As we enter into the fourth quarter of 2024, it’s an excellent time to reflect on whether your growth strategy for the year has been effective, and determine if any adjustments need to be made for next year.
Advisors with ambitious growth goals understand that they can’t rely solely upon markets to reach their target. Instead, they must develop a strategy for sourcing, hiring, and integrating new faces into their business that bring with them some benefit - be it additional assets, an improvement to the client experience, or added business efficiency.
When it comes to integrating new team members into your business, our team at Purpose has a unique vantage point for evaluating candidates thanks to the differing ways in which we support our independent Advisory partners. In some cases, we find ourselves doing the prospecting and integration, while in other cases, we're playing ‘Wealth Tinder’ i.e. matchmaking to enable the growth of our partners.
As you spend time reflecting on your strategy, here are some key things to consider when evaluating new additions to your team:
Are they a Good Fit?
Let’s begin with the most important consideration when adding new team members - will they be a good fit? If you’re a sports fan, you’ve probably seen what happens to a team when the fit isn’t right - whether its the star player whose antics become a distraction, or the super team that looks great on paper but lacks the chemistry needed to win a championship.
Unlike large corporations with hundreds of employees, Advisory Practices generally only have a handful of team members, and as a result, they are all instrumental to the overall client experience. While it can be tempting to bring on individuals who can add assets quickly or fill a skill gap, toxic employees can disrupt team harmony and productivity. Therefore, it’s essential to ensure that new team members will integrate well within the existing team culture.
Double-down on what has made you successful
When you make the decision to add to your team, it’s important to stay focused throughout the process and have a clear understanding of why you’re hiring and what skills you are looking for. Advisors can make the mistake of getting distracted by candidates with special skills that weren’t originally sought, but could quickly expand their existing service offering. Although tempting, this can lead to misalignment with your strategic goals.
Instead, we’ve seen our partners succeed by focusing on what they already do well and pursuing individuals who align with their existing values. Hiring with this in mind ensures that the new Advisor is positioned to seamlessly integrate into the team and succeed from day 1.
Staying Diligent with your Recruiting
The perfect addition to your team might not be outwardly available exactly when you make the decision to hire. It’s important to understand that if you have growth plans, part of your job needs to be prospecting. We recommend that you block time in your calendar every week to ensure that you’re holding yourself accountable for prospecting and networking. Consistent prospecting will have the following benefits:
You’ll find it much easier to determine whether or not someone aligns with your values by forming a personal relationship rather than trying to assess during a formal interview process.
When networking, you’ll learn about other firms and how they recruit, which gives you important information you’ll need to make your offer competitive in the marketplace
You’ll gain insights into what strategies other Advisors have used to grow their practices (successfully and unsuccessfully)
Consistent prospecting is key to finding the right Advisors who can help your business grow. By maintaining a large network of potential Advisors, you increase your chances of finding the right candidate and have options available if a deal falls through.
Two Types of Costs
1. Startup Costs
These initial investments lay the groundwork for your firm’s success. Think of startup costs as the canvas upon which your business will paint its future. Examples include:
Legal Fees: Securing the necessary legal advice to ensure your firm is compliant from day one.
Office Setup: Furnishing your workspace to create a professional environment.
Technology Infrastructure: Investing in robust software and hardware to manage client portfolios efficiently.
Branding: Establishing your firm’s identity through logos, websites, and marketing materials.
2. Ongoing Regulatory Costs
Regulatory compliance is paramount in the financial industry. These costs cover ongoing obligations to ensure your firm operates within regulatory boundaries, including:
- Firm and Individual Registration Fees: Fees required for both your firm and its representatives.
- Annual Filings: Maintaining up-to-date filings to comply with regulatory requirements.
- Compliance Systems: Ensuring systems are in place to meet ongoing regulatory standards.
Navigating the Landscape
Working Capital Requirement: NI 31-103 mandates that PM firms maintain excess working capital (as calculated in accordance with Form 31-103F1) of at least $25,000 at all times. This requirement increases when a firm is registered in more than one category.
Financial Institution Bond Insurance: PM firms require insurance coverage based on specific clauses provided by regulators. The coverage amount depends on the total assets of the firm, typically equating to a minimum of 1% of total assets or $200K, whichever is less. For a PM firm with AUM under $1BN, average coverage costs range from $5K to $10K per year. Additional coverage limits apply if registered in multiple categories (e.g., PM and IFM).
Essential Roles
1. Advising Representative (AR)
ARs are registered individuals licensed to provide advice.
They undergo an application process with provincial regulators, considering relevant investment management experience (RIME) and minimum experience and educational qualifications (CFA or CIM).
2. Chief Compliance Officer (CCO)
Every Canadian PM firm requires a CCO who must meet the criteria set forth by the CSA in NI 31-103 Section 3.13.
Hiring a CCO depends on qualifications and experience, with costs ranging from $100K to $250K per year or more.
3. Ultimate Designated Person (UDP)
The functional CEO responsible for compliance oversight.
Ensures a culture of compliance, understands the regulatory landscape, and oversees risk management controls.
While some firms transition existing staff into these roles, others may need to hire, adding to their startup costs.
The Bottom Line
Launching your own PM firm involves various costs that can vary based on factors like firm size, staff, and preparation level. We typically recommend that practices contemplating launching a PM firm do so with at least $350 million in AUM. This ensures financial feasibility for both management and staff.
Our services assist prospective PM firms with essential pre-launch work. Partnering with us can be more cost-effective than going it alone. Reach out to schedule an introductory conversation and explore how we can support your journey.
