Tag: Wealth Professional

Robo-advisor irony is “quite laughable”

Robo-advisors may appeal to the younger generation but most people still want the comfort of a human expert to lead them through the nuances of investing.

That’s the view of Chris Ambridge, president and chief investment officer at Provisus Wealth Management, who agrees it is an “awesome concept” but said firms in Canada face a struggle to make it profitable.

Celebrating our industry successes in the wealth management industry

The sheer size of the market south of the border gives the US a 10-fold advantage, said Ambridge, who claimed the Canadian market is yet to top $2 billion in assets, meaning the pressure is on to grow even faster or increase fees, something that is “counter to the robo psyche”.

He said: “You are seeing a migration in Canada to robo 2.0 where the robos that are in existence are trying to partner or develop referral arrangements with other channels so that the advisor community can refer to the robos, which if you think about it, the irony is quite laughable.

“When the robos came out they wanted to slaughter us and [people] said how terrible advisors are, and now they want to partner with them, realising that you can’t have a business without profits and you can’t have profits unless you get clients, and the only ones who have clients are advisors.”

A recent survey by Young and Thrifty, a website dedicated to personal finance for millennials, revealed that, of the about 400 people asked, 77% preferred robo-advisors to traditional banking, whereas only 3% prefer the latter.

It’s a sign of the allure technology has with younger people but Ambridge, speaking before the results of the survey were known, believes millennial accounts will not help a robo company turn a profit.

“We originally thought [robo] would be very meaningful [to our company] because they were promising the moon, the stars and the sky, but at the end of the day what they are getting is the younger population for the most part; very small accounts.

“As a result, as everyone knows, small accounts are difficult to turn a profit on and a start-up business that’s unprofitable to start with, getting unprofitable accounts can only lead one way, and that’s out of business.”

Ambridge said his firm’s pay-for-performance model represents the lowest fees in the country, including its ETFs, where its rates are below the traditional equity market. He believes robos will eventually be absorbed into other providers and says the majority of investors still prefer human guidance.

“Like most people who are not in the investment industry, they’ve chosen their life and what they want to do – they really don’t want to know everything there is to know about investments and how to make RRSP contributions. They want someone to help them.

“Investment and finance is not something that is easy to pick up or you want to spend a lot of time with, so people need that guidance and the robos simply have not provided it in great leaps and bounds.”

Why advisors should brace themselves for CRM3

Advisors had better get used to CRM2 because CRM3 is in the pipeline, according to one industry insider.

The recent Mutual Fund Dealers Association (MFDA) CRM2 compliance report said that a “reasonable” number of its members adhered to the regulations but that there were concerns, including the bundling together of Deferred Sales Commissions and trailing fees, and ambiguous definitions provided to clients about DSCs.

Chris Ambridge, president and chief investment officer at Provisus Wealth Management, said that while, for many, the change has been painful, advisors must accept that this age of regulation is here to stay.

He said: “The industry got away with a lot 20-30 years ago, and I’m not saying they are getting their comeuppance, but they are just being forced to now be held to a world standard. At the same time, change is painful, it’s costly, [but] it’s necessary because there have been a lot of individual clients who have been hurt over the years.”

Celebrating our industry successes in the wealth management industry

Ambridge said that CRM2 was needed because digging up the fees your advisor was earning was difficult. And allowing clients to look under the bonnet at the fee breakdown led to some difficult questions.

Ambridge said: “It’s made it more transparent and it’s given clients the notion that for the first time, I am paying fees and I am paying that amount. Why am I paying my advisor when I see him never and talk to him once every two years and he’s earning this?”

While CRM1 fact sheets disclosed what fund manufacturers were earning and CRM2 laid bare what the advisor earned, Ambridge said CRM3 will bring the two aspects together.

He said: “For an average client out there, well, Jonny is earning this and Jonny’s company’s manufacturer is earning this; they have to dig that out. Why can’t it be in one spot so clients can see what they are truly earning? That’s going to be CRM3 and that’s going to affect seg funds, which are extremely overpaid in terms of fees.

