Many financial advisors are wary of discount brokerage firms and discourage their clients from using them. These advisors fear their clients will bring serious harm their portfolios, says Connie Stefankiewicz, president and CEO of BMO InvestorLine Inc., a division of Bank of Montreal in Toronto, and some advisors think their clients may leave their business entirely.
But as the tech-savvy millennial generation comes of age and retiring baby boomers have more free time, the number of people opening discount brokerage accounts — in addition to their advisor relationships — will increase. “We’re going to see clients,” Stefankiewicz says, “who are opting to have multiple relationships with an organization.”
Opportunities for advisors
So, a client can have an advi-sor relationship and a discount brokerage account, Stefankiewicz says. But fear not: there are opportunities for advisors to benefit from those dual clients.
Discount brokerages, such as InvestorLine, Questrade Inc. and Royal Bank Action Direct (a division of Royal Bank of Canada), all of which are headquartered in Toronto, allow clients to open an account and build a portfolio themselves without a financial advisor. Account fees are determined by the number of trades the client makes or by the amount of money held in the account.
Advisors have several misconceptions about discount brokerages. The first is the belief that clients will be tempted to move all their assets to the discount account.
Typically, that is not the case, Stefankiewicz says. As long as clients feel they are receiving value from their advisors for the fees they pay, and there are no underlying tensions, they will leave assets with their advisors.
Another misconception is that discount brokerages are for clients with few investible assets, Stefankiewicz says, or for those trying to turn a quick profit with “play money.”
In fact, Stefankiewicz ar-gues, the investor profiles of Investor-Line clients often mirror those of clients who work with advisors, both in asset size and financial plans.
InvestorLine clients have long-term goals and invest assets for RRSPs and other registered plans — clearly not “play money” vehicles — through the discount brokerage.
Advisors also often worry that clients will try to get free advice for their discount investments. Although it is unlikely that a client would try to gain advice from an advisor for a discount brokerage account on the sly, Stefankiewicz says, if you think that is the case, you should think carefully about whether you should be working with that client.
Reluctant investors
If your client already has an account with a discount broker, view it as an opportunity to strengthen your business relationship, says Dan Hallett, vice president and director of asset management with Oakville, Ont.-based HighView Financial Group.
As long as your client isn’t “betting the farm,” Hallett says, there’s nothing wrong with encouraging clients to “scratch their itch” to pick stocks. Advisors can even discuss the discount brokerage account with clients during meetings.
You should, however, be careful not to be too specific about suggestions, Stefankiewicz warns, because you wouldn’t want to be held responsible for decisions made for the money in that account.
Hallett believes most discount brokerage users are reluctant do-it-yourself investors. “They’ve gone that route,” he says, “because they’ve tried to find a good advisor and it just hasn’t worked out.”
Having said that, discount brokerages can be a source of new clients. These companies often hold educational seminars and workshops for their inves-tors, Hallett says. He recommends introducing yourself to a discount brokerage firm’s regional manager and offering to appear as a guest speaker at one of those events. IE