Starting your own firm isn’t easy. These advisors say it was worth it

It took several years of planning, significant funding and lots of client phone calls for Colin Andrews and Steven Molina to leave their bank-owned broker-dealer after more than a decade and start their own firm.

But mostly, it took chutzpah.

“A lot of people in our marketplace, in our roles at other firms, they looked at us like, ‘Are you crazy?’” said Andrews, a managing partner with Canvas Wealth in Calgary and portfolio manager with Q Wealth Partners.

The pair, who have worked together since 2007, first at Scotia McLeod and then CIBC Wood Gundy, walked away from hundreds of thousands of dollars in restricted shares, turned down incentive offers worth millions from other bank and independent broker-dealers and took on $400,000 in corporate debt. They also left the “safety net” of a bank dealer without any guarantees their own business would succeed.

Now that they’re on the other side — the duo started Canvas Wealth and became partners at Q Wealth in November 2024 — they have no regrets, Molina said. They are free to run their business and serve clients the way they want to, with no external pressure to sell or meet thresholds.

“It’s night and day. The grass is lush on this side, it is beautiful. And I wish more people knew what it was like,” Molina said. He and Andrews lead a team of eight with assets under management (AUM) of around $550 million.

The story was similar for Colin White, who spent more than 20 years building White Leblanc Wealth Partners under the dealer model with partner Daniel Leblanc, first with Dundee Wealth, which became part of Scotia, then iA Private Wealth.

“As much as people called us independent, and we felt we were independent, we spent all of our time talking with a back office that had a different agenda,” he said in an interview. “They were always about product placement, about building a fence around your clients and providing all these value-add services. They were looking for penetration into our clients from the different business models that they had, and frankly, that was the frustration.”

He and his team formed Verecan, which was registered as a portfolio management firm in 2023.

By doing so, they got to build exactly the business they wanted. Everyone at Verecan, which has $1 billion in AUM, is on salary and works as a team, said White, who’s Verecan’s CEO. No one “owns” any clients. Advisors are held to a fiduciary standard, and the conflicts that rankled White over the years are now gone.

“It’s an opportunity for you to design a firm that matches your business model. That is an amazing advantage, but it’s also a big responsibility and not easy to do,” he said. “The benefit of waking up one morning and having a firm that’s designed around your way of doing business, rather than being an advisor at a firm that’s catering to the lowest common denominator … can’t be overstated.”

Starting your own firm isn’t for everyone. Startup costs run high. There can be legal wrangling over clients. You don’t have a compliance or operations team to support you. The fear of failure is real.

Here’s what advisors should know.

The ideal candidate

Most advisors who choose to start their own investment counsel portfolio management (ICPM or simply PM) firm are already portfolio managers with established teams and client bases, said Jeff Gans, founder and chief customer officer of Advisor Solutions by Purpose, which offers technology and services to ICPM advisors. They are looking to focus on holistic financial planning.

“They are using a discretionary model,” he said. “They’re not focused on brokering a product, but actually achieving goals for clients. That really drives a deeper dive into financial planning and helping clients understand and achieve their goals.”

They also need to be confident that their clients will follow them, as they can’t give clients advance notice of their plans.

“The most important thing is, whose clients are they really? You won’t find this in any contract,” said Jared Rabinowitz, CEO, executive and founding partner of Q Wealth Partners in Toronto.

“If this client was referred to you by a bank branch … and you don’t really have a relationship, … if that’s the majority of your clients and you’re getting new ones every year because the bank keeps sending you new clients, you might be in the right place.”

Just as important as solid client relationships, advisors who start their own firms need an entrepreneurial spirit. They’ll be responsible for building a tech stack and choosing vendors, evaluating custodians and their technology platforms, setting up compliance processes and dealing with the regulators directly — while also retaining clients through the transition.

It’s a tall order for most advisors, Rabinowitz said.

“You have all of the work that you had before … and now you’ve got to add all of these hats, or you have to hire people to do it, which is going to lean further on your cost and margin,” he said. “So, it makes it really, really hard to be in this space in Canada,” drawing a contrast with the “explosion of growth” the registered investment adviser (RIA) space in the U.S. has seen.

According to the Canadian Securities Administrators, there are 852 PM firms registered in Canada. In the U.S., there are more than 15,000 RIAs — although it’s not an apples-to-apples comparison.

White said he gets lots of inquiries from curious advisors who are looking for greener pastures and considering going out on their own — but few follow through.

“Not many advisors in Canada are making the jump to ICPM, because it is difficult to do,” he said. “As grumpy and unhappy as advisors are, they’re also not interested in putting in the amount of work to make a change.”

In addition, “unless you’ve got a really solid business model and a good team, it might not be a better place. So there’s no slam-dunk that you make this change and the world’s better now.”

Levels of support

It’s been difficult to start an ICPM firm in Canada historically, but there are different levels of support available depending on whether teams choose to build everything in-house, outsource key components or consider a partnership model.

Much of that depends on your team and your business plan.

White said the first move for Verecan, which now has eight offices and more than 40 employees, was getting a chief compliance officer on board early to manage the firm’s registration, and recruiting someone with strong operational knowledge to evaluate an ever-growing number of technology options.

The team had the collective expertise and knowledge to source technology and build almost all the components of the business itself, he said. But it engaged Advisor Solutions by Purpose to manage the firm’s tech stack.

“They manage basically our data lake, so they handle our relationship with our custodian [and] provide integration of some of the technologies that we use,” White said. “When we made our leap, that was the one piece that we didn’t feel that we could do in-house.”

Advisor Solutions, founded in 2017, also offers  a full tech stack and operating platform for advisors, as well as investment tools to help them run effective portfolios, Gans said.

