When the new owners get a say

Lost in the discussion of how the sale process underway at Richardson GMP will play out is what would be best for those who oversee the firm’s real assets — the investment advisers.

Ideally they probably all want to be left alone to be able to run their business in the way best-suited to the needs of their clients.

But that’s probably not going to happen given that the firm’s new owners will want a say.

And that say would be greater if a Canadian bank ends up owning the business, which is home to 198 advisory teams who administer $ 27 billion of client assets, but which is not that profitable.

Over the past few years the banks have tightened conditions for their brokers, none of which have made that group very happy. The brokers have seen their pay grids cut back, have been sent packing if they don’t generate enough production, and have seen some potential business moved to the branches where the compensation is lower. In addition, the brokers are being encouraged to move their clients to a fee-based system (where revenue is more predictable) and to sell more of the products created by the banks because more of the profits are then retained inhouse.

Some regard such an approach to wealth management as suiting the needs of the banks rather than the clients they are meaning to serve.

If such an approach was adopted here, presumably there would be resentment, a number of brokers would leave and there would be all sorts of legal issues given that the buying bank would probably say that it owns the clients.

All of which makes it complicated for a bank to properly price the transaction: they have to offer enough to be competitive knowing that a number of brokers will leave despite incentive packages to stay. A few years back National Bank bought the brokerage arm of HSBC Canada for $206 million and more than one quarter of the advisers left. ( Some say it doesn’t matter what a bank would pay as they can make it up in so many ways.)

The brokers, many of whom are shareholders and hence seeking a healthy payday — though the original shareholders are probably under water on their investment — would presumably like a buyer that allowed the existing corporate culture to remain.

RichGMP’s culture has emerged from the original firm ( Richardson Partners Financial formed in 2003); from the addition of GMP Private Client LP in 2009, and from the 2013 acquisition of Macquarie Private Wealth.

While t he t hree arms have different approaches to wealth management, some insiders claim the firm is working as well as it ever has — from the brokers’ perspective.

“There’s a core group of five to 10 brokers who bitch at every meeting. Aside from them everybody else has moved on,” noted one broker. “They act as if there is a magic solution out there.”

On the measure of maintaining a common culture, an independent firm like Raymond James Ltd. could be the best candidate. For instance, it is in the final stages of completing the acquisition of 3Macs, the country’s oldest brokerage operation. On that deal all the brokers signed on and the buyer said it would maintain the 3Macs name.