“Now they are going to get the same treatment which I think is going to have a very large effect on a lot people as well.”

He added: “I would assume it’s in the regulatory pipeline that they will expand – there’s a lot things still to be worked out. The regulatory oversight of the robos has not been finalised; they are still held to the same standard as other portfolio managers and a lot of people think they should be held to a [standard] more suitable to an online platform. We’ll see what happens there.

“I don’t profess to know what it’ll end up being but if you don’t have a level playing field, someone else will want to get in there and cause some mischief.”

Compression and Commoditization

Competition for new clients is increasing and advisory fees are shrinking in part because clients have access to greater information and expertise in the form of low cost platforms. In 2016 the average U.S. advisory fee for new accounts was 1.02%, down from 1.04% in the prior year and 1.21% in 2014, which is a 15.7% decline in two years. Canada appears to be experiencing a similar situation. Greater access to free or low cost information and expertise is making it hard for investors to appreciate the value good advisors bring to the table. When investors shop around for better fees they drive down prices. This means that to a certain degree, fee based advisory services are becoming commoditized.

Advisors can elect to cut expenses to offset the fee decline and maintain their income but only for so long. Advisors really have only three options: get bigger, specialize or outsource.

Increasing competition and more options for investment services leaves advisors with less pricing power which means advisors could consider getting bigger by adding clients to offset lost revenue. To do so advisors should think of actively marketing their practices, offering new products and services or enhancing existing services.

Advisors could also join a team through a formal business partnership to cover different areas of expertise and provide services that are beyond their skill set or capacity to offer. Alternatively they could choose to work with another advisor who has a complementary expertise. Another option is to merge with another firm but at the expense of giving up the autonomy of running their own practice.

One challenge of getting bigger is to ensure that the appropriate staff and infrastructure are in place. The top clients need to get great service and have access to the best advisors. A staffing option is to add a dedicated client service professional who is not an advisor but whose job is to make sure clients’ needs are met. On the infrastructure side advisors will need to consider technology to make sure they are equipped with the latest customer servicing options.

Advisors who do not want to get bigger or find that getting bigger is too much work could find a specialty and make sure they are known for it. Whatever the specialty having an area of expertise means that certain clients will not be inclined to shop around based simply on price. Advisors must build their brand by touting their expertise with the credentials to back it up so they will need to obtain any number of the numerous professional designations and certifications available. They will have to network with other professionals or organizations that share their niche and differentiate themselves from advisors who are generalists. They must be willing to meet with prospective clients themselves rather than delegating this important meeting to another advisor or member of their support staff. Specialist advisors will find they have an edge when marketing their expertise to prospective clients through websites, in publications or by speaking to groups interested in that advisor’s expertise.

Getting bigger or specializing often means that something has to give. This is where outsourcing comes into play. Outsourcing administrative tasks and investment management allows more time to be spent with clients. A study by Northern Trust in the U.S. found that 70% of advisors reported growing their practices significantly after outsourcing. Not only did they spend more time helping clients plan their lives, it also brought them more personal satisfaction.

Working with a third party provider to handle everything from portfolio construction and management to rebalancing, compliance, research and back office support has been a fast growing trend among advisors over the past decade. Before choosing an outsource supplier, consider the following:

  • Look for providers that share your investment philosophy
  • Determine all fees and costs
  • Confirm advisor and client account minimums
  • Find out who is the firm’s custodian
  • Ensure the technology is easy to use and integrates with your structure
  • Consider the ease of transitioning in and out of the plan
  • Evaluate the advisor and client logistics to change to the new business model

Some advisors fear clients will not respond well to the idea of outsourcing. Of course advisors will need to educate their clients about the benefits of this type of partnership. If handled correctly the client experience will be improved, as was confirmed by 92% of advisors surveyed who have outsourced since 2014. Ultimately advisors will have to make decisions that are going to change their practices as market forces reshape the world around them. The only real question is which path they will choose to take.

