As the old ways melt away it is time to establish your place and thrive in the new world. Pretty much everything affecting the process of providing financial advice is changing: regulations, products, technologies and business models. Advisors should not ask themselves “how will I operate going forward?”, but “how can I position myself to excel in the future?” There is no way to have absolute clarity about how things will evolve, but there are several big picture items that advisors can begin to prepare to deal with.
Just Learn to Love Technology
Obviously technology is changing our world, but the tech revolution should not paralyze advisors. With new fintech firms popping up daily or the latest “shattering” announcement that yet more robo advisors are being unleashed on the country, the proper response is likely to let out another yawn. The hype seldom lives up to the promise.
Seldom does a new technology or app rock the world on day one, but over time and with gradual improvements and adoption, the future starts creeping into the now. So take a deep breath and accept that this part of your job going forward will be changing. This means the sooner advisors adapt, the sooner they will be able to differentiate themselves from their competition. If an advisor does not have the necessary skills to leap the divide, outsource to someone who does. With the fast pace of change in the industry, what were once core competencies may soon be reduced to run of-the-mill functions. Get in front of the curve, while the getting is still possible.
Invent a New Value Proposition
Truth be told there are a lot of advisors who can do what you do. In the past, it was all about selling products, now it is about portfolios and financial plans. Technology creep will continually intrude upon the service advisors offer, so much so that it will be the unique elements of human interaction that will allow advisors to shine.
Rudimentary onboarding processes are in need of a major upgrade. The softer side of the client interaction will have to dominate going forward by creating customized solutions for each client that extends well belong asset mix and fund selection. Client behavior is greatly influenced by the daily bombardment of news, opinions and whimsy, allowing fear and doubt to adversely affect their portfolios results. Given that most clients have limited understanding of the investment world, advisors are presented with a great opportunity to teach clients how to behave as good, long-term investors for years to come.
Refine the Client Experience
Many advisors are their own business and it is their technical strengths that allow them to prosper. When they add great customer service, clients feel pampered. But will this be enough going forward? Increased disclosure is upending the status quo, particularly with fees where compression and cannibalization are gouging profits.
So maybe it is time to evolve and incorporate alternative fee structures that respond to client preferences and rationalize the way advisors and wealth managers get paid for their services, such as “success” based fees i.e. fees directly tied to client results . Whether it be performance, tax savings or simply a shoulder to cry on (after all a lot of psychiatrists get paid quite a lot for doing little more), aligning fees to a specific service or outcome will set you apart. Clients want options and to feel connected. Advisors need to tailor their services to create a human connection that the “robots” and giant players cannot reproduce.
Not every client wants the same thing so having a suite of solutions that are different or tailored to deliver the most robust results is paramount. In many ways it will come down to evolve or perish. So take time from your busy day; turn off the computer and stare into the future. Change is coming for you!
The financial planning industry is coming under increasing scrutiny these days. On the regulatory front, the Ontario government has announced plans to develop legislation that would regulate financial planners in Ontario. Under the proposed framework financial planners would be required to meet specified proficiency requirements. Additionally, the government indicated that it will take steps to reduce consumer confusion created by the wide variety of titles used in the financial services industry by restricting the use of titles related to financial planning.
While a start, there are calls from some consumer groups to more clearly separate product sales from advice. What people really need to get from a planner is an answer to the question, am I on track? Planners should focus on getting to know their clients and helping them to simplify, declutter and remove their financial anxiety. Investment managers are qualified to keep clients up to date on portfolio returns but returns are only part of the picture. How many people, irrespective of income or net worth, genuinely know if they are on track to achieving their goals? This is where financial planning specialists can really help. Advising on products and investments is not financial planning. Investment advice should follow a properly developed financial plan. Financial planners should help clients to understand that financial products and investments are tools that only need to be used if required. Proper financial planners should only use products to help implement certain strategies. With that approach consumers will finally come to understand what proper financial planning really is and how they can benefit.
The investment industry’s main focus has traditionally been to gather assets and build assets under management (AUM). Historically financial advisers have been money managers. This model has been in place for decades although there has been a shift from transactional fees to fee based accounts. When advisers meet and swap notes, one of the first questions asked is, “how much do you have in AUM?”. There certainly is a client need for some basic services at low, and perhaps subsidized, prices but at the higher end, professionals should adhere to certain standards such as providing disclosures concerning their relationship with clients. If the consumer wants to be transactional in their relationship this should also be clear to them. The legal profession receives fees for service and they have nothing to sell other than advice. Could the financial planning industry survive without product? Until the value is seen as being for advice and strategy, advisers will continue to sell products.
Regardless of the business model, financial professionals of all types need to be clear on who their optimal client is, what their client experience will be, how they are structured to support this experience and how they manage to do it profitability. They need to answer the key strategic questions around why they exist in financial services, regardless of which regulatory structure they operate under. As the financial industry continues to evolve, more advisers are likely to view themselves as financial planning professionals and not product distribution outlets.
