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Independent advisors are finding their way in a changing business environment

By Susan Yellin | June 22 2018 07:00AM

It’s often said that the only thing constant in life is change. And for many advisors the financial services world has been in an ongoing state of flux with increased regulations, major changes in technology and unending consumer demands. Yet the investment industry and independent advisors have, for the most part, stared down these challenges and for those who so chose, embraced them.

Take robo-advice for example. It was first seen as a major disruptor for the industry as a whole and for the average fund advisor when it appeared a few years ago. Yet many are incorporating these platforms into their everyday businesses.

Companies like Wealthsimple, BMO SmartFolio and Nest Wealth are commonplace now, attracting many do-it-yourselfers and younger people but also those with more complex portfolios. To help out advisors, Wealthsimple for Advisors looks after managing compliance, investment management and client information while providing personalized dashboards for each client. Under this scenario, the advisor focuses on the client relationship rather than administration.

Robo-advice

Recently, the insurance industry made its first foray into robo-advice, with the launch earlier this year of PPI Valet by managing general agency PPI and robo-advisor firm WealthBar Financial Services Inc. The goal is to provide these advisors, who are only licensed to sell insurance from PPI Advisory and PPI Solutions Inc., with the ability to offer professionally managed investment portfolios with all kinds of products.

PPI Valet launched in January and has since signed up more than 300 active advisors referring clients, said Keith Newhook, PPI Solutions national vice president for investments in St. John’s, Newfoundland.

At the core of this product is to give PPI advisors more time to devote to clients and increase their books of business.

“Introducing this to an advisor’s practice allows them to concentrate on…client relationships while a lot of the admin work and responsibilities are handled by the platform itself,” said Newhook. “It’s a really good combination.”

There are three PPI Valet platforms from which to choose: the first is purely passive ETF-based, the second is a hybrid combination of passive ETFs and active management private pools, and the third group is made up of 100% actively managed private pools.

Early client demographic information indicates the model is attracting not just younger people wanting low-cost planning and advisory services, but also more sophisticated clients with larger accounts, he said.

Newhook said it’s not a one-size fits all product since there are advisors who prefer to construct their own portfolios and rebalancing. PPI Valet has predetermined portfolios based on the risk tolerance of the client, freeing up the advisor to work with the client on the overall financial plan.

Newhook said he believes more of these advisor-based platforms will pop up over time. “I do foresee other MGAs partnering with a robo-advisor, or a robo-advisor with an advisor platform that they’ve built, so we’re pleased to be ahead of the curve here at PPI.”

Invesco Canada has designed AdvisorDUO, a product that has been designed exclusively for advisors to use with their new clients. The platform is aimed at helping an advisor’s current system compile all necessary information to open investment accounts, including a comprehensive goals-based questionnaire, personalized analysis and segmented offerings – all required by regulation. In the meantime, it frees up time for advisors to spend on client-focused, value-added services.

“One of our global priorities as an organization is to help advisors navigate this rapidly changing environment, and we believe advisorDUO is a step in the right direction,” said Aysha Mawani, vice president, corporate affairs at Invesco.

Since it was announced late last year, advisorDUO has signed up nine dealers with more in the review phase, said Mawani.

The Investment Industry Association of Canada (IIAC) sees the growth of technology as having a “profound impact” on how the investment industry is working now and for the future.

Ian Russell, president and CEO of IIAC, believes regulators have a role to play in finding a way to adapt regulation so as not to jeopardize investor protection but also to determine how fintech affects dealers’ practices and operations.

“This effort is likely to result in a greater reliance on principle-based regulation and the need to give auditors greater discretion and judgment in assessing compliance with the rulebooks,” Russell wrote in a recent letter to members.

He said IIAC supports regulators in coming together with industry to understand how current rules affect the evolution of advice and service and where there could be improvements.

Exchange traded funds

New investment products are also making a change in many advisors’ practices – with exchange traded funds (ETFs) probably having one of the biggest marks.

The first ETF, the Toronto 35 Index Participation Fund, saw the light of day at the Toronto Stock Exchange in 1990. Since then, the industry has grown to about $153 billion in assets.

One of the first providers on the Canadian scene, Invesco, launched its PowerShares ETFs in 2009. Invesco now has about $10 billion in ETF assets – including Power Shares, its Canadian-listed ETF business which launched in June 2011 and Canadians buying U.S.-listed ETFs, said Christopher Doll, vice president PowerShares sales and strategy at Invesco Canada.

Three main characteristics have been responsible for the ETF growth – they’re low-cost, transparent and liquid, especially when compared with mutual funds. Having said that, the Investment Funds Institute of Canada says 27 of its mutual fund members now offer ETFs.

“We are seeing demand by advisors for ETFs whether they get them directly from trading on the exchange – if the dealership is set up to do so – or they’re getting them through innovative structures where the mutual fund is buying the ETF as an underlying component,” said Doll. “In some way – either directly or indirectly – they’re getting the exposure that they seek and it’s helping them have that conversation with their investors.”

Many of Canada’s mutual fund dealers still do not have direct access to a securities exchange that can settle an ETF trade, although Doll said the final kinks are being worked out now. As well, regulators have brought in education and training standards to ensure that financial advisors who want to sell ETFs undergo minimum education and training standards.

“We’re in early days for that traditional financial advisor to get access to ETFs because there are a lot of structural issues behind the scenes that are preventing advisors to access them in the same way as securities-licensed advisors can,” said Doll. “[But] we’re a lot closer now than we have been in the past three or four years. There are a number of different providers that are working on a solution.”

Fee-for-service

For some advisors, change has come in the form of how they are compensated.

Jay Gangnes, head of Vancouver-based JR Financial, had worked for insurance companies for a number of years selling life insurance.

But despite doing well financially, Gangnes said he felt unfulfilled and wasn’t making the kind of impact he wanted to make as an advisor.

After putting together a financial plan for one client, he realized he liked the planning aspect but was stuck in an industry where selling a product seemed to supersede the plan.

“I started to recognize that the industry as a whole was broken,” said Gangnes. “The value was in the plan and not in the product, but the problem was we got paid to sell the product.”

At the time, there was increasing talk about transparency and disclosure of fees through CRM2, but clients had not yet begun to see that translated onto their monthly statements.

Gangnes decided to create more value for clients and create a fee-for-service structure. In the end, he said, clients could get the advice and the services they needed as opposed to products.

Six-step process

His firm has a six-step process to a financial plan and clients are charged a fee to go through it. While not all clients suit the new model, any money the firm manages is 100 per cent fee based, a scorecard is kept and the advisors make sure the clients are tracking their goals.

“My goal is to essentially fix a broken industry and turn it into a value-based, client-first model as opposed to a product-driven, commission-based model.”

In addition to changing its model, the firm is also planning on changing its name to Ocean 6 Wealth Advisory.

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