Prolong your practice

You’ve spent your entire career building your practice from the ground up and now you’re thinking of selling it. You have a book full of loyal clients who you enjoy servicing but the pressures placed on your time is starting to wear on you. While many advisors seem doomed to work long hours into their “would be” retirement years, perhaps you’re considering either selling your book or passing it on to a family member. There’s only one problem: You’re inextricably entwined in the business and you don’t really want to fully retire.

As a personal services business, your clients trust and have a rapport with you; they like the way you treat them and handle their business. While that can make for lifetime customers, it can also make it difficult to sell your business to someone else. There are no guarantees that your clients will stay with the new owner and therefore the value of your business to a potential buyer might be less than you expected. Most advisors who seek to sell their firms won’t get the price they’re after and deep down they don’t even really want to sell.

Another consideration when selling your business is finding an appropriate buyer. Many deals involve a price that’s payable over time, and is largely contingent on how many clients stick around, so you have to be sure that the buyer is someone you trust to do a great job. Do they share a similar investment philosophy? Do they value exceptional service and look after their clients properly? How comfortable are you passing on your life’s work to somebody else?

Another consideration is that once you sell your business, it’s no longer yours. There is no going back so unless you’re 100% certain you’re ready to move on, a better solution would be to look at alternatives. Rather than selling off your business consider an alternate strategy which will allow you to focus only on those parts of your business that you like the best.

For many advisors, the best strategy for their later years might be to slow down, rather than retire outright. Offloading responsibilities can help a planner enjoy staying in business longer than they imagined. Outsourcing the activities that you enjoy the least could save you from the burnout that many veteran advisors face.

Rather than making a decision to abandon your business, you can evolve your business. If advisors are doing everything themselves; conducting annual client meetings, managing money, performing mutual fund research, portfolio construction and monitoring, handling ongoing administration and back office functions, it’s no wonder that many feel burned out.

With that in mind, it’s worthwhile to consider outsourcing as a way to free up time and bring outside expertise into the practice. These considerations can range from the delegation of a portion of the investment management function for some clients, to delegating all facets of the investment and administrative roles for all clients.

Working with a third party provider to handle everything from portfolio construction and management to rebalancing, compliance, research and back office support has been a fast growing trend among advisors over the past decade. Before choosing an outsource supplier, consider the following:
Look for providers that share your investment philosophy
Determine all fees and costs
Confirm advisor and client account minimums
Find out who is the firm’s custodian
Ensure the technology is easy to use and integrates with your structure
Consider the ease of transitioning in and out of the plan
Evaluate the advisor and client logistics to change to the new business model

This is where Transcend can help out. We can free up your time so that you can focus on advancing your business to where you want it to be. We can be an extension of your office, handling your investment and administrative needs such as determining asset allocation, researching investments, selecting portfolio managers, and due diligence. On the administration side we take care of trading client accounts, managing client cash needs, managing fee based billing and reporting, as well as providing regular investment and performance updates to clients. Transcend will work with you to customize your service experience so you can work as efficiently as possible.

While the process of outsourcing can be a challenging one, the objective is to free up your time and energy so that you can focus on the activities you enjoy. By outsourcing these responsibilities, not only will you reduce your paperwork, but you’ll gain time for yourself, your family and the rest of your business.

Financial firm rolls out new fund under performance-based fee model

Businessman and businesswoman discussing at office with laptop on desk.

Businessman and businesswoman discussing at office with laptop on desk.

Financial firm rolls out new fund under performance-based fee model Investors seeking for yield away from a bond or guaranteed investment contract (GIC) now have another option, thanks to Transcend Private Client’s new offering, the Multi-Strategy High Yield Fixed Income Fund.

