Clients expect more from their advisors

By Susan Yellin | November 18 2013 06:42PM

Higher client expectations, the increasing pace of regulatory change, advisor succession planning, consolidation and globalization are the issues and trends Canadian mutual fund manufacturers and distributors are keeping in their sight paths these days.
Investors continue to rank mutual funds above a number of other investments in terms of the confidence they have that the product will help them achieve their financial goals and they trust advisors to give them sound advice, confirmed a recent study conducted by Pollara for the Investment Funds Institute of Canada (IFIC).

On the flip side, though, are those clients who feel they should be getting more from their advisors, Bill Charles, senior vice president, Investors Group Financial Services Inc. told the recent IFIC conference.

“Client demands today are greater than they have ever been. They expect a higher level of service…and they truly want to know that you care in helping them reach their financial goals,” Charles said.

Specifically, investors want problem-solving as well as products, said Manny DaSilva, president and chief compliance officer with Canfin Magellan Investments Inc. While clients had previously been happy with advisors looking after just their investment needs, the lines have blurred and they now want advisors to help with the more overall financial needs of their lives.

As well, clients buy the expertise of the advisor and not necessarily a specific product or firm, Charles said, and want to know how much they are paying their advisors and exactly what they are getting for their money.

The Client Relationship Model amendments – also known as CRM2 – is a “game changer” in how advisors service their clients, said Charles. Advisors now have to provide a comprehensive, written plan for their clients to justify value over the cost and CRM2 may change the way advisors run their businesses, he said.

“It’s game on for transparency,” he said. “If advisors are not providing full and complete financial planning they will need to evolve to that or risk becoming extinct.” Studies show that those with advice are far better off than those without and “advisors have nothing to apologize for. However, providing full and complete financial planning and showcasing the value they provide will be absolutely key for their futures.”

Distributors are more aggressively using technology and automation and added on to greater compliance and higher transparency brought about by CRM2 and they all point to higher costs at a time when revenues are static, said DaSilva. Dealers may soon be in the position where they hire more representatives from other dealers, acquire new dealers or merge. “It’s a juggling act,” he said.

This means it’s up to dealers to get more efficiencies from their business models, said Michael Walker, vice president and head, mutual funds distribution & RBC financial planning at RBC.

The industry’s preference is to reduce costs by removing complexity in how investments are currently delivered and instead reinvest in their businesses going forward, said Walker.

And while there is consolidation on the distributor side, the same is also likely to continue on the asset management side driven by an appetite for scale, broader distribution and access to top talent, said Christopher Hodgson, group head, global wealth management at Scotiabank,.

Scotiabank did some consolidating of its own recently, with its acquisition of Dundee Wealth and a 37-per-cent interest in CI Financial.

At the same time, Hodgson said he hopes there is still room left for independents.

“When you look at consolidation, I personally believe it is going to continue in the future. But that being said, from the client perspective, I think it’s important that we have choice and competition. I would hope there is a place in the market for independent asset management firms that have unique asset management capabilities. I also think it’s important to have a choice of suppliers/distributors.”

Scotiabank has also made a name for itself in Latin America and Asia where there is a rapidly expanding middle class, similar to the baby boomers, but on a much larger scale, said Hodgson. On top of that, some countries have introduced compulsory pension programs, providing good long-term business opportunities.

Meanwhile, Canada is considered a good and growing market for companies outside this country.

For example, PIMCO Canada, which entered Canada in 2004 from the United States, said it is trying to make a distinctive footprint here through its sales force business model.

Many companies have large sales forces and call on as many advisors as possible, and while that is an approach that works, PIMCO Canada has taken a different tack, said PIMCO Canada president Stuart Graham.

PIMCO, which combines Canadian bonds with other fixed-income sectors, uses a smaller sales force, targeting fewer but higher-potential advisor relationships, making them a kind of extended sales force.

No one earns a commission at PIMCO on either the retail or institutional side, but rather uses a team-based compensation model tightly aligned with the firm and client profitability, or what Graham called a “culture of collaboration.”

Hodgson said that despite all the issues, he predicts a decent future for the industry.

“While there are certainly headwinds for the industry here in Canada, I believe we are moving back into a period of growth, lower than in the past, but nevertheless, growth.”