Creative commentary plus crafty composition

Being Advised

As we come toward the end of another calendar year, many Canadians will try to wade through a range of activities and other personal commitments.

Among issues historically many of us take stock of is our financial situation. It may involve looking to trigger capital losses to offset taxable income (gains), maximizing annual RESP or RRSP contributions (the latter with its 60 days’ grace period into the next year), and bigger picture issues such as how our investments portfolio has performed over the year, or even how effective our relationship is with our financial institution(s).

Several articles in the year end issue of The Insurance & Investment Journal look at the cost/benefit trade-off in having financial advisors, as well as evolutionary challenges in the business from the latter group’s perspective.

Dealing with an advisor:

With respect to evidence of the benefit of dealing with an advisor, a recent report reiterates an earlier study indicating that “an advisor has a positive and significant impact on financial assets”, including asset levels, contributing to “factors of discipline and increased savings that are crucial features associated with valuable financial advice”.

I can attest to this impact based on my own 24 years’ career in the business. I know, and was thanked for this by numerous clients, that my being there was instrumental in their building financial safety nets for them and their families.

Part of the contribution of an advisor is ‘hand holding’ during tougher economic times. Indeed, in the time frame between the two studies, clients who dropped their advisor lost about a third of their assets value, while those who kept their advisor saw assets grow by about a quarter. This is consequential.

Focus on fees:

A seemingly increasing number of stories in the financial press has focused on fees in dealing with advisors.

While the commentaries identify valid concerns, especially insofar as potential conflicts of interest in making recommendations, it should be noted that recently released statistics from IFIC (Investment Funds Institute of Canada) indicated that, with respect to mutual funds, some 95% of investors felt their advisor was providing sound advice, 88% stated the advice had a positive impact on their portfolios, and 91% saw value in fees they were paying to advisors.

Regulatory Environment:

Meanwhile, advisors face an increasingly regulatory environment, focusing on enhanced disclosure (intended to be more user-friendly), as well as operational pressures from the widening competitive climate. Also from personal experience, I can recall region meetings where additional layering of compliance, in one form or another relating to disclosure, was cogent agenda matter, usually translating to more work without remuneration for consultants,

According to the current president/CEO of Advocis, an organization promoting the financial services industry, “The regulatory oversight itself is becoming an industry in itself and that is problematic”. Part of the problem is a lack of input sought from the advisor side. One of the significant impacts, as seen from the regulatory regime in the U.K., is that “rising compliance costs will lead to a lack of advice”, as it becomes less worthwhile to deal with smaller asset based clients. Those investors will likely to have to fall to solutions such as government programs – not an appealing alternative.


Two implications, neither of which is beneficial to clients, are taking foothold:

  • Declining service levels: for instance, in the insurance industry, increasing focus on price is contributing to decreasing service for employee benefit plans, “at a situation now where some insurers may decide to sell direct to employers over the next year or so and cut out brokers altogether”; meanwhile, agents face enhanced difficulty in demonstrating sufficient value to employers with benefit plans, ‘cash-strapped’ by “the major rise in benefits costs primarily for certain life-saving drugs”
  • Declining levels of experienced advisors: the average age of financial advisors is nearing 60, while younger people are becoming less likely to enter the business unless an older family member is already involved; part of the issue is the amount of time required on administration required for compliance and other regulatory forms, not appealing to young generations brought up on social media with its limited need for record-keeping

Obviously, more to come…

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