A Toronto company is looking to play matchmaker between clients seeking lower-cost investing from fee-based and fee-only advisors. Beechwood Advisor Solutions – founded earlier this year by Michael Pye, formerly an advisor and senior sales manager for a national fund company – looks for appropriate fits between investors and fee-based advisors.
Pye says that the final implementation of the client relationship model, phase two (CRM2), with its emphasis on clearly stated investing costs, is likely to create a rising demand for matching-services such as Beechwood. By the middle of next year – and, in some cases, earlier – clients will be receiving statements with most of their investment costs stated in dollars and cents.
“[Clients are] going to start to see a big, bold number that’s going to say, ‘This is what you pay for your advisor’,” says Pye. “We’re not saying that person isn’t right for those investors, but they may want a second opinion [and] we also want to give them a third, a fourth, fifth and sixth opinion.”
The shift toward fee-based advice is a trend that’s been building in the financial advice industry for at least a decade. As the range of investing products continues to expand, including low-cost exchange-traded funds, and the costs of investing become more transparent, more clients are investigating the fee-based model as an alternative to commission-based advisor compensation. In fact, research from Investment Executive’s 2015 Advisors’ Report Card found that 49.5% of overall advisor revenue came from fee-based, asset-based and fee-for-service models vs 21.3% from transaction-based compensation.
Following other industry trends, Beechwood will explain and even recommend online asset-allocation services (a.k.a. robo-advisors) to clients if that is the best fit. Says Pye: “[Online services] are something that we don’t’ want to exclude because people do have questions about them.”
For most Beechwood clients, however, the initial draw is the prospect of lowering the amount that they pay for the services of a financial advisor.
For example, a table on Beechwood’s website estimates savings that could be generated over time by lower fees. Pye also tries to negotiate fees with candidate advisors to see if a better offer is available for clients.
Pye also notes that although fees generally are foremost in investors’ thoughts, the lowest price is not the only driver for finding a match. Instead, Beechwood proposes several candidates to demonstrate why certain advisors may charge more based on the level of service they provide.
“The fee concept is catchy, and that drives people in,” says Pye. “But, ultimately, we’re trying to provide them with the best value.”
The first step for investors working with Beechwood is to fill out a questionnaire, which can be done online, by phone or in person with Pye. This questionnaire asks for basic financial information, such as investible assets and personal income, as well as the specific products and services the potential client expects an advisor to offer.
Pye then searches through Beechwood’s database of about 400 advisors, each of whom has been vetted by Beechwood’s staff, for potential recommendations. (Advisors create a profile with Beechwood that outlines the advisor’s services and minimum asset requirements.) Should that initial search garner few or no matches, Pye will contact advisors or branch managers directly for potential candidates.
Once a few possible matches are found, investors will be presented with a description of the advisors’ business and their fees. Beechwood then arranges an introduction after an advisor is selected. Clients do not pay for Beechwood’s services; rather, a referral fee is paid by the advisor once a match has been made.
However, there is some skepticism about whether a private company for which advisors sign up to be matched with clients gives consumers a broad enough picture of the range of advisors available. Neil Gross, executive director of the Toronto-based Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada), says that such services should offer a comprehensive and standardized list of advisors – something that he questions whether a private company can do. Gross argues that matchmaking services such as Beechwood should be supervised or run by the public sector, which is likely to be more inclusive and to set objective standards for the advisors included on such a list.
“You’d have to start,” Gross says, “with having real standards that people have to meet – and that would require some regulatory definition of what the appropriate standard is of competency and professionalism, and who holds certification at that standard.”
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