Advisors can differentiate themselves from the competition by positioning themselves as wealth managers and behavioural coaches who provide discipline and experience.Eoneren/iStockPhoto / Getty Images
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Financial advisors have the power to make a significant impact on their clients’ financial well-being. However, quantifying that value can be a challenging task.
The advisory industry is evolving, and the compensation structure has shifted greatly from commissions-based to fee-based models. By positioning themselves as wealth managers and behavioural coaches who provide discipline and experience, advisors can differentiate themselves from the competition and add meaningful value compared with the average investor experience. That can lead to increased client retention, referrals and, ultimately, a thriving practice.
Embracing and implementing relationship-based services such as financial planning can not only enhance clients’ outcomes but also boost a practice’s growth.
More than 20 years ago, The Vanguard Group Inc. began studying the impact of broadening advisors’ value creation beyond investment performance to include wealth management, tax efficiency and behavioural coaching. The findings, called Advisor’s Alpha, outline how advisors can add meaningful value to clients’ investment outcomes.
Embracing these four principles this new year creates the potential to amplify the value advisors drive for clients and, in turn, help strengthen their practices.
1. Building strong relationships
By taking the time to understand clients’ unique financial goals, risk tolerance and concerns, advisors can tailor their services to meet specific needs.
This personalized approach fosters trust and loyalty, leading to long-term client relationships and referrals. Remember, clients value advisors they trust, and building that trust is crucial to success.
2. Behavioural coaching
As humans, we are prone to emotional reactions, especially during market volatility.
Advisors can guide clients through these challenging times, helping them stay disciplined and focused on long-term goals. By providing objective advice and helping clients avoid impulsive decisions, advisors can add significant value and enhance their investment experience.
3. Portfolio construction and asset allocation
Many investors neglect the crucial process of determining their asset-allocation strategy, which is essential for long-term investment success.
By helping clients understand the historical risk-reward relationships between asset classes and developing a well-considered investment strategy, advisors can serve as an emotional anchor during market volatility and help clients stay focused on long-term goals. All investing is subject to risk, including the possible loss of the money invested. Asset allocation doesn’t ensure a profit or protect against a loss.
4. Tax-efficient strategies
Taxes are a major consideration for many clients, and tax management is an important way advisors can demonstrate their value.
By helping clients understand the trade-offs between index funds and actively managed funds, tax-efficient rebalancing, asset location, tax-loss harvesting, tax-efficient spending and giving, advisors can add significant value.
Fran Kinniry is principal and head of Vanguard Investment Advisory Research Center in Chester Springs, Pa.
Must-reads from Globe Advisor this week
What triggers Canadians to take their CPP benefits when they do?
When the Canada Pension Plan (CPP) was introduced in 1966, it was in response to concerns that too many Canadians were retiring poor. Almost six decades later, and following a handful of reforms and updates, the CPP – or the Quebec Pension Plan (QPP) for those in Quebec – remains a cornerstone of most Canadians’ retirement portfolios. A tough decision for many Canadians is when to start taking their CPP benefits to optimize the money they contributed during their working years. Research, including an informal Globe and Mail survey conducted in November, shows the most popular age is 60 – the earliest possible. Brenda Bouw reports in the first article in a new series, Planning for the CPP.
The human trait that causes Canadians to take their CPP benefits early
The standard age for Canadians to take their CPP or QPP retirement benefits is 65; at least, that’s what the federal government says. In reality, about one-third of Canadians start taking their CPP benefits when they turn 60, the earliest age possible. For some, taking the pension sooner is an obvious choice if they need it to pay the bills or have serious health issues that could shorten their life span. But those who can wait would be financially better off in the future. So, why don’t they? Brenda Bouw has more.
Why this money manager is reducing cash in his portfolios and buying more stocks
Despite the market volatility and lingering fears of an economic downturn, money manager Greg Newman still believes we’re in a bull market. “Every time there’s an erosion in the market, as there was late last year, you have to ask yourself, ‘Is this the beginning of a bear market or is this just something that can help me score points in my portfolio?’” says Mr. Newman, senior wealth advisor and portfolio manager with The Newman Group at Scotia Wealth Management in Toronto. Brenda Bouw asks what he’s been buying and selling.
Six strategies for choosing between investing or paying down debt
More Canadians are sitting on cash and weighing whether to pay down debt or invest their money in an environment of higher costs of living and higher interest rates. According to Canadian Imperial Bank of Commerce’s recently published annual Financial Priorities poll, 61 per cent of Canadians are concerned about inflation while 28 per cent are concerned about rising interest rates. Forty-two per cent are also worried about their job security. Anna Sharratt explains.
Also see:
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This retiree turned his computer industry career and love for classical music into a steady gig
What could go wrong in financial markets in 2024?
Market strategists split on prospects for European equities
Proven strategies for how to manage year-end bonuses
What you and your clients need to know
Investment industry watchdog CIRO granted authority to approve use of financial advisor title
The Canadian Investment Regulatory Organization (CIRO) has been given the green light to authorize its members in Ontario to call themselves financial advisors, as the province looks to crack down on the use of professional titles. CIRO’s new role in credentialing financial advisors is set to be announced Tuesday by Ontario’s Financial Services Regulatory Authority, a provincial agency that has been spearheading rule changes in this area since 2019, when Ontario passed its Financial Professionals Title Protection Act. Clare O’Hara reports.
Bank cards and digital payments are the norm for teenagers today. And that’s a good thing
A generation ago, allowances and spending money for kids were in the physical form. Kids paid for candy, lunches and bus fare with paper bills and coins. But the move toward digital payments has been swift and accelerated by the pandemic, when many places stopped taking cash as a form of payment. It seems kids are getting debit cards at younger and younger ages. For some parents, this may be a little unnerving: Is it really okay for our kids to be carrying around a card that could be lost or stolen? Do kids have a good concept of money when it’s not in a physical form that requires them to dole it out across a counter? Anita Bruinsma has more.
The TFSA dilemma: Tax shelter your dividends or your growth?
This is the time of year that everyone should be planning on making their tax-free savings account (TFSA) contributions. For 2024, the limit has been increased from $6,500 to $7,000. The name of this tax-sheltered account is a bit misleading to some. Many people think that they put money into it and just think of it as a savings account like your bank account. This is not true. Any investments, like a registered retirement savings plan, can be bought or transferred from your non-registered investment account into your TFSA. Funds inside a TFSA can be used to invest in stocks, bonds, mutual funds, GICs, etc. Nancy Woods has more.
Buying and selling homes has become very expensive, thanks to elevated house prices
A decade ago, Joe Bladek’s clients typically put down deposits of between $1,000 and $5,000 when making an offer on a new home. Today, the mortgage broker in Barrie, Ont., says, those deposits are more commonly in the range of $5,000 to $10,000 – and recently, he worked on an offer in which the buyer put down a $50,000 deposit and had to ask family for help to scrounge up the funds. “A lot of clients don’t realize that deposits are quite large these days,” Mr. Bladek said. It’s partly owing to the higher cost of homes themselves as deposits are typically between 1 to 10 per cent of the sale price. But it’s also a holdover from the pandemic bidding wars when buyers sought to compete with firm offers. And while deposits come from the down payment, buyers need to have the money on hand. Kelsey Rolfe has more.
– Globe Advisor Staff