The group’s new fixed-income fund will follow its recently launched Pay-for-Performance fee model, where clients pay a nominal amount unless performance results are above the industry benchmark.

Transcend CEO Chris Ambridge said the fund affords investors with a more secure avenue for alternative investments. Additionally, the new fixed-income fund is expected to spur better yields than what bonds and GICs can potentially make.

“We are offering Canadians a reliable fund with low risk, based on our company philosophy that you only pay if the results are better than the benchmark,” he stressed.

Aside from being Canadian-centric, the fund will also be diversified in terms of assets through active management. It will invest in corporate bonds, convertible bonds, preferred shares, income trusts, REITs, mortgages, secured real estate and infrastructure projects, as well as alternative investment strategies and hedge funds.

Ambridge said investors who subscribe to the fund will not incur additional costs above basic management expenses. This will be the case until the fund outperforms the benchmark, which is 50% of both the FTSE Short Bond Index and the FTSE Mid Bond Index.

“We have very open conversations with advisors and investors on our track-record, why our company fee model defies the norm and why our service beats the competition,” he said.

Delegating for Success

Transcend President Chris Ambridge, CFA explains how advisors can lessen their workload but boost profits at the same time

If an advisor were to rank their key responsibilities, keeping clients satisfied surely figures at the top of that list. It’s a priority that does not receive enough attention according to many in the profession, as regulatory pressure has meant their focus is often diverted elsewhere. Provisus Wealth Management’s new investment platform Transcend, seeks to ease that burden, allowing advisors to concentrate on adding value for clients through financial planning and tax assistance.

“We can help advisors transition from their existing business structure and focus on financial planning as opposed to compliance, administration or trading,” explains Chris Ambridge, President of Transcend. “It is outsourcing the portfolio management to focus on additional planning services and client retention.”

Transcend’s research shows that a financial advisor’s workload usually breaks down to a 60-40 split between servicing clients and portfolio management/compliance. Using this program means that 60% can increase to 100%.

“If an advisor wants to slow down, but still wants to keep all their clients, we are offering an alternative to the current structure,” says Ambridge. “Essentially it is 40% less work, 40% more pay and they can focus on what makes them better advisors.”

In these fee-conscious times, clients are asking a lot more of advisors and those unable to meet increased demands will be left behind, Ambridge points out.

“Advisors need to adapt or become irrelevant,” he says. “Advisors that fail to react will face severe challenges to their future profitability and growth. Competition will force their hands. To compete successfully advisors must differentiate themselves, otherwise they will have to compete on price to win or retain clients.”

Catering to a wide range of retail investors, it now has $440 million in assets under management and has been selected as one of Profit 500’s Fastest Growing Companies in each of the last three years. Transcend is an offshoot of the Transcend Separately Managed Accounts Program that has proven to be a real success for Provisus. The new entity is especially noteworthy as it offers a pay-for-performance model within its equity pooled fund suite. It’s a novel approach, and one the company’s president believes really sets it apart from its competitors.

“With the advent of CRM2 and more of an onus on cost and performance, we need to put our money where our mouth is,” he says. “If we don’t beat the benchmark, then we won’t get paid. Ask any other money manager out there if they are willing to issue the same edict – I don’t think you’ll find many.”

Under this structure, clients pay a base fee of 0.25%, which covers administrative costs for the equity funds used in a client’s portfolio. If a fund performs better than the benchmark, a performance fee equal to 20% of the fund’s performance above the benchmark. Of course, it will be tougher than others to achieve that target, 2016 being a case in point.

“We were essentially around the benchmark for most of the year, and a little under at the end,” Ambridge says. “We can take hiccups like this though because over a long-term basis we add value.”

Fees can be such a drag: Wealth president on needed reporting reform

Mutual funds, despite being the investment vehicle of choice for millions of Canadians, are regularly underperforming – and fees are the culprit, says a wealth management president.

