A renewed focus

Last autumn, a “liquidity mechanism” came into effect as part of the original shareholder agreement between James Richardson & Sons Ltd., GMP Capital Inc. and the brokerage’s financial advisors.

“[The original agreement] set a date that we said we were all going to sit around the table in 2016 and say, ‘What’s our plan going forward?'” says Marsh. “And, ultimately, that led to the decision to begin a sales process because if we got the right price, we got the right price. But you don’t know what your house is worth until you put it up for sale.”

Media and analyst reports speculated about several potential buyers for Richardson GMP, including Toronto-based Raymond James Ltd. and Quebec City-based Industrial Alliance Insurance and Financial Services Inc. The front-runner, though, appeared to be Toronto-Dominion Bank (TD) for a reported $600 million.

In the end, though, Richardson GMP was removed from the auction block and remains an independent brokerage with the original ownership structure.

Recent media reports indicate that the sale was put on ice in part because of Richardson GMP’s allegedly high-risk culture. This was highlighted in the fall from grace by Adam Woodward, formerly an investment advisor at the firm, who, along with his former branch manager and Richardson GMP, faces a class-action lawsuit from Woodward’s former clients.

The clients allege that Woodward failed to follow their investment goals and engaged in a “one size fits all” investment strategy that was unsuitable for the class’s members, resulting in significant investment losses.

Marsh disputes the depiction of Richardson GMP as having a high-risk culture, calling the Woodward situation a “one-off” and not representative of the firm’s overall compliance regime.

“If [the matter] turns out that we need to work with clients and regulators to resolve it, we absolutely will because we do the right thing,” Marsh says. “By no means does [the Woodward case] paint a picture of a culture or a way we run the business that is applicable to anybody else at Richardson GMP.”

Marsh outlines three reasons why Richardson GMP remains independent: finances, renewed faith in the business model and feedback from advisors and clients.

Regarding the abandoned sale of the company, a boost in assets under administration (AUA) arising from the 2013 acquisition of Macquarie Private Wealth Inc. and, recently, positive quarterly results made the idea of remaining an independent brokerage more viable.

“As we went through the [sale] process, [we saw] each quarter that passed in 2016 was better than the last,” says Marsh. “We were getting a renewed sense of confidence that we had a business model that was working really, really well.”

Richardson GMP’s revenue increased year-over-year in the second half of 2016. Furthermore, revenue rose by 18% in the first quarter of 2017 (ended March 31)compared with the corresponding period in 2016, according to GMP Capital’s earnings reports.

Feedback from advisors and clients further tipped the scales in favour of remaining independent. As news of the potential sale to TD appeared in the media, Marsh says, advisors and clients contacted management to say: “Please don’t sell to a bank.”

“We had a really strong message from our own advisors about how much they liked working with Richardson GMP and what a shame it would be if that were lost,” Marsh says.

Marsh now is focusing on growing Richardson GMP’s current base of $29.6 billion in AUA that is managed by the brokerage’s 200 advisory teams. He does not rule out future acquisitions and also plans to recruit advisors who are the “right fit” for the brokerage as a means of growing the company.

However, Marsh will focus on organic expansion, with plans to grow the average advisor’s book to $200 million from $150 million over the next three to five years. To accomplish this, Richardson GMP focuses even more on its traditional market of high net-worth (HNW) clients. The firm launched a family office in the first quarter of 2017 for client families with more than $25 million in investible assets; this provides a one-stop shop for HNW clients’ financial planning needs, particularly intergenerational transfer of wealth.

Although these services typically are described as “value-added,” they now are at the centre of Richardson GMP’s business. And instead of advisors being compensated directly for investment management and providing financial planning “for free,” the firm wants the revenue advisors currently bill their clients for to represent the use of advisors’ financial planning skills.

“Our intent at Richardson GMP,” says Marsh, “is to shift our revenue model so that it reflects the declining revenue that we see from investment management and replaces that with retainer fees for families who have complexity of wealth.”

This shift will change the services for which advisors charge, not the fees themselves. For example, clients still will pay a percentage of their assets, but that fee will apply to areas of expertise, such as business-succession planning, rather than strictly to investment management.

To help facilitate this shift, Richardson GMP is launching a robo-advice platform this autumn that will manage client investment portfolios for advisors who wish to use it.

“[The robo-advisor] will be an internal tool,” says Marsh, “that will help our advisors embrace that automation to free up their time to build [client] relationships.”

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