BECOMING AN INDEPENDENT PORTFOLIO MANAGER
Six key questions answered for CIRO portfolio managers
As so often happens in Canada, we look to the U.S. for market trends and future predictions. At Raymond James we enjoy a unique perspective into the U.S. market. One U.S. trend that has become obvious over the last 10 years or so has been the transition of assets from the traditional wirehouses (Merrill Lynch, Morgan Stanley, etc.) to the RIA marketplace and the resultant growth in RIA registrants. Aite Group reports that over the period from 2008 to 2018, the RIA channel has grown to equal the share of assets of the traditional wirehouses.
This transition from wirehouse to RIA has taken two forms in the U.S. market. Some advisors have left wirehouses and set up their own RIA operation; others have left wirehouses but joined already existing RIA firms that provide them with more independence, although admittedly less than if they had their own shop, but with the infrastructure and support that might be hard for the advisor to replicate immediately on their own.
While no wirehouse refugee story is the same there is a common theme in the transition rationale – greater freedom to run their business, their way, coupled with enhanced economics for both the advisor and their clients.
Looking at how that trend might manifest itself north of the border, we are starting to see growth in the number of established CIRO PM registrants who are deciding to move to provincially registered portfolio managers. Certainly, the growth in registrant firms as portfolio managers is far outstripping that of new, start-up CIRO members. The Portfolio Managers Association of Canada added 42 new members in the 18 months to December 2019 alone while CIRO-registered firms fell by approximately 25% from 2008 through 2018.
So, as an established CIRO-registered PM looking at these trends, you may ask yourself “should I be considering evolving my practice to become an independent portfolio manager?” If so, your first question should be:
Q.1 What is an independent portfolio manager?
An independent portfolio manager, as opposed to an CIRO-registered portfolio manager, is a provincially registered advising representative approved to provide investment advice and carry out investment activities on a fully discretionary basis. The result is that you act only as an adviser and never as a commission-compensated broker.
- Under the provincial regulatory regime, a portfolio manager may only charge fees for service which may be based on AUM or performance but may not charge commissions or transactional-based fees
- A portfolio manager has a fiduciary duty to clients which is distinct from the CIRO requirement for suitability
- An individual portfolio manager, which is categorized as an advising representative by the commissions, must be employed by an advisory firm that is registered with a provincial securities commission as a portfolio management firm as opposed to an CIRO investment dealer.
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