bring pre-existing arrangements into conformity.
Why This Matters: The proposed new requirements will significantly increase the risk, cost and administrative complexity of referral arrangements for both advisors and dealers. They will certainly alter how advisors process, administer, and evaluate any current and future referral relationship.
Check out Part 2 of our article to learn more about what you can do to get ahead of these changes to ensure that your referral arrangements comply with regulatory requirements.
Referral Arrangement Rules (Part 2): Take Action Now
In part one of our Referral Arrangement article, we discussed what advisors need to know about the regulatory changes regarding their referral arrangements. In this article, we will discuss what to do about these upcoming changes.
Why This Matters: The proposed new requirements will significantly increase the risk, cost and administrative complexity of referral arrangements for both advisors and dealers. They will certainly alter how advisors process, administer, and evaluate any current and future referral relationship given that:
Advisors will need to obtain dealer consent prior to entering into any referral arrangement;
Advisors will need to demonstrate in writing that a referral arrangement is in the client’s best interest;
The economic benefits to an advisor of a referral arrangement may no longer justify the additional administrative costs, requirements and risk;
Certain book acquisitions may be deemed a ‘referral relationship’ unless properly structured and documented;
Any violation of the proposed new rules can result in serious financial penalties.
The Bottom Line: All advisors should review their current (and future) referral relationships to make sure they align with the proposed new requirements and still make economic sense. Here are the impacts of the CSA’s proposals as they relate to referral relationships:
There will be increased and on-going regulatory scrutiny around referral relationships, particularly with respect to fees, duration, the client interest and disclosure;
Referral arrangements will still be permitted but only if certain requirements are met;
The fees associated with a referral arrangement will be capped and the duration limited;
All permitted referral arrangements will have to be documented in writing, approved of by your dealer, and disclosed in writing to your client;
The proposed changes will likely reduce the economic value of all referral arrangements.
Take Action: Advisors have a window of opportunity to get ahead of these changes and ensure that their referral arrangements comply with regulatory requirements. Here are a few suggestions as to what your action plan should include:
1. Education & Training – learn more about the proposed rules and how they might affect your business model. Understanding the new requirements is key if you wish to continue to enter into these kinds of relationships and keep regulators and compliance at bay.
2. Identify Your Existing Referral Arrangements – create an inventory of all the referral arrangements that you currently have in place.
3. Conduct an Assessment – do your existing referral arrangements comply with the proposed new requirements? Do the fees fit the new criteria? Did you document the terms of each referral arrangement in writing? Do you have a written record of all fees paid or collected? Did you document that your client understood the terms of the referral arrangement and that it was in their best interest?
4. Re-evaluateTheir Economic Value – do each of your referral arrangements still make economic sense given the increased costs and risk?
5. Talk to Your Dealer – start working with your Dealer to bring your referral arrangements into conformity with the proposed new changes. What will they be looking for from you?
6. Review your Process for Future Referral Arrangements – make sure you have a playbook in place that ensures your future referral arrangements comply with the new requirements and make economic sense.
The Personal Coach Can Help: To learn more about the CSA proposed policy changes and to help you develop your readiness game plan, contact The Personal Coach. Our extraordinary team of coaches and consultants has extensive experience working with advisors to develop customized strategies and plans to help you drive results and reach your strategic and financial objectives. Happy planning!
Afsar Shah, BA, LLB.
Business & Regulatory Coach
Get in touch
Afsar Shah, Business & Regulatory Coach at 12:48 PM