Chris Ambridge of Provisus Wealth Management says that many low-fee options aren’t always what they seem, as reporting doesn’t take the drag from fees into account, and that greater clarity is needed for investors. “A lot of people look the simple costs that they have to report, like MER, but there are many costs that go beyond that and it’s difficult in the instances of mutual funds to see exactly what they are without a lot of research,” he says.  “The information is there, but you have to dig for it as an individual.”

In Provisus’ monthly insight report, he points to the new SPIVA Canada Scorecard approach developed by the S&P Dow Jones Indices, which reports on the performance of actively managed Canadian mutual funds, rather than that of their benchmarks. The takeaway, the report argues, is that “fees are often the difference between owning a yacht and dreaming about one.”

“The cost of owning investment vehicles, including many ‘low fee versions, needs to be understood in terms of investment returns because the underlying fees are also a drag on investment performance,” it states.

Ambridge adds that additional disclosure is important, especially as new CRM2 rules are to be implemented this week.

“Most clients are at a loss to say, ‘Well, how did I do over five years?’ or ‘How did I do compared to a benchmark?’- and that’s where clients are going to be seeing things in the six to nine months that will hopefully open their eyes and allow them to make a decision that it’s time, perhaps, to explore other options,” he says.

However, it’s up to advisors and portfolio managers to take a transparent approach, and educate investors on their options and the true impact fees are having on their returns.

“I would like to think so but Canadians are still reliant on their advisors, and that’s a good thing at this stage,” he says. “But it’s a matter of education, being aware of alternatives out there, the term we like to use is, you have to overcome inertia. Clients have to be convinced there’s a reason for change and then they go out and change it.”


by Penelope Graham 

13 Jul 2016


Link to article: http://www.wealthprofessional.ca/news/fees-can-be-such-a-drag-wealth-president-on-needed-reporting-reform-210331.aspx

New pay-for-performance funds to offer investors something different

A new pay-for-performance structure has been introduced for pooled funds in Canada – and it’s putting a wealth management firm’s money where its mouth is. Provisus Wealth Management, which has been in business in Canada for over a decade, has launched a sister company named Transcend, which will offer a first-of-its kind performance structure.

“The operative word is new, because what we’ve done doesn’t currently exist in Canada,” says Chris Ambridge, CEO of Provisus and Transcend. “We decided that with the advent of the ETFs and the robo structure, people are looking for real value for the money they pay, so we decided to give them something entirely different.”

Transcend has driven down the costs of their pool funds to their operating costs, charging only 25 basis points to clients in order to cover the administration, trading and legal requirements of the funds.

“For us to earn money, what we have to do is drive value-adding performance, or beat the benchmark that we’ve assigned,” says Ambridge. “Every fund has a pre-set industry standard benchmark and what we will do is – clients get the performance they get up to the benchmark, so no fees will be charged. But once we outperform the benchmark, we will take a 20% performance fee on the value add that we deliver.”

He adds that with pending CM2 regulation in store for mutual fund fee structures clients will start looking to more transparent options as they realize just what they’re paying for.

“Bringing these funds to these fee levels has clearly been at the back of our minds with CRM2, because as clients for the first time in a lot of instances truly start to see what they’re paying, and see what they’re actually getting in terms of performance, we suspect there’s going to be a lot of people questioning what they’re in, and trying to determine if change is necessary,” he says.

He adds that Transcend’s service model will provide lower net worth clients with the same level of service as higher net worth investors – an important feature as robo advisor models become more prevalent among investors.”There’s always in every instance, a portfolio manager who will discuss over the telephone with the client their goals and aspirations, risk tolerance, profile, and produce for them a customized investment policy statement for that client and their money types,” he says.

“It’s exactly the same functionality, service and support that we give to our much wealthier clients so they’re taking that high-net worth solution and giving it to everybody.”


by Penelope Graham

16 Jun 2016


Link: http://www.wealthprofessional.ca/news/etfs/new-payforperformance-funds-to-offer-investors-something-different-208942.aspx