Words from the wise

Investment Executive has talked with several respected veterans of the financial services industry who have managed to thrive and grow their business through all kinds of market and economic cycles – including numerous corrections, crashes and recessions. These advisors have found various ways to enhance the services they offer their clients and build strong bonds that can withstand dangerous currents.

“Anyone who has been in business a couple of decades has seen cycles come and go and players come and go,” says Sandra Foster, president of Toronto-based Headspring Consulting Ltd. “This translates into client advice based on solid experience.”

Joanne Ferguson, president of Toronto-based consulting firm Advisor Pathways Inc., acknowledges that keeping clients on course is challenging. But, she says, advisors with a rational perspective can bring comfort to their clients during difficult periods and help them deal with their emotional reactions to market downturns.

“What advisors can bring to the table,” Ferguson says, “is experience, knowledge and perspective on the ups and downs of the markets.”

Following are profiles of three veteran financial advisors who offer their sage observations about what they’ve learned in the trenches and their methods for business-building. This series will continue with two more profiles in upcoming issues.

– Building trust

Jim Rogers, the now-retired founder of Vancouver-based Rogers Group Financial Ltd., is a 40-year veteran of the financial services industry. From his perspective, the single biggest factor in building lasting relationships with clients is trust – and that is not something that happens by accident. Trust must be established over a long period through attention to a variety of elements that affect the client’s attitude and commitment, consciously or unconsciously, to you.

“Trust is difficult to build and it takes time,” Rogers says. “But you can lose it inside of the first few minutes with a client. It grows over time through a series of countless things done consistently and carefully.”

Your office must be clean, comfortable and easy to navigate for retired people, who make up a growing portion of today’s financial advisory client base. Your staff must be trained in giving clients a friendly greeting, hanging up their coats and offering them a beverage. Whatever the client chooses to drink should be noted and recorded for reference for the client’s next visit.

“If you show you care about the little things,” Rogers says, “it indicates you care about the big things.”

Never keep a client waiting more than a couple of minutes, Rogers adds, because your client’s time is as important as yours.

When meeting with your clients, Rogers advises, always be dressed in formal business attire. “Airlines insist their pilots wear uniforms for a reason,” he says. “A suit is going to inspire a different response than a T-shirt.”

In your dealings with clients, personalize all communication. Rogers recommends including a handwritten note with every quarterly statement, addressing each client by his or her name or nickname. The statements themselves should be carefully designed to give a clear update of the client’s situation in a consolidated report.

Rogers had made a habit of regularly sending photocopied newspaper and magazine clippings to his clients, each with a short, handwritten comment.

“I like people to know I am thinking about them and paying attention,” Rogers says. “It takes time to do, but those little notes can set you apart from what the other guy is doing.”

Take extra care in developing a detailed investment policy statement (IPS) with your clients that goes far beyond the bare minimum of information required in a “know your client” form. Ask specific questions to determine each client’s true risk tolerance and how they would feel during various loss conditions.

Take the time to explain how various asset classes perform in the long term, and that long-term numbers are merely averages. Explain that there will be some years in which your clients will love their results, and others in which they will hate them. Your job is to make sure your clients stay on course; you can refer back to the goals established in the IPS to keep your clients on course when markets are volatile.

Says Rogers: “Your job is to be a ‘professional advisor,’ to hold the client’s hand in tough times and help them to act in their own best interests. It’s a long-term strategy. And if you’re looking at the [returns] all the time, you’re not an advisor; you’re a stock player.”

Acquire the professional designations that allow you to sell a broad selection of financial products, Rogers says, including mutual funds, securities and insurance.

View yourself as a “financial doctor,” he adds: “Do a lot of strategic planning and provide prescriptive advice. You will need access to the products to fill the prescription. If you have only aspirin on your shelf, you may be able to figure out the problem but you won’t be able to solve it.”

– Tax efficiency

John Horwood, director of wealth management with the Horwood Team, which operates under the Richardson GMP Ltd. banner in Toronto, has found an effective way to offer value and increase returns for clients: by offering innovative tax strategies.

As a chartered accountant, Horwood is able to devise myriad interrelated strategies for managing wealth in a tax-efficient way. An important part of this process is to communicate these strategies to clients’ existing tax advisors in a co-operative manner.

“I am an accountant,” Horwood says, “so I think like one. When rates of return on investments are low, taxation issues come into sharp focus. The idea is to get the bottom-line return close to the top line. “

Horwood’s strategies revolve around the “three Ds” of taxation: defer, disguise and divide. He estimates this combination can add 2% to a client’s annual investment returns, which, in these days of faltering stock markets and low interest rates, he says, is a “clear and tangible benefit.”

“There are variables that an advisor can and can’t control,” Horwood says. “With those we can control, we get both hands on them. Minimizing taxes is critical.”

Horwood also assists with “strategic philanthropy,” making the most of tax rules to get “remarkable charitable results” for those clients who have built their businesses and investment assets and are now thinking about estate planning.

