The best advisors who are able to attract and retain long-term clients engage in comprehensive wealth planning and help them stay focused and disciplined, especially during market volatility.marchmeena29/iStockPhoto / Getty Images
New research suggests that appreciation for advisors is on the rise as investors seek out financial advice – and some emotional support – amid the massive market uncertainty stemming from the COVID-19 pandemic. A combination of recent reports shows that investors are not only leaning more on advisors for advice, but believe the fees they pay are worth it.
In turn, advisors are being encouraged to take advantage of the positive sentiment toward their profession by developing and deepening long-term, trusted client relationships that prove their value – especially when compared to robo-advisors and other do-it-yourself investing options.
“High-performing advisors view the client relationship as a lifetime involvement, not as a transaction,” says Norm Trainor, founder and chief executive officer at The Covenant Group in Toronto, which provides coaching for advisors.
Investors seek human advice
A recent study from Investment Planning Counsel (IPC) found that almost three-quarters of Canadian investors believe they need financial advice to be successful in the future. The study, done in August in partnership with Environics Research, suggests the need for professional advice has been greater during the pandemic, with a third of survey participants saying they increased communication with their advisors over the spring and summer.
“People are fearful. There’s a lot of uncertainty out there. People don’t know where to turn,” says Chris Reynolds, CEO at IPC.
The IPC survey also says 93 per cent of participants feel it’s important to work with an advisor familiar with their personal circumstances.
“They want someone who knows them, knows their family, knows their situation and what they’re trying to accomplish,” Mr. Reynolds says. “That can’t be replicated [by a robo-advisor]. An algorithm isn’t going to give you the solutions to the ever-changing life problems that are out there.”
The IPC survey also found that 75 per cent of people who work with advisors were prepared for retirement compared with 66 per cent of those who use robo-advisors. While Mr. Reynolds believes there’s room in the industry for robo-advisors, they’re limited when it comes to broader financial and estate planning.
“They can’t help you adequately plan out your retirement including strategies around where you should take out money and when,” he says.
Advisors ‘worth the price’
In addition, a recent report from the global research firm Cerulli Associates Inc. also shows that more investors are willing to pay for advice. The U.S. survey shows 82 per cent of investors with advisors believe the advice they’re receiving “is worth the price.” It also says demand for financial advice is growing: 40 per cent of investors surveyed say they need more advice than before and 56 per cent are willing to pay for it – up from 51 per cent in 2019.
“Current conditions have created a nearly perfect environment to expand the role of truly comprehensive financial advice relationships,” said Scott Smith, director at Cerulli, in a press release issued last month. “Investors are weary from the ongoing pandemic and pursuant economic challenges and are willing to engage in paid advice relationships.”
There’s also evidence that paying for that advice is worth it. Russell Investments Canada Ltd.'s fifth-annual “Value of an Advisor” study found Canadian advisors who provide comprehensive wealth management add 2.88 per cent in value to client portfolios.
“We believe advisors have never been more valuable than in the midst of COVID-19-related market turbulence and economic hardships,” said Brad Jung, head of North America advisor and intermediary solutions at Russell Investments, in a news release for the study issued in May. “Our annual study holistically analyzes the real value that advisors deliver to their clients in their portfolios and outcomes, as well in helping investors avoid behavioural mistakes, especially during times of market distress.”
Mr. Jung also said advisors “need to articulate the value they deliver goes far beyond selecting and managing investments.”
What makes a good advisor?
Mr. Trainor says the best advisors who are able to attract and retain clients for the long-term engage in comprehensive wealth planning – by providing investment advice as well as tax planning and cash-flow management strategies – and help their clients stay focused and disciplined, especially during market volatility.
“People focus on returns and asset class, [but] the planning is much more important,” he says. “A good advisor helps clients put together a plan and stick with it.”
Advisors need to provide “the calm voice in the storm,” when markets fluctuate and investors start mulling moves that might not be aligned with their financial plans, says Leslie Brophy, associate vice-president at Manulife Private Wealth in Toronto.
“Human emotion comes into play. You can develop a really good plan, but sticking to it during large swings in the market is really difficult,” she says. “Because [advisors] have a relationship with their clients, they can ask those more difficult and probing questions when their clients are looking to move away from the plan. Those questions are based on the advisor’s experience with their clients and their knowledge of what their ultimate investing goals are.”
Ms. Brophy says advisors can deepen their relationships with clients by understanding the different human reactions people have to market events, such as panic-selling when stocks are down, or buying based on exuberance when they’re up, which falls under a field of study known as behavioural economics.
“The opportunity to explore those subjects is available to advisors to prepare them for some of those conversations,” she says.
Many advisors can also draw from their experience working with clients through other historic market swings over the past few decades.
“Whether it’s the tech bubble in the early 2000s or the financial crisis in 2008-09, we’ve been there,” Ms. Brophy says. “[Each event] is always a bit different, but the rocking and rolling in the market isn’t different and that’s where the advisor provides a tremendous amount of value.”