canada’s magazine for the financial professional • …€¦ · apprised of key market trends...
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CANADA’S MAGAZINE FOR THE FINANCIAL PROFESSIONAL • JUNE 2005 • WWW.ADVISOR.CA
Rogers Publishing Limited, One Mount Pleasant Rd., Toronto, Ont. M4Y 2Y5 • Publications Mail Agreement Number 40070230
ADVISORS ROCK,LITERALLY.SEE PAGE 14
A SPECIAL PULLOUTInsurance Edge
OUTConfessions from the high net worth: why they leave their advisors
+
BAILING
AE06_OFC 05/17/2005 11:34 AM Page 1
7Inside Edge with Darin DiehlThe relationships you build with whole-salers are as vital as those you fosterwith your centres of influence.
12FRONT END LOAD Random ActsRare and random events can blindsideus when we’re trying to do our jobs well.CFP Sean Melrose discusses the
message behind Nassim Nicholas Taleb’sFooled by Randomness: The HiddenRole of Chance in Life and in theMarkets. And, a new section is unveiled:“Your Community” highlights advisorsdoing what they do best—being upstand-ing citizens of their regions.
INSURANCE EDGE (Special Supplement)Living benefits plans are complex andrequire advisors to do their homeworkbefore trying to sell them to clients andemployers.
18COVER STORY Bailing OutAre you paying enough attention to yourclients? Are you explaining your fees?Are you making sure trades are alwaysin their best interests? You ought to be.Many wealthy clients are leaving theiradvisors in response to lax service.By Philip Porado
31Compensating HeirsCertified financial planner MarkLajambe helps find a way to the will that satisfies heirs and protects contingent beneficiaries.By Michael Berton
35Tax Break with Gena Katz
37The Bowen Report with John J. Bowen Jr.
38CLOSING BELL with Beasley HawkesBeasley takes on Advocis’ proposed all-inclusive membership policy.
THE
JUNE • 2 0 0 5 •VOLUME 8NUMBER 6
ONCOVER
www.advisor.ca ADVISOR’S EDGE | JUNE 2005 5
18BAILING OUT
14 Advisors Rock, Literally
18 Bailing Out Confessions from the High NetWorth:Why they leave their advisors
Insurance Edge
INSURANCE EDGE
31FRENCH CONNECTION
SPECIAL PULLOUT:
AE06_005 05/17/2005 12:16 PM Page 5
Over the years, I’ve heard storiesfrom many of you about the variousdysfunctional relationships you havehad with individual wholesalers.Recently, I asked a wholesaler, whomI’ve known many years (and whom Iknow has the respect of the many advi-sors he serves), for his perspective onwhat exactly you should expect—makethat demand—from your wholesaler.
He says great wholesalers:❶ Know their stuff: Wholesalers need
to have a deep understanding of theproducts they represent. But don’texpect this to be true of every whole-saler. Investment and insurance prod-ucts are subject to change and a greatwholesaler will make sure the advi-sor is never taken by surprise.
❷ Follow the markets: A greatwholesaler will keep advisorsapprised of key market trends thataffect their product.
❸ Add value: Many manufacturersnow offer more than just product toadvisors. Firms are offering a smor-gasbord of practice management, or“value-added” programs from whichto choose.
❹ Take the heat: From time to timewholesalers are going to be wrong—
their firms are going to be wrong.You want your wholesaler to bringyou good ideas but if somethingdoesn’t work out, a great wholesalerwill keep you informed about thefacts of the situation and offer helpwhere he can.
❺ Possess wisdom and integrity:Great wholesalers have an under-standing of the strengths and weak-nesses of their firms’ product lineupand will guide the advisor accord-ingly. The best wholesalers won’tpush products they don’t think fit the needs of advisors and theirclients.
❻ Are a resource: Seasoned whole-salers are valuable to top advisors forjust that reason. These wholesalersare exposed to the successful prac-tices of many advisors and can be aconduit of best practices to all theadvisors with whom they work.There are, of course, two sides to any
relationship. And if the above accuratelyrepresents what you should expect ofyour wholesaler, then that begs thequestion: What should a wholesaler reasonably expect of you?
I can find no better answer than theone put forward by Nick Murray in his
legendary tome, The Excellent InvestmentAdvisor. Murray suggests advisors cre-ate an informal advisory board of greatwholesalers so they can better leveragethe information, skills and talents theyoffer. Wholesalers who agree to helpadvisors build their businesses have aright to expect some business in return.
In Murray’s words, “you’re notgoing to recruit a wholesaler to youradvisory board, no matter how extra-ordinary her personal skills, if youdon’t also believe that her product isa genuinely superior fit for the kindsof clients you want.”
Individual wholesalers can be veryreal partners in your success. It’s in nei-ther of your interests to waste eachother’s time.
So when you meet with wholesalers,be ready to clearly articulate your ownneeds and ask that they come preparedto explain just how they can help. Give your relationships with them the attention and thought they deserve. Be demanding, but be fair.
