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Innovative firm loosens the reins on advisors

Advertisement When Doug Leyland left his last employer to set up his own securities firm, he pulled what is known in the industry as the “midnight move” — waiting until everyone had left the office before going in to pack up. “You have to plot your escape, and live in fear while doing it,” says Leyland, who is now president of Burlington, Ont.-based yourCFO Advisory Group Inc. The “midnight move” is something Leyland would like to banish from the securities brokerage culture. He is among a handful of pioneers who are establishing firms that allow advisors more freedom and release the grip that employer/employee structured securities firms have traditionally had on advisors’ books of business. (Other like-minded pioneers are at Assante Capital Management Ltd., Raymond James Ltd. and Dundee Securities Corp.) In May 2003, the Investment Dealers Association of Canada passed Bylaw 39, allowing brokers to be agents instead of employees. Still, most firms have been reluctant to relinquish book ownership, and many brokers who call about joining Leyland’s firm are surprised they can choose not to be an employee, he says. There is also the question of ethics when it comes to loosening a firm’s grip on brokers. From a regulator’s point of view, keeping brokers in employee shackles allows it to lean on the brokers’ employer firms to maintain strict compliance. But Leyland predicts the next major shift will be even more progressive — moving beyond agency relationships to allow advisors to incorporate, a long-held desire of many advisors. But in order to make that shift, the so-called “culture of compliance” must continue to grow. Leyland, who sits on the Ontario Securities Commission’s fair-dealing model subcommittee, intends to encourage that compliance culture. On a personal level, his commitment to ethics is clear, as reflected by the copy of Charles Dickens’ Dombey and Son that sits on a table near his desk. The novel is a morality tale about a greedy businessman who devotes his life to his son, but only for the purpose of perpetuating his wealth. Meanwhile, he neglects his daughter and destroys her prospects of marriage. Leyland got the novel from his partner in another business venture — the Rev. Doug Hallman, a United Church clergyman from Niagara-on-the-Lake, Ont. Together, Leyland and Hallman run a subscription-based Web site called www.perspectives.ca. Leyland handles the business end of things, while Hallman provides weekly commentaries on the Christian lectionary — the schedule of assigned Bible readings used by churches throughout the world every Sunday. “Personally, I need a more intellectual approach to spirituality,” says Leyland, who finds that in Hallman’s writing. Leyland also applies strict ethical standards to his company: “What I am able to do now is pre-select. I look through an advisor’s book of clients and his trading history.” The pre-selection approach is also prudent, says Leyland, because it provides an avenue for “weeding out” unsatisfactory candidates, which is good for both the firm and the clients. At yourCFO, client payments are made to the firm, and the firm then gives agents their cut, says Leyland. So advisor activity is closely watched. That wouldn’t change if payments were made to the advisor’s corporation, he adds. Trades are monitored daily and monthly. The firm is under the same obligations as other IDA-member firms to report any breach of the rules, as well as all customer complaints, says Leyland’s business partner, Mike Dillen, senior vice-president of yourCFO. The difference at yourCFO is that an advisor wouldn’t be fired. Instead, his or her contract would be terminated. “If a compliance issue arises, it will be addressed. If the agent refuses to come into line, we will ask them to leave. The agent will have to find another firm to clear his or her trades,” says Leyland. Is gaining book ownership and an increased sense of freedom enough to inspire brokers to work with someone like Leyland? Leyland points out other potential reasons: low payouts and the bundled package of services that broker employees are forced to cover out of their sales. “They pay for their firms to develop proprietary products and technology platforms that diminish the advisor/client relationship,” says Leyland. The firms also hire new, competing advisors, while maintaining other advisors with high-risk compliance needs, he adds. At yourCFO, says Leyland, entrepreneurial-minded advisors can run their own businesses and gain economically. These agents control their own operations, including office space and staff. Read other news from our Building your Business Section