How a bear market will affect advisors who want to switch firms

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Switching dealers may prove more challenging for advisors amid the threat of a long-term bear market.

While the industry “has an innate ability to roll with the punches whether there are bull or bear markets,” according to Shaun Hauser, founder and chief executive officer of Wellington-Altus Financial Inc. in Winnipeg, “the longer there’s a downturn and the deeper it is, the more that is going impact advisors’ mindsets to switch firms.”

Some advisors might not be as confident in moving their practices from one dealer to another while bear market conditions persist, says Mark Kent, president and chief executive officer of Portfolio Strategies Corp. in Calgary.

“When you make a dealer change, you’re asking your client to sign forms to follow you to their new dealer, and that client today is probably more interested in finding out what’s going on and what you think they should be doing with their portfolios,” Mr. Kent says.

But Wendy Leung, senior consultant with Diamond Financial Consultants LLC in Morristown, N.J., says despite much speculation advisor movement will slow down, now is actually an ideal time for advisors to find a new home for their practices.

“Clients follow their trusted advisor all the time, but particularly during times of duress,” she says. “They’re much more likely – [especially] if they have a good, strong relationship with their advisor – to follow that trusted advisor during stressful and uncertain market conditions.”

What becomes much more important for advisors considering switching firms in today’s environment is to understand clearly what’s in the move for their clients and to be able to articulate that to them, Ms. Leung says.

“Be prepared to explain what makes the new shop better for them,” she adds.

However, not every advisor in those circumstances will be able to make the case successfully, Mr. Kent says.

“There are some advisors who are focused and dedicated to serving their clients and trying to do what’s best for them, but there’s also a segment of advisors who will just sell their soul every five years,” he says.

“It has nothing to do with the [new dealer’s] service platform that makes them move, they’re just moving for a cheque.”

Advisors can be with a new dealer for three months and already start planning when their next move will be, Mr. Kent says.

“It can be rather disruptive to move your practice and some clients just don’t follow you if you’re not showing that there’s value in the move for them,” he says.

Turning to technology and retiring advisors

Moving firms could prove even more difficult as some dealers become more selective in their hiring choices during bear markets.

Wealth management firms tend to adopt long-term strategies and are reluctant to alter course in response to shifting market trends. Yet, given the speed of the latest downturn, many are already resigned to do more with less.

Maria Jose Flores, president of Carte Wealth Management Inc. in Mississauga, says the mutual fund dealer will lean more heavily on technology in an effort to reduce back office costs and increase efficiency in response to the current market conditions.

“The reality is, technology is never going to call in sick and I never have to pay [Canada Pension Plan] or [Employment Insurance contributions] for technology,” she says. “I’m not saying I don’t want to support the labour market, but finding the right talent becomes even more important in this environment.”

Every downturn in the broader market also spawns an uptick in the number of advisors opting to retire rather than ride out the negative cycle, says George Hartman, president and CEO of Market Logics Inc. in Toronto. And this time will be no different.

“I’m expecting an acceleration in advisors who are looking to exit their business over the next three to five years,” Mr. Hartman says. “The challenge for them becomes if they wait too long and their assets fall by 20 or 30 per cent, so does the value of their business.”

Wellington-Altus has already begun to take advantage of what Mr. Hauser says is the start of a shift in recruitment activity toward a more dealer-friendly environment. In the last two weeks of May, his firm recruited three advisory teams from two bank-owned dealers with books of business worth more than $1-billion combined.

“We’ve been very fortuitous in grabbing very large book sizes of late,” her says. “Bear markets, the longer they go and the deeper they fall, can affect the whole industry, but – I am knocking on wood as I say this – that has not been the case for our business so far.”

For now, Mr. Hartman says the industry is still very much in a seller’s market, but adds “I think, though, the tide is turning on that.”

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