DARIN DIEHLEXECUTIVE EDITOR &
ASSOCIATE [email protected]
INSIDEEDGEWHOLESALE ADVICEHow to make the most of your relationship with wholesalers.
www.advisor.ca ADVISOR’S EDGE | JUNE 2005 7
AE06_007 05/17/2005 11:48 AM Page 7
Darin Diehl, Executive Editor & Associate Publisher, ADVISOR Group (416) 764-3812, [email protected]
ADVISOR’S EDGEDeanne N. Gage, Managing Editor Harvey Schachter(416) 764-3803, [email protected] Contributing EditorPhilip Porado, Associate Editor Jennifer Molleson, Production Manager(416) 764-3802, [email protected] (416) 764-3928, [email protected] Staseson, Assistant Editor Maggie Sicilia, Administrative Assistant(416) 764-3804, [email protected] (416) 764-3822, [email protected] Nicholson, Art Director(416) 764-3850, [email protected]
ADVISOR’S EDGE REPORT / ADVISOR.CAJohn Craig, Editor Steven Lamb, Investments Editor(416) 764-3811, [email protected] (416) 764-3961, [email protected] Blythe, Managing Editor Kate McCaffery, Senior Reporter(416) 764-3810, [email protected] (416) 764-3959Doug Watt, News Director [email protected](416) 764-3815, [email protected] Andrew Gregory, Manager, Web Production &Opal Patel, Practice Management Editor Special Projects, (416) 764-3817(416) 764-3818, [email protected] [email protected]
OBJECTIF CONSEILLERYves Bonneau, Editor Christian Benoit-Lapointe, Assistant Editor(514) 843-2142 James Wagner, Art Designer
SALESGarth Thomas Gisela StephanyGeneral Manager Sales Manager, Eastern Canada(416) 764-3806, [email protected] (514) 843-2133, [email protected] Kerry Graham Blair, Account ManagerNational Account Manager (416) 764-3809, [email protected](416) 764-3805, [email protected] David Carmichael, Marketing Research AnalystKathleen Murphy, National Account Manager (416) 764-3820 (416) 764-3838, [email protected] [email protected]
MARKETING AND COMMUNICATIONS Nancy Matheson, Group Director
CIRCULATION AND RESEARCHKeith Fulford, Circulation Director Tricia Benn, Director of ResearchCindy Younan, Circulation Manager Rosa Regula, Research Assistant
Ann McDonagh, Group Publisher (416) 764-3830, [email protected] Williams, Vice-President, Healthcare & Financial Services Group
ROGERS MEDIA INC.Anthony P. Viner, President and CEO
ROGERS PUBLISHING LIMITEDBrian Segal, President and CEOJohn Milne, Senior Vice-President, Healthcare & Financial Services GroupHarvey Botting, Marc Blondeau and Michael Fox, Senior Vice-PresidentsImmee Chee Wah and Larry Michieli, Vice-Presidents
, established 1998, is published by Rogers Publishing Limited, a division of Rogers Media Inc. Advisor’s Edge subscriptions include 24 issues per year, consisting of 12 issuesof Advisor’s Edge in magazine format and 12 issues of Advisor’s Edge Report in tabloid newspaper format.
Rogers Publishing Limited, One Mount Pleasant Rd., Toronto, Ontario M4Y 2Y5. Montreal office: 1200 avenue McGill College, Bureau 800, Montreal, Quebec H3B 4G7.
Subscription price per year: $68.95 CDN; outside Canada per year: $139.30 US; single copy price: $15 CDN.ISSN 0703-7732. Printed in Canada.
PM 40070230. Canada Post: Please return undeliverable address blocks to Advisor’s Edge, CirculationDepartment, One Mount Pleasant Rd., 7th floor, Toronto, Ontario M4Y 2Y5. E-mail: [email protected]
We acknowledge the financial support of the Government of Canada, through the Canada MagazineFund, towards our mailing and editorial costs. Contents copyright © 2005 by Rogers PublishingLimited, may not be reprinted without permission.
Advisor’s Edge receives unsolicited materials (including letters to the editor, press releases, promotional items andimages) from time to time. Advisor’s Edge, its affiliates and assignees may use, reproduce, publish, re-publish, distribute, store and archive such submissions in whole or in part in any form or medium whatsoever, withoutcompensation of any sort.
JUNE 2005, VOLUME 8, NUMBER 6
ADVISOR Group is a division of Rogers Publishing Limited that consists of Advisor’s Edge, Advisor’s Edge Report, Advisor.ca, ADVISOR Live,
Objectif Conseiller, Conseiller.ca and Conseillers En Direct.
EDITORIAL ADVISORY BOARDElaine Andrew John OrdInvestors Group BMO Nesbitt BurnsDavid Wm. Brown Jim RogersAl G. Brown and Associates Rogers Group FinancialDavid Christianson Nancy ShewfeltWellington West Total Wealth Management Wellington West Capital Inc.John De Goey Thane StennerAssante Capital Management The Stenner Group, CIBC Wood GundyRobert Fleischacker Lynne TriffonAdvocis, Stonehaven Financial Group T.E. FinancialCynthia J. KettStewart & Kett Financial Advisors Ltd.
