Rob McClelland explains how he's seen service trump distribution, while highlighting ways that product manufacturers still incentivize advisors to sell
When Rob McClelland was diagnosed with cancer and decided to retire earlier than planned, he started looking for ways to sell his book of business. The 35-year veteran advisor and founder of The McClelland Financial Group of Assante Capital Management Ltd. went to his firm in June of 2025 and asked if they could help with financing. The response was that they would, provided he became a supporter of company product, and shifted his book into product managed by Assante’s parent company.
“I understand why they had to do that,” McClelland says. “They said that if they’re taking on millions of dollars in liability, they need that company product to support it, otherwise they’re taking on millions in risk with no reward.”
McClelland decided on different financing and transferred ownership to his business partner of 25 years. Over that time, he has seen the industry come a long way, exorcising many of the conflicts of interest once inherent in their business models. Despite that progress, he has witnessed how some incentives for advisors to preference fund manufacturers over clients remain in force.
The industry was much more of a distribution business when McClelland began his career as an advisor in 1991. He was hosting events, bringing on many clients, and putting them in mutual funds with deferred sales charges (DSC), which was the only option for clients at the time aside from a nine per cent upfront sales fee. His early mentors were proponents of financial planning over fund distribution, but at the time even the planning business was almost entirely commission based.
The prevailing approach in those early days, McClelland says, was to look at the hot mutual funds and pitch them to clients. Almost invariably, the hottest funds one day would go on to underperform the next, and McClelland and his fellow advisors would move their clients into the next hot fund, which would go on to underperform.
Advisory firms in the late 90s stepped in to offer an alternative. Companies started launching funds of funds, like Mackenzie’s Star program or Assante’s Artisan. These were largely value-oriented strategies which limited the advisor’s ability to play with the portfolio. McClelland noted that this was generating better outcomes for clients, at least in the leadup to the tech wreck.
As growth fund valuations rose immensely in Canada on the back of stocks like Nortel, McClelland faced pressure from clients to add more growth into their broad value allocations. Those decisions, made to appease clients rather than serve their best interests, turned out to be the wrong ones when Nortel brought Canadian growth crashing down.
“I remember my business partner and I saying, ‘this isn't working. Using company product isn't working. Trying to pick funds isn't working,’” McClelland says. “We went and we interviewed all the wholesalers for the fund companies, and we asked them who was really good at picking funds, and to a person, they all said, ‘none of you are any good at picking funds.’”
Seeking a different way, McClelland took the advice of a friend and went down to Dallas to visit Dimensional Fund Advisors. On that trip he was convinced by the efficient market hypothesis and the merits of passive investing. When he returned to Canada, he moved his clients, who were 96 per cent in Assante product, into Dimensional and other index tracking funds.
“That was the toughest move in my career, because my parent company disagreed with my approach,” McClelland says. “Even though I was always in their top three advisors over the past 20 years I was persona non grata because I wasn’t supporting company product.
“I think the problem is that conflict of interest still exists today. It exists, certainly with the banks and the selling that they have to do of their own mutual funds. It doesn't exist as much on the brokerage side, but it still does. Any company that has a product manufacturer and financial advisors, that's a conflict.”
McClelland accepts that things on the brokerage side are better than they used to be. Fee based models have taken much of the conflict out of this business. Still, though, he notes that his own firm used a points system that incentivized distribution of house product. Advisors could earn trips through a system where house product was worth more points than externally managed funds. That program, he notes, has been discontinued in recent years.
McClelland also stressed the positives of his experience with Assante. The compensation system at Assante allowed him to run his own business and be left alone. Sure, he missed out on some points towards company trips, but the fundamental firm view of his allocation to external funds was effectively, ‘agree to disagree.’ He feels he was treated fairly and allowed to be an entrepreneur.
Offering a view as to where the industry goes from here, McClelland notes that the margin pressure facing fund manufacturers will force them to keep growing by acquisition. Vertical integration is more efficient and more profitable for everyone involved. As that continues, McClelland hopes that at the very least, restrictions on product are lifted and every financial advisor, be they at a bank or a brokerage, can choose from a full menu of options for their clients. Despite all the conflicts of interest he still sees in the industry, looking back on where he started McClelland believes great progress has been made.
“At the end of the day, Assante was a wonderful firm to work with for 35 years,” he says. “My experiences with conflicts of interest are not unique to my firm. In fact, I believe they exist in most firms today. If you hear them say there’s no conflict of interest, you just haven’t asked the right question.”
“It’s 100 per cent better now.,” he continues. “The DSC is gone. Advisors are now fee based. If the account does well, the client does well, the advisor does well. If the account continues to grow, the fee rate goes down. So that's all in favour of the client. The advisor and the client are on the same side of the table.”
