This investment dealer is positioning itself as a place where advisors can be entrepreneurs

It’s a critical time for Canada’s economy and its business community. The country needs innovation and growth more than ever, yet businesses across a wide range of industries are facing trade disruptions, rising costs and technological change, among other challenges. This series profiles forward-thinking Canadian companies that are growing their markets by re-examining their business practices and trying new things.

When Gillian Kunza and Michael Konopaski launched Toronto-based investment dealer Designed Securities Ltd. in 2021, one of their biggest challenges was convincing financial advisors to leave established firms for a startup with no track record.

It’s not an easy decision for an advisor to simply walk across the street to another firm, says Ms. Kunza, chief executive officer of Designed Securities, which now operates under the name Designed Wealth Management.

“They have to spend a considerable amount of time thinking about how this will impact their clients, what type of business they want to run,” she says. “It can take a year or two for an advisor to make this decision.”

Ms. Kunza and Mr. Konopaski, who were formerly executives and colleagues at Aligned Capital Partners Inc., put up the initial capital for their new firm alongside an early group of investors. At first, they wanted to differentiate themselves by focusing on their strengths as an independent firm but now promote their services to advisors as a “customized” approach. Their strategy is to give financial advisors greater control over how they run their businesses, from branding and investment products to the clients they serve.

For example, Designed doesn’t require advisors to sell proprietary products, complete a certain number of transactions, brand their business a certain way or maintain minimum client account sizes.

In Ms. Kunza’s view, individuals in the early stages of building their savings should have access to advisors even if they don’t yet have substantial assets.

“Why should a dealer be putting in roadblocks to the people that probably need the support the most?” she says.

Innovation in compensation

At bank-owned brokerages, financial advisors are typically expected to sell proprietary products, cross-sell services and bring in new client assets, says Mark Toren, chief executive officer of wealth management recruitment firm Toren & Associates.

“One of the big advantages of independence, regardless of whether they have proprietary products or not, is that unlike the banks, they don’t put any pressure on the advisor,” Mr. Toren says. “If you want to use our product, you can. If not, we have hundreds and hundreds of different products, including the banks’ [products].”

But what truly differentiates Designed in the wealth management industry is its compensation structure, he says.

With traditional compensation models, financial firms keep a share of the revenue advisors generate. Mr. Toren says advisors working under an employee-based corporate model generally receive about 50 per cent of their revenue, compared with roughly 80 per cent under an independent-agent model. Advisors can be offered other financial incentives, though, such as lucrative sign-on bonuses, which Designed doesn’t do.

Designed instead uses a flat-fee-type model. According to the company, gross payout rates range from approximately 95 per cent for advisors with smaller books of business to 98 per cent for those managing around $200-million. Advisors pay an annual fee of approximately $30,000 to $42,000, plus operating expenses.

Mr. Toren says the structure is especially appealing to advisors with smaller books of business who likely wouldn’t meet the minimum asset requirements to work with larger dealers.

“If I have a small book, my choice is going to be very limited,” he says. “No bank will talk to me.”

After five years, Designed has grown to more than 200 advisors and approximately 75 head-office employees. The company is turning a small profit and expects to reach $10-billion in assets under management by year-end, with a target of $100-billion within another five years.

Since the firm has become more established, Ms. Kunza says it can appeal to a wider range of advisors, including those at banks who are used to working within a more structured, employee-based model.

“Maybe they’re itching to do something on their own,” she says, and “they really want to become that entrepreneur.”

A regulatory process that can lag

Despite the company’s momentum, growing an investment dealer comes with challenges beyond recruiting, Ms. Kunza says. The timeline and capacity of Canadian regulators don’t always jibe with the speed at which startups need to grow.

“It’s not always in your favour,” she says. “It’s slow.”

While she notes that the regulatory process is “not right or wrong,” it can make doing business harder, particularly for younger companies trying to establish themselves. Regulatory approvals can take months, she says, creating financial strain for startups waiting to launch their businesses or move forward with new services or solutions.

As technological developments such as artificial intelligence and automation change how the world operates, Ms. Kunza believes regulators are struggling to keep pace.

“We are new thinkers. We are not entrenched in longstanding processes. We are quick to move,” Ms. Kunza says, adding that Designed isn’t burdened by legacy systems.

She worries that if regulators can’t keep pace with technological change, clients could be left with an experience from their financial advisors that feels “really antiquated and old school.”

Meanwhile, Designed is focused on its growth plans, including developing its cross-border services through Designed Wealth USA, a registered investment advisor offering wealth management services to clients with financial interests in both Canada and the United States.

As for wider expansion, Ms. Kunza believes there is only upside.

“We haven’t saturated ourselves into the market, so there are a lot of people that don’t know about us still who might be a really great fit.”