What do clients get from the advisor they work with? Services provided can range from relatively straightforward investment advice, such as allocating funds to an investment portfolio or reviewing cash flows and budgets; to more complex tax, retirement, risk management and estate plans.Getty Images/iStockphoto
The financial advice market in Canada has undergone significant transformation in the past few decades.
Today, if you ask someone whether they have a financial advisor, they might tell you they work with a financial planner, an investment advisor, a wealth manager, a money coach, a portfolio manager or even an online robo-advisor.
It's a mixed bag. No matter what title they use, the person may be licensed to sell mutual funds, stocks and bonds, life insurance, or some combination of these products. Or, they may not be licensed to sell (and advise on) financial products at all.
What do clients get from the advisor they work with? Services provided can range from relatively straightforward investment advice, such as allocating funds to an investment portfolio or reviewing cash flows and budgets; to more complex tax, retirement, risk management and estate plans.
Any of these services may be referred to as "financial planning," although the client may or may not receive a written financial plan prepared with financial planning software, which itself is not held to any uniform standard.
At the same time, people working in the financial services industry in Canada can hold a dizzying array of professional designations, such as Certified Financial Planner (CFP) or Chartered Life Underwriter (CLU), which indicate they've passed certain courses – but these designations are separate from the advisor's registration with provincial and territorial regulatory bodies, which allows them to sell financial products such as mutual funds and life insurance.
The category of registration for an advisor, in turn, is what determines whether they must provide "suitable" recommendations to their clients, or whether those recommendations must be in the "best interests" of their clients (with the vast majority of people in Canada licensed to sell products held to the suitability standard, not a best-interests or fiduciary standard).
With all that said, the services Canadians receive from financial advisors will depend on whether or not the advisor is licensed to sell products and, if yes, which products and what kind of registration they have with regulators.
But what's the value that a financial advisor, no matter their title or category of registration, can provide for their clients? We asked two advisors for their input. They highlighted two dimensions: first, the importance of "knowing their client" and anticipating needs or issues; and secondly, the aspect of planning for the long term, informed by broader concepts of risk.
Mildred Davis, a certified financial planner certificant at Davis Capital Management in Toronto, says the value she provides is in the mindset she brings to her work. In fact she doesn't discuss product sales with a potential client until she's had three or four meetings with them first.
"I want to understand their goals and dreams, and develop a plan – that we review together with a red pen," she says. "I'm not paid directly for any of this, but it's part of the service I provide for the people who intend to work with me."
But more than her planning process is what she calls her "service orientation."
"As an example," she adds, "in February I had a client [aged 72] whose RRSP had automatically rolled over to a RRIF – and with the automatic rollover, the beneficiary designation on the RRSP didn't carry over to the new account. I knew this wasn't what the client wanted; she wants to leave her money to her children, not her estate. So when I got a call that she was in the ICU, I drove to her bedside in the hospital in another city and completed the paperwork to correctly designate a beneficiary on her account.
"Now," she adds, "No one would ever have criticized me if I hadn't done this. I'm not sure anyone would ever even have known. But I knew that my client, who was ill, didn't realize that the beneficiary designation from her RRSP would not carry over to her RRIF, and I knew that it was my job to ensure the paperwork got done. This has nothing to do with my designations, or my business model, or how I'm licensed or paid – but it has everything to do with how I service my clients, and that's a full-service model."
Roger Sinclair, a Halifax-based wealth advisor says it "drives him nuts" that people don't know what advisors do, and the value that advice and advisors can bring to their clients.
"The risk-management side of the business," he adds, "is surprisingly overlooked. Yes, wealth accumulation is important – but I help protect clients if something happens to their health, if they die unexpectedly or become disabled. That's because for most of their working lives, peoples' ability to earn income is their most valuable asset, not their investment portfolio."
What does this mean for Canadians searching for financial advice? As it turns out, in recent years there have been various attempts to quantify the value that advisors can add. One example is from investment management company Vanguard, which has developed the concept of "advisor alpha."
For Vanguard, advisors can bring value not by focusing on efforts to deliver investment returns that exceed a benchmark stock market index, but through the combination of investment management, financial planning, and behavioural coaching they provide – especially for clients who don't have the "time, willingness, or ability to confidently handle their financial matters."
In the end, while advisor registration provides a way for Canadians to access financial products, and designations indicate enhanced knowledge and competency, the extent to which a financial advisor provides the broader elements identified in the "advisor alpha" model may be a good indication of the value they can deliver to clients.
Not every Canadian will seek out an advisor who provides a full-service model, offering multiple products and comprehensive financial planning services – some will prefer a DIY approach, or to work with someone (or a robo-advisor) who focuses more narrowly on part of their overall financial situation (such as portfolio management).
But for those who want to work with an individual financial advisor, the breadth and depth of the services they offer – not their registration category, licensing or designations – may be their defining characteristic.