I started my career in 1982 at Nesbitt Thomson Deacon. Those were the days of many different brokerage houses and before the banks moved into brokerage services.
Over the coming 10 years many of the smaller firms merged to form larger firms. Nesbitt Thomson was the first brokerage firm to be purchased by a bank – Bank of Montreal. The attention that day was focused on all other brokerage firms– the world was changing. There was a nervous feeling amongst most advisors who were leery of what it would be like to have a bank run a brokerage firm.
Why were brokerage firms leery of being run by banks when the first mergers occurred?
Thinking is quite different on the brokerage side of the financial industry compared to the bank side. The broker and brokerage firms’ mentality and spirit is one of innovation, creativity and meeting the needs of the every changing marketplace. The banks mentality, on the other hand, is to create products that suit the widest possible number of people and get clients to buy those products and pay fees. Banks also like to have control over their staff. Brokers are cut from an entrepreneurial cloth that doesn’t fit in to the banker’s pattern. Bank earnings are steadier than brokerage earnings due to wide swings in market cycles and economic conditions. There was agreement that over the long run banks would exert their influence on brokerage to make it more in line with the banks.
In the early days I was eager to explore the opportunity that presented itself being owned by a bank. The reason the bank bought Nesbitt was to get another distribution channel for their products. The banks also wanted to provide their sophisticated clients with a higher level of investment advice and service than they were able to do at the branch level.
As an advisor I was assigned several bank branches. My duty was to go and visit these bank branches, meet with selected clientele of the bank and offer my services, as an extension of the Bank. As a full service investment advisor I was able to offer a much wider range of products and services than available at the branch level.
Why did I choose to leave the bank owned brokerage system for the independents?
Over time I became very uncomfortable with some of the tactics that were used by the bank to get their clients to sit down and talk to me. I was shocked to discover one year, after receiving an exceedingly large number of referrals from one branch, the branch was given incentives for making those referrals. The bank manager was setting his clients up with a product telling them to go and see me to buy it in order to get the incentive for his branch. I felt that the bank customers and I were pawns of the bank manager who was a pawn of the bank itself. I felt compromised and I didn’t like it.
When I reviewed the referrals that I had received recently from the banks, many of them were unsophisticated clients who really weren’t suited to an investment account. I was serving the bank relationship at the expense of my own clients and bank referrals that really qualified for a more sophisticated investment relationship.
So I made a big decision. It was 1995. My name had been lights at Nesbitt as one of the top advisors working with the banks. Everyone was shocked when I put all of my branches back into the pool and got completely out of the building relationships through the branch system. It wasn’t long after – two years later – that I left Nesbitt Burns completely.
The writing was on the wall – my role as an advisor and my ability to provide independent thinking and independent strategies as far as investment advice program would slowly be eroded and encroached upon by the bank the longer I stayed. Eventually I’d reach a point that I wouldn’t be able to leave.
In 2001, after a brief stint at TD Banks entrepreneurial TD Evergreen I moved to Raymond James Ltd. and a truly independent model. I am very grateful for the relationships that I made during that period and am happy to say that most of the clients I obtained during those years are still with me today. They have chosen to leave the perceived safety of bank owned firms and follow me during the changes of my career.
People are under the false assumption that they are safer with a bank when in fact all clients are covered by the same insurance and fraud protection across the board as outlined below.
Dundee Goodman Private Wealth is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. For further information please visit www.cipf.ca.