Advisors should not confuse the regulatory emphasis on fee transparency with a move to low-cost service, according to Kurt Rosentreter, a Toronto-based financial advisor with Manulife Securities, who spoke at the Canadian ETF Association’s annual conference in Mississauga, Ont. on Wednesday.
“None of us needs to be the cheapest advisor on the street. The people that want to trade for 10 bucks, you just go there and do that, we all know that,” said Rosentreter. “The reality is that you should not run from your value proposition because you deliver good service and good advice.”
With the coming of annual compensation reports in July 2016 as mandated by the second phase of the client relationship model (CRM2), an advisor’s goal should be to determine what that advice is worth and what the client will receive in exchange.
Rosentreter’s value proposition revolves around a three-point formula that details the services he provides such as financial and estate planning; communication standards regarding when and how often clients will see and hear from him; and performance, as in how he educates his clients on their investment results.
A multi-pronged approach is needed in the wake of CRM2 because basing advisor value on performance is not going to cut it anymore, according to Alan Fustey, managing principal and portfolio manager at Index Wealth Management in Winnipeg.
“If you’re basing [your value] only on performance, what is essentially going to happen is you’re going to be vulnerable to losing clients whenever you underperform,” he told the audience.
Clients have to understand that the value advisors provide is equal to or greater than the fees listed on upcoming compensation statements, he added.
And it seems that many Canadians still do not understand how their advisors are paid, according to research conducted by 21st Avenue Partners, a Toronto-based consulting company that works with financial services firms.
The company asked 2,000 Canadian investors how much they expect to pay for advice. The responses tended to be that investors believed they did not pay anything or that they were unaware of how their advisor was paid but that they would be upset if it was quantified.
When respondents were provided some numbers that would come from a deferred sales charge or a fee-based account, the majority of respondents were outraged, said Andrew Dorrington, a partner at 21st Avenue Partners.
Fustey said he attracts those investors who become frustrated with their former advisor’s lack of communication regarding their fees. Often, his clients are not only getting that transparency by signing with him but also fee savings and a value-added process, he said.
Rosentreter ended the discussion with some advice for advisors: take this summer to segment your clients and determine what services are aimed to each level of clients. For instance, which clients will receive personal visits and which ones will be expected to come to your office?
“I literally track how much time I put into client relationships,” he explained. “I know what I need to make to cover my cost.”
It is the advisors who do not do anything to reach out to clients and simply sell products that stand to lose from CRM2, he said.
Editor’s note: Investment Executive held a draw at the conference. The winner of the draw for a $100 gift card from Petro-Canada is Colin Tieu of Manulife Securities in Mississauga, Ont.