Tyler Wilson says Care Lending Group's customized financing is helping to level the playing field with bigger banks in the quest to buy an advisor's book
This article was produced in partnership with Care Lending Group.
Canada’s independent financial advisors play an important role in a finance sector dominated by big banks and insurers. They aren’t limited to investment products carried by a parent organization, and they often cultivate more personalized relationships with their clients, which gives them a deeper understanding of individual circumstances and goals.
There are drawbacks too of course. Large institutions have well-known brands and impressive budgets for marketing. They also have the capital to grow quickly, often by targeting the clients of independent advisors who have decided to retire. This can pose a challenge for younger independent advisors who are also looking to grow through the purchase of retiring books.
“Large firms have the luxury of access to capital to purchase books and this gives them a lot of negotiating power,” says Tyler Wilson, a director at Care Lending Group in Toronto. “A smaller independent advisor without aid of a financial lender will have a hard time competing with the larger firms.”
Care Lending Group can help close this gap between smaller advisors and their large institutional rivals. Nimble, entrepreneurial and dedicated to providing a personalized service, Care Lending Group has a lot in common with the independent advisors it supports.
“We want to level the playing field,” Wilson says. “As a fully independent firm ourselves, our mission is to align with the success of the independent financial advisor in Canada.”
During a recent interview with Wealth Professional, Wilson discussed the challenges facing independent financial advisors, and explained why it’s important to ensure they can continue to provide their personalized services to Canadians for years to come.
The benefits of independence
Independent financial advisors and their peers at large institutions bring distinct advantages to the table. Advisors at a big bank or insurer are backed by a trusted brand, extensive institutional resources, and access to a range of in-house financial advice and products.
While independent advisors may lack the capital of a larger firm, they have two distinct advantages for the clients they serve.
First, they are agnostic when it comes to suggesting investments. Untethered to a firm’s own products, an independent advisor is free to choose from a wider range of options.
Second, independent advisors often develop much deeper relationships with their clients. This gives them a more profound understanding of a client's financial circumstances, aspirations, risk tolerance, and plans when it comes to transferring wealth to other family members. Independent advisors want to be viewed as a trusted advisor and an extension of the family.
An independent advisor will often work with a client for many years, developing a comprehensive understanding of their financial journey, while clients of large institutions may see a series of new faces as staff turns over.
This focus on cultivating relationships is becoming increasingly important to independent financial advisors. Research shows almost 60% of independent advisors now prefer to spend their time building relationships compared with just 13% who prioritize portfolio-building.
Wilson sees this firsthand as a lender. “Many independent advisors are entrepreneurial who want to take care of their clients in their own way,” he says. “They want the flexibility to do what’s best for them.”
It’s also a culture that Care Lending Group has adopted in their own approach to lending and working with independent advisors. “We're very relationship focused,” he says. “An advisor can expect a dedicated relationship that isn’t going to be passed on to somebody else.”
Drawing upon his own experience working closely with independent advisors as they seek to purchase client books from other advisors, Wilson also highlighted some of the risks and opportunities he has witnessed.
The risks
One of the most important questions faced by Care Lending Group and a prospective buyer is the risk that clients will drift away following the acquisition.
“The transition of the book from one advisor to another is a large challenge,” he says. “The buying advisor needs to maintain the goodwill of the clients and avoid attrition.”
This is particularly a concern when an advisor has cultivated relationships with clients over a long period of time, and the client may be unable or unwilling to adapt to a new advisor. Wilson says assessing this risk of attrition can be both an art and a science.
“Working closely with advisors over the years has given us a unique ability to assess how a newly acquired book will integrate into an existing book,” he explains. “For most banks it's all science, and they’re good at it, that's what they do. But there’s also an art to this process to understand how the transition might unfold, and ensure the new advisor is a good fit with the existing clients.”
By looking at a wide range of factors, Care Lending Group has developed a nose for which transitions are likely to succeed and which may fail. One thing they look for is an over-concentration of revenue from a subset of clients.
Another concern would be an unusually close relationship between a selling advisor and their clients. It’s not unusual, for example, for them to be family members and that’s a reason to be cautious.
Looking ahead
Toward the end of the interview, Wilson also pointed to a developing trend among independent financial advisors. They’re getting older.
“Just like the population of Canada is getting older, the average age of advisors in the wealth industry is increasing.”
These advisors share something else with the ageing general population: they occasionally put off planning for their future.
“While advisors regularly urge their clients to create a succession plan for their wealth, they don't always take their own advice,” he says. “Many advisors haven’t created a transition plan for themselves.”
When they do, they will finally have more options thanks to the emergence of independent lenders like Care Lending Group.
As an alternative to Canada’s big institutions, CLG is providing solutions that are tailored to align with flexibility and personalization of the independent advisors it serves.