It can partner with firms to help them nail down their operating and business model, client experience and provide business support for compliance, including coaching, templates and tools to ensure they have a strong compliance infrastructure on set-up, Gans added.

A different option for advisors that falls “in between” full independence and the dealer model, Rabinowitz said, is becoming a partner in Q Wealth, which was founded in 2007 and now has 27 partner firms with a total AUM of more than $7 billion.

Partner firms piggyback on Q Wealth’s registration as a PM firm and can provide non-registerable services focused on financial planning, or if they have provincial-registered portfolio managers on their team, can run their own investments. All partner firms are subject to common compliance rules, and Q Wealth provides infrastructure and other supports.

It was the right choice for Andrews and Molina, who spent three years investigating their options.

“There’s only so much that we want to take on,” Andrews said. “The idea of going 100% independent and dealing with regulators directly is a mountain I wasn’t willing to climb.”

Being with Q Wealth allows them to operate their own models and investment strategies with the freedom to run Canvas independently, while having access to the technology and infrastructure they need, plus the brain trust of other partner firms, Andrews said.

Planning ahead

Regardless of the path they choose to get there, establishing a firm involves a long planning period to sort out a business plan, registration, key team members, financing and more.

ICPM firms are overseen by provincial securities regulators, so registration means dealing with multiple regulators. Be prepared to take up to a year to register your firm with provincial regulators, depending on which province you’re in, White said. Add planning time and meetings with lawyers and advisors as well.

Portfolio managers also need to switch to provincial registration.

“There’s a difference between a fiduciary role or a PM role at the bank, where it’s more sales driven and when you’re dealing with the regulators directly,” Molina said. “They want to know that you really are acting in that fiduciary role, … so the application process and the scrutiny that you go under is significantly higher.”

At the same time, financing needs to be sorted out.

White estimated startup costs for Verecan ran between $350,000 and $400,000.

Andrews said he and Molina borrowed about $400,000 from a private lender to get Canvas started, enough to cover overhead costs for the first three to six months. Because they had been advisors at the brokerage arms of banks, they didn’t have a business history of their own to qualify for bank financing.

Plan to support essential team members for up to a year before launch, White advised. Registration costs, office space, salaries and other expenses need to be accounted for, plus enough cash to cover several months of costs after startup before revenues start coming in.

Legal considerations

When leaving a dealer, advisors need solid legal advice to help understand the terms of their contract. Legal threats are par for the course.

For Andrews and Molina, who were engaged in a legal wrangle with their former broker-dealer for six months, one of the hardest parts of the transition was dealing with the firm’s attempts to keep their clients.

While they said they recognize it’s a reality of the business, the experience of formerly friendly colleagues turning into rivals took an emotional toll.

“I felt like I had to defend myself every day for four months,” Molina said. “It’s easy to lose faith.”

The suit against them has since been resolved with a settlement that didn’t impose costs on either party.

Advisors must strictly adhere to privacy laws when transitioning clients. Basic tombstone data is generally OK for advisors to collect, White said. Anything else, account information or social insurance numbers, for example, requires client consent.

Client retention for Verecan was around 90%, White said, with the firm transferring around 2,700 clients in the first six or seven months of setting the firm up.

For Canvas, retention was around 80%.

Does it pay?

Owning your own business means profitability is more complicated to figure out than receiving T4 income as an employee, Andrews noted. But he and Molina are now “financially further ahead,” he said. They have an incorporated operating business (Canvas Wealth), individual holding companies that own their shares in the business. And what’s left flows into family trusts.

Day-to-day costs at Q Wealth, which performs many of the same functions as a dealer, are lower, Andrews said.

In addition, “there’s the potential for lifetime capital gains exemptions at some point down the road, whereas if we were at [a bank] and you sell your business, it’s treated as just regular income.”

Advisory businesses need to reach a certain size before they can be profitable out on their own. Noah Billick, a lawyer who leads the compliance practice at Renno & Co. in Montreal, estimated that size at between $200 million and $300 million, speaking on a recent LinkedIn webinar held by Fort Capital Financial Services.

White started Verecan with around $800 million in AUM, while Canvas Wealth has about $550 million. Firms that engage Purpose for services and infrastructure range from $250 million in assets to $2 billion, Gans said.

However, the need for scale in the business, coupled with rising technology costs, is making it more challenging for smaller PM firms to keep up, Rabinowitz cautioned.

“It’s very easy to spend millions of dollars on a tech stack in Canada,” he said.

The result is that existing PM firms are now inquiring about joining Q Wealth, he added.

“I think the independent model might actually be under significant threat just because of the amount of change in what the client value proposition is, driven by AI in particular,” he said. “I don’t know if anyone can do it alone without significant scale.”

The Canadian Investment Regulatory Organization is working on a proposal to allow non-mutual fund advisors to incorporate, which might reduce the incentives for advisors to consider going ICPM, White said on Fort Capital’s webinar. However, he noted that tax considerations shouldn’t be the only driver behind the decision to start a firm.

Greener grass

For White, an unexpected benefit of creating a brand new, independent firm was the calibre of advisors that are interested in joining them.

“All of a sudden, we’re able to recruit a much higher level of talent, and at the end of the day, this is a people game,” he said. “Over time, if you’re attracting all the best talent, you can bring them on board and you can support them. Then they can contribute to your group over the next generation. That’s how you’re going to win.”

Despite the challenges, Gans believes more advisors will take the plunge.

“We’re seeing them realize that there’s real value in their practice,” he said.

Andrews and Molina are also optimistic that more advisors will choose to go ICPM.

“I see this industry really transforming, and more people going to the independent side,” Molina said. “But it’s going to take some guts, it’s going to take vision and you’re going to have to see that the grass really is greener on the other side. It’s not the same grass.”