One of the strategies Horwood uses for deferring taxes for his clients is the use of fund products sold by Toronto-based NexGen Financial Corp. These products allow clients to convert income paid by any of their funds to tax-efficient capital gains or dividends, or to defer the income entirely until a later date. Horwood also devises strategies in which corporations, holding companies and trusts can be used to house certain assets and receive income, reducing the client’s income-tax rate by as much as one-third while protecting assets from lawsuits in the case of bankruptcy or family breakdown. In addition, he uses flow-through shares, which offer tax advantages and can be suitable for high-income clients.

“You can tailor strategies to fit the various structures,” Horwood says. “It’s a beautiful symphony. The advantage to clients is tax-deferred growth in their working lives and tax-efficient income in retirement. We work extensively with accountants to implement these strategies, often spending more time with the accountant than with the client. If you don’t work as a team, things can fall through the cracks.”

Horwood often reviews his clients’ income tax returns after their accountants have finished to ensure everything has been properly recorded. This review also can help Horwood spot assets that aren’t held with his firm.

“There is a ‘discovery’ aspect to reviewing returns,” Horwood says. “Sometimes, I will see investment income on a tax return that I didn’t know about and is not being handled efficiently tax-wise.”

By suggesting how to reorganize assets and income more efficiently, Horwood often attracts more assets from the same client, as well as winning new business through referrals from that client’s accountant.

“You can either invest your time prospecting,” Horwood says, “or you can better serve the clients you already have, ending up with happier clients, bigger accounts and more referrals.”

– Know your niche

Five years after Tina Tehranchian became a financial advisor in 1991, she did an analysis to determine who her top 10 clients were. The criteria were not just client assets but her comfort level in dealing with each client and the potential for growth that client offered. As it turned out, eight of the 10 were business owners. With a flash of insight, Tehranchian realized that serving entrepreneurs was her niche.

“I own my own business and I understand the challenges a business owner faces,” Tehranchian says. “Their needs go far beyond investments.”

Today, Tehranchian, now a branch manager with Assante Capital Management Ltd. in Richmond Hill, Ont., manages the accounts of about 300 families, most of them business owners. Many of Tehranchian’s clients are approaching retirement and facing such complex issues as selling their business, developing a succession plan and creating an estate plan for their family.

Tehranchian says her role in helping her clients meet their financial goals extends far beyond investment performance. She applies her knowledge of financial planning strategies and products to the specialized needs of small-business owners.

“It can be tedious talking about markets all the time,” Tehranchian says, “especially when performance is suffering. Having expertise in insurance and other planning issues can round out an advisor’s offerings. The idea is to be the [chief financial officer] for the business owners’ personal finances. And [my clients] understand that concept.”

Tehranchian’s job is to help entrepreneurs diversify and protect their financial wealth during their working years and then extricate themselves from their businesses as they get older. Tehranchian often works in tandem with her clients’ accountants and lawyers to ensure the most appropriate tax and estate planning strategies are being employed and to help with the implementation.

“An entrepreneur’s business can be a huge asset, and figure significantly in retirement,” she says. “Succession planning is time-consuming for advisors, but it also can lead to other business.”

The key to Tehranchian’s success is in knowing the specific financial challenges faced by the members of her target market, as well as knowing the tools and strategies that can be applied to overcome those challenges. Business owners typically do not have the health-care and other benefits enjoyed by employees of large corporations, such as health and dental plans, company pension plans or life and disability insurance. Tehranchian can recommend products and strategies to address these and other needs.

“Everything from retirement planning to risk-management issues must be examined,” Tehranchian says. “Funding must be in place if there’s a buy/sell agreement with a business partner. Life insurance is an important tool that can be used in a number of areas [with business owners].”

Tehranchian also helps with staffing issues. She has helped many entrepreneurs set up group benefits plans for their employees, as well as individual pension plans. Tehranchian also helps to set up health spending accounts (HSAs), which are special savings accounts into which money is deposited to be used exclusively for health issues. HSAs can be used for everything from dental expenses to eyeglasses.

“Insurance protection and estate-planning needs are big drivers, but there are also financial planning and tax-planning issues,” says Tehranchian, who had worked in the life insurance business before moving to wealth management. “You can spot possible planning strategies more easily when you’re well versed in insurance. And helping clients meet so many needs makes the relationship multidimensional.”

Tehranchian also offers assistance in areas that pertain directly to running a business, such as cash-flow management, debt repayment and consolidation, and leveraging strategies. With Tehranchian’s wide network of contacts, she sometimes can refer clients to competitive sources of financing. And by helping with both sides of the balance sheet – assets and debt – she can enhance her value to her clients.

“By offering my services in so many areas,” Tehranchian says, “I have the opportunity to become familiar with every aspect of a client’s life. I learn about their parents, their children and their grandchildren, as well as their health concerns, the charities and causes they support, and how they spend their leisure time. Everything is relevant, and all aspects of wealth planning work together.” IE

This is the first instalment in a three-part series on the strategies of veteran financial advisors.

© 2012 Investment Executive. All rights reserved.