Enshrining the term ‘financial planner’ is a step in the right direction. In most jurisdictions these days anyone can call themselves a financial planner, whether they are licenced or not. In conjunction with the proposed Ontario legislation the media and public will need to be educated to understand that there are qualified and ethical financial planners, many of whom are CFPs, in the financial industry. There are many compelling reasons to seek financial planning advice, not only as a oneoff, but ongoing, however few people do. If the planning industry doesn’t change, then the interest of ordinary people utilizing the industry’s services won’t change either. People will handle life’s financial challenges the way they have always done it for the most part, without financial planners. There are many very good financial planners and there is great advice provided to clients but it needs to be complimented by a product sale or by building up assets to enable the adviser to be remunerated. Going forward, consumers need to be better educated about the need to stay on track with a plan and be willing to pay for it. There needs to be a clear separation of advice from product if the financial planning industry is to become a true profession. While it may be a long way off it seems likely that this overdue separation is coming.
The fiduciary standard is getting a lot of attention in the United States once again as the Department of Labour’s rule requiring advisors to act in the best interests of their clients was denied by an appeals court. The most interesting aspect of the debate on these standards is not whether a fiduciary standard will ever be applied, but the increase in public awareness for this issue. As more retail investors become aware of the different standards, it is important for you to be prepared to answer the inevitable question: Are you a fiduciary?
Many investors assume financial advisers have a duty to act in their best interests yet that is not necessarily true. The requirement in Ontario, for example, is to act “fairly, honestly and in good faith” which is known as the duty-of-care model.
The fiduciary standard is much stricter than the “suitability standard” that applies to brokers, insurance agents, and other financial professionals. The suitability standard only requires that as long as an investment objective meets a client’s needs and objectives, it is appropriate to recommend to clients. A Fiduciary duty is a commitment put the clients’ best interest first.
Canadian regulators have been reluctant to move to an industry-wide fiduciary standard partly because some of the new standards being proposed in other countries have been in place in Canada for some time. The existing duties and obligations imposed on investment professionals, together with the rules developed through the CRM project, provide investors with significant safeguards in their financial dealings with registered investment professionals. As it stands, the only Canadian financial professionals who are under fiduciary obligations to act in the best interests of clients are those registered as portfolio managers with discretionary authority over their clients’ accounts.
This lack of uniformity can create a fundamental misunderstanding between the expectations of investors regarding the duty that is owed to them by their financial advisors. If nothing else, the fiduciary duty debate has increased public awareness. Now, more than ever, prospects are questioning not only the qualifications of advisors, but also how they are compensated as well as their philosophy on how they run their practice. A prospect wants to know if you are truly serving their needs or are you pushing products.
Fiduciaries are different from other financial advisors structurally, philosophically and legally. Due to the extensive requirements it takes to become a Portfolio Manager (including qualifications and experience) it is unrealistic for most advisors to get registered as such. So the reality is that most advisors cannot say they are bound by fiduciary standards. Yet there is a way to address this which would give your clients peace of mind. Advisors who outsource portfolio management and compliance responsibilities to a discretionary Portfolio Manager like Provisus can assure their clients that they are being cared for by money managers with a fiduciary responsibility to act in their best intrest.
Established in 1979, the Beutel Goodman Private Client Group extends the concept of value-oriented investing to individuals, estates, trusts, private holding companies and foundations. Through active portfolio management, and by drawing upon the collective strengths and resources of the overall firm, it is uniquely positioned to achieve personal investment objectives. It has customized the value principles of the firm to meet the needs of its private clients, recognizing that each client has individual financial needs, investment parameters and service expectations. Today, the Beutel Goodman Private Client Group manages assets of $1.0 billion and benefits from being affiliated with one of Canada’s largest and most successful pension fund managers with over $35 billion in assets under management.
In terms of International equities, Beutel has noted that global equity markets rallied strongly in 2017 and reached multi-year highs across many countries. Surprisingly synchronized global economic growth was the key reason behind the strong market movements. While no major economies are expected to grow at a particularly fast speed, all of them continue to show positive signs of improving growth momentum. In the U.S., the much anticipated tax reform seems within reach and may further strengthen business and investment confidence.
Throughout 2017, valuations have moved up as markets climbed to new records. Beutel’s valuation discipline and investment process prompted them to trim or exit positions as they achieved strong returns and reached their upside potential. In the meantime, they are finding great opportunities and have added a good number of high quality businesses into the portfolio. 2017 certainly saw market enthusiasm in some new technology areas such as artificial intelligence, self-driving/electric vehicles and cryptocurrencies, to name a few. The frenzy in those areas also led to a market rotation out of some strong, wellestablished (but “boring”) businesses and offered opportunities to invest into those highly cashgenerative operations at unusually low valuations.