Member Profile | Alitis Investment Counsel
A referral arrangement with a Portfolio Manager (PM) can take the client relationship to a whole new level. A PM is able to offer a full range of complementary investment opportunities to its clients, so referring clients to a PM will allow the Dealing Representative (DR) to offer the services of the PM to their clients. This provides the DR with a competitive edge over other limited licensed individuals. In return, the PM will pay an ongoing referral fee to the EMD and, ultimately, to the DR. The arrangement provides benefits to all of the parties involved.
The Benefits to the Exempt Market Dealer
A referral arrangement between the EMD and the PM provides an innovative way for the EMD to add value to their business model and strengthen the relationship with their DRs and clients. The ability to facilitate a role in a larger portion of clients’ investments than other EMDs is a great way to recruit new DRs. It also creates a more stable, ongoing revenue stream for the firm that would otherwise not have existed.
The Benefits to the Dealing Representative
Only being able to offer exempt securities to clients can be very limiting to your business and very frustrating knowing that clients’ remaining assets are being managed by another individual. A referral arrangement with a PM will enable you to refer clients to a friendly party who will compensate your firm for the referral. This creates an opportunity for the DR to become more instrumental in the client relationship by, perhaps, acting as a key liaison on financial matters or undertaking more financial planning functions. The options are varied but significant opportunities exist to raise the profile of your business by utilizing this kind of referral arrangement.
The Benefits to the Client
The client also benefits from this relationship! PMs usually have access to a much wider range of investment opportunities than traditional brokers, which may lead to better diversification over multiple assets classes and provide the opportunity for better risk adjusted returns. An additional benefit to the client is that there are no sales commissions or DSC fees on their individual accounts. PMs are often able to negotiate institutional pricing on products, which may be passed down to clients through reduced costs. As well, if the DR undertakes more financial planning functions, the ability to see a broader view of a client’s financial situation usually leads clients to make more informed investment decisions.
Here’s How it Works
Setting up a referral arrangement can take a little time and there are certain basic steps that must be followed as outlined in National Instrument 31-103 and its Companion Policy. Once the EMD and the PM are satisfied that a relationship is appropriate, they enter into a formal referral arrangement. On an ongoing basis the referral relationship would operate as follows:
- Referral: The DR refers a client to the PM, after providing the client with a disclosure document outlining the key aspects of the referral arrangement;
- Initial Account Setup: The PM contacts the client, collects all the relevant information required to open and manage accounts, and fills out all the necessary paperwork.
- Investment Management: Once all the required documents are signed, the PM will make the appropriate security selection.
- Reporting: The PM will create statements and reports which are sent directly to the client. Copies may be sent to the DR if agreed to by the client.
- Referral Fee: The PM pays a monthly referral fee to the EMD which may be split with the DR according to the EMD’s compensation system.
The key concept of a referral arrangement is that the PM assumes all the compliance oversight & risk and as such, under no circumstances can the DR be in any way involved in the investment decision-making process. However, the PM may use the DR to assist with non-securities related activities, such as identity verification or helping the client with the signing of the paperwork.
A Final Word
A referral arrangement with a Portfolio Manager can help you take your business to the next level by providing your clients with access to additional quality investments and service. It will also allow you to focus more time building upon your established relationship with your existing clients and, in the process, create a value for your business – a winning solution for everyone!