Investment-management firms eager to win the business of time-strapped advisors would do well to pay attention to what advisors want: turnkey investment solutions, consistent management style and, above all, swift and reliable support services.

So say the findings of a recent study of certified financial planners entitled Understanding & Supporting the Planning-Oriented Advisor: Making your firm’s tools and resources count, a comprehensive report published last month by Vancouver-based Credo Consulting Inc. in partnership with the Financial Planners Standards Council. The research builds on the findings of a similar report released in 2004, The Support, Tools & Services Financial Planners Value Most, also published by Credo.

The more recent study has gleaned information in seven key areas: the advisor service model, advisors’ top challenges, investment product usage, portfolio construction, investment selection screens, level of demand for various services offered by asset-management firms, and the value of wholesalers.

Among the notable findings this year is the anticipated shift to packaged products, including mutual fund wraps and separately managed accounts. The study reveals that 73% of advisors with CFPs who use such products say they plan to increase their usage of them over the next two years.

Driving that growth are CFPs at the credit unions (87% plan to increase their usage of wraps), Mutual Fund Dealers Association firms (76%) and banks (72%).

Given the fact that respondents identified time management as their single biggest challenge, this product choice doesn’t come as a surprise to the study’s co-authors, Cynthia Enns and Jennifer Carver Wells.

Wells says a big part of wraps’ appeal is that they have a lot of the turnkey features advisors are looking for, including built-in due diligence, built-in risk parameters for portfolios and automatic rebalancing.

“Advisors are feeling overwhelm-ed with demands,” she says, “and anything that can download more routine tasks will help them focus on the more holistic aspects of their business, such as client service and prospecting.”

Indeed, the shift to managed products is industry-wide. Figures released by Toronto-based research firm Investor Economics Inc. show that in 2002, managed assets stood at $192 billion in Canada, compared with $402 billion in stand-alone funds. By December 2005, managed assets had risen 87% to $359 billion, while regular investment funds had gained only 35% to $545 billion.

Still, the Credo study shows that CFP advisors may be making the transition to wraps at a slower pace: while their usage of mutual fund wrap products saw a 28% surge since 2004, there was no change in the “depth” of their usage, which held steady at 22% since 2004. Depth is measured by percentage of client assets.

Part of CFP advisors’ hesitation may be at least partially related to how they perceive their services, says Wells.

“Advisors who define themselves as money managers or hands-on portfolio managers felt that wrap programs had limitations,” she says. “They feel that it takes away from their value-added service. One advisor even said, ‘How do you write one ticket for a $1-million client?’’’

Wells and Enns are quick to add that the rising popularity of packaged products doesn’t indicate the demise of stand-alone funds. In fact, they’re alive and well: non-wrap funds still account for 54% of clients’ assets for 88% of the advisors polled, and more than half of those advisors said they would increase their usage of such funds over the next one to two years.

BETTER CUSTOMIZATION

“The core products continue to serve as the foundation for asset-allocation decisions, with the more specialized products becoming satellite choices to add personalization for clients’ portfolios for many advisors,” says Wells.

Again, the continued inclination of advisors toward mutual funds can be attributed to how they perceive their services for clients: stand-alone funds allow better customization and usually have a longer track records to put investors at ease. The versatility of compensation structures, too, is a big draw for advisors who may be looking for various ways of getting paid, depending on the stage of their careers.

Perhaps not surprising, hedge funds took one of the hardest hits in terms of usage since 2004, a fact that Enns attributes to the “stay away” factor resulting from the 2005 debacle at Portus Alternative Asset Management Inc. Results of the 2006 study show that only 35% of current users plan to increase usage of hedge funds, compared with a whooping 82% in 2004. This year, almost a quarter of respondents plan to decrease their usage of such funds — a sure indication that bad news and scandal can have immediate negative effects on investor and advisor behaviour.

@page_break@Another notable finding in the recent study is that the anticipated shift to an asset-based compensation model was less pronounced than expected. Although the 2004 study revealed a strong inclination toward asset-based compensation, this shift failed to materialize in the 2006 study, Enns notes.

“There still remains a high indication that advisors are looking to transition their books to an asset-based model. But, in actual fact, the strength of the markets in the past two years made advisors hesitate to move away from the commission model,” she says.

The study, which hasn’t been released to the public in its entirety, is based on the responses of 1,500 CFP-designated advisors, a sample that serves as a proxy for the “planning-oriented advisor” in the Canadian marketplace, says Enns. Advisors were surveyed from various investment channels, including banks, credit unions, financial planning firms, brokerages, investment-counselling firms and insurance agencies.

The results are accurate within +/-2.45%, at a 95% confidence level. IE