Is Canada ready to catch up with the US RIA space?

This article was produced in partnership with Q Wealth.

Jared Rabinowitz is a leading light at the vanguard of the Canadian independent financial advice movement. Q Wealth Partners’ CEO and founding partner believes passionately in its model and has long-sought insight and inspiration from the exploding RIA scene in the US. It’s a key reason why Q Wealth will once again host the Canadian TIKI Lounge at the Future Proof festival in Huntington Beach, California from September 16-18. This year, however, the original concept of the lounge will be fully realized as it will include a panel discussion of uniquely Canadian content.

Moderated by Jason Pereira, of Woodgate Financial, and featuring Rabinowitz, Ben Felix, CIO at independent firm PWL Capital, Christine Rodrigues, COO at National Bank Independent Network (NBIN), and a to-be-confirmed US-based special guest, the event is designed to help Canadian advisors understand the opportunities and options for going independent.

Despite hundreds of Canadian advisors who have left banks for independent firms, Rabinowitz says most finance professionals don’t understand what’s happening in the US RIA space, haven’t even heard of an RIA and/or don’t understand what it entails. Yet, south of the border, a third of advisors have left the banks and brokerages to build their own firms and, subsequently, there is now a big ecosystem of platforms and service providers supporting the estimated 17,000+ RIA firms in America.

This ecosystem does not exist to anywhere near the same extent in Canada because the demand was not there historically, and Rabinowitz outlines the “4C’s” he believes have delayed (but not derailed) a similar movement North of the border:

Credentials: Unlike in the US where it’s relatively easy to become an RIA (all one needs to do is write a series 65 exam), in Canada you must be a CIM or a level 1+ CFA and have years of securities-centred “relevant investment management experience” which can be elusive to persuade regulators of, even for veteran advisors.

Compliance: The bar for compliance and scope of securities regulation for Portfolio Managers is notably higher in Canada, and we must deal with 12 Provincial securities regulators rather than just the SEC in the US.

Complexity: Given the lack of a supporting ecosystem, advisors must do it all themselves. There are fewer options to make the transition, and ongoing operation of an independent firm turnkey. Advisors struggle to wear all the hats, while maintaining sufficient profit margins and work-life balance.

Cost: It’s more costly to run a PM firm in Canada once you rack up the costs of a higher compliance bar, more administration, and higher costs from technology vendors and custodians.

But the tide is turning, in Rabinowitz’s view. “[During the panel] we are going to help Canadian advisors understand their options for independence. More than anything else, we just want to get them thinking. There’s a real inflection point coming.”

Two tailwinds will form part of his argument: the interest from US private equity firms, hungry for a piece of what is happening in Canada, and CIRO’s stance on advisor incorporation (the newly minted SRO dropped its long-awaited position paper on the subject in January).

The latter essentially brings the question of who owns the client relationship - and associated enterprise value - centre stage. The banks will argue they still own the client, while independent firms will likely say it’s the advisor’s client. It remains to be seen if the independents will allow retiring advisors to sell the shares of their advisor corporation, as opposed to simply selling the rights to service the book of business through the firms’ advisor legacy plan. The former would unlock capital gains treatment, and qualify for the lifetime capital gains exemption, whereas the status quo results in former IIROC advisors ending up with fully taxable T4A income. This poses the further question of how much of the enterprise value will go to the advisor vs their dealer. Some dealers already offer their advisors stock in the firm to share part of the enterprise value with the advisors, but the proportions vary widely.

“This will come to the forefront,” Rabinowitz said. “And the bank advisors, for the first time, are going to be forced to at least think about it, or at least they will understand what they’re leaving on the table if they run out the clock and retire at the bank. It's a conscious choice to stick your head back into the sand at that point. This panel is about saying, let's really get clear on why this happened in the US, and why it hasn't happened yet in Canada. What is now changing? What are the drivers of change in Canada?”

Moderator Pereira believes any advisor who wants to up their game should be taking advantage of the chance to travel to events like Future Proof to listen and learn.

“It’s a beacon call to like-minded people who are curious about learning more,” he said. “In a lot of ways, it's not about a Canadian tribe coming together at a different location, it's about the Canadian tribe of like-minded advisors coming together at another place. And that's unique. You can't find that any other conference thus far in the US.”

Rodrigues agrees that the lounge is the ideal venue for candid conversation about how professionals can take the industry forward. She added that attending Future Proof last year was a game-changer for her and that NBIN, which supports around 400 independent firms, will have about 30 more of those firms represented this time around. The panel, she added, is primarily about raising awareness.

“There are a number of independent firms and independent advisors in Canada but from my experience in talking to Canadian advisors, independence is still somewhat of an unknown option,” she explained. “It's a bit of a mystery for many advisors. Independence is not for everyone; you need to want to run a business and there are different flavours of independence. But what we're trying to do is create awareness of the various options that are available.”

While the regulatory environment is different in the US compared to Canada, Rodrigues highlighted common trends such as the growing demand among clients for personalized services and the push for tech-driven solutions – both areas the panel will address.

For Felix, who has garnered a significant following on YouTube and through PWL’s Rational Reminder podcast, establishing an effective line of communication with new clients has been crucial. Being independent, he said, has made this easier. What’s also helped get the message across is that PWL’s model is similar to many RIAs in the US in that it’s one team with one investment philosophy and one approach to financial planning rather than a platform that people can build independent businesses on.

“We've attracted lots of advisors from banks and from other firms, and for some people, the way that we operate just makes a lot of sense,” he said. It also helps him adhere to compliance requirements when recording content or writing blogs.

He said: “PWL grew up as a content forward firm, so we had a couple of our advisors 10 or so years ago have some popular blogs. People laugh at it, but these guys built billion-dollar plus practices from blogs – it’s incredible. Then we got into video content and podcasts, and that has continued to be very successful for us. But because it's in our DNA, our compliance processes and compliance team are really in tune with getting that stuff out and approved. Being independent and being relatively small, but also having a clean investment philosophy makes it easier on our compliance team.”

The Future Proof festival is technically still accepting registrations, however the event has grown so large that all the hotels in Huntington Beach are sold out. Canadians who have already planned to attend Future Proof can watch the panel live, on Monday September 16th from 12:40-2:00pm at the Canadian Lounge of the Hyatt main lobby. For those not attending Future Proof, Q Wealth will make a recording available at a later date, and Wealth Professional will also provide coverage.