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8 ADVISOR’S EDGE | JUNE 2005 www.advisor.ca
AE06_008 05/17/2005 11:48 AM Page 8
YO
UR
PI
CK
S By Sean Melrose, CFP, Union SecuritiesLtd., Edmonton, as told to Heidi Staseson
Book: Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, by NassimNicholas Taleb
Taleb is a humanities scholar and scientist, and he takes thatbalanced approach in his book. He suggests random eventsare often mistaken for trends. For example, he says, “Whatis truly luck is often misperceived as skill; what’s actually abelief or conjecture is taken as knowledge or certitude . . .Lucky idiot as skilled investor.”
Most Wall Street traders make their money incrementally,and because they perceive their regular and ongoing successesas part of a pattern that somehow is real, they continue todepend upon it, until then they are completely sideswipedby a significant, rare event. And what they’ve made over thosesmall increments is usually much smaller than the amountthey’ll lose in that one rare event.
Taleb refers to a number of examples where financial pro-fessionals he’s worked with were all very successful for peri-ods of time, until each was wiped out by some event theycould never have anticipated. Once the event started to occur,they refused to acknowledge it. He suggests this is a patternthat extends across market professionals as much as it extendsacross individual investors.
If someone could take anything away from the book, itwould be to recognize randomness for what it is and to tryto pull back the curtain on what’s often perceived as a best-bet system or something that’s foolproof. They use the term“masters of the universe” on Wall Street, [referring to] thesemarket traders or fund managers who are infallible becausethey have some inner sense of what’s going on.
Much of that is just a misunderstanding of the laws ofprobability, and a misunderstanding of the hidden role ofchance in markets and in life. By understanding that, if you’rean investor, you’ll have a better understanding of the peo-ple who are running your money. If you’re a market profes-sional, you’ll be more capable of doing your job.
RANDOM ACTS
FRONT
ENDLOADPeople, trends, events and analysis
12 ADVISOR’S EDGE | JUNE 2005 www.advisor.ca
Counting DollarsCurrency fluctuations can cause
asset returns to vary. MSCI World Index annual returns, in percent.
Source: Morgan Stanley Capital International Inc.
Cartoon by S
ue Dew
ar
YEAR Measured Measured inin U.S. Dollars Canadian Dollars
1994 5.58 10.16
1995 21.32 19.67
1996 14.00 13.36
1997 16.23 21.77
1998 24.80 34.90
1999 25.34 19.74
2000 -12.92 -10.02
2001 -16.52 -13.50
2002 -19.54 -20.47
2003 33.76 12.62
2004 15.25 7.02
AE06_012-014 05/17/2005 11:49 AM Page 12
www.advisor.ca ADVISOR’S EDGE | JUNE 2005 13
■ JUNE 8 to 9, Mutual Fund Management,
InterContinental Hotel Bloor Yorkville, Toronto,
www.canadian-institute.com ■ JUNE 9 to 10,
Changing Channels: Managing General Agen-
cies at the Crossroads, Queen’s Landing,
Niagara-on-the-Lake, Ont., www.advisorlive.ca
■ JUNE 14 to 15,Taking Your Practice to the
Next Level: Maximize Your Bottom Line with
John Bowen, Queen’s Landing, Niagara-on-the-Lake,
Ont., www.advisorlive.ca ■ JUNE 16 to 17,
Operational and Compliance Best Practices for
Hedge Funds,The Marriott East Side Hotel,
New York, N.Y., www.americanconference.com
■ JUNE 21 to 22,Third Annual Elite Advisor
Summit, Paramount, Vaughan, Ont.,
www.strategyinstitute.com ■ JUNE 22 to 23,
5th Annual Conference on Managing and
Litigating Insurance Coverage Disputes,
The Sutton Place Hotel, Toronto, Ont.,
www.canadianinstitute.com
■ JUNE 26 to 29, IDA 89th Annual
Meeting and Conference, Fairmont Banff
Springs, Banff, Alta, www.ida.ca,
1 (800) 465-9670 ■ JUNE 27 to 28,
National Forum on Privacy Information &
Security in the Insurance Industry, Marriott
East Side, New York, N.Y., www.american-
conference.com ■ SEPTEMBER 27 to 29,
IFIC 19th Annual Conference, Metro Toronto
Convention Centre, Toronto, www.ific.ca
CA
LE
ND
AR
OF
EV
EN
TS
To submit an event, [email protected]
UNDER THE 49THanadian advisors need to be
aware of changes in rules that
affect their southern trading
partners.
The National Association of Securities
Dealers (NASD) is telling all industry
players to wipe off the sneer and eat their
greens. After years of debate, the NASD
ended a policy whereby people who were
considered securities industry veterans
were exempt from some Continuing Edu-
cation (CE) requirements.
CE requirements at U.S. firms are
divided into two tracks.The Regulatory Ele-
ment is administered in a computer-based
format and designed to determine whether
personnel are up to date on new regulations
and compliance requirements. Each regis-
tered person has to be tested every three
years. The separate Firm Element track
requires compliance departments to each
year review complaint letters,as well as any
disciplinary actions from regulators,and to
create courses to address deficiencies.
Last month, NASD nixed all exemp-
tions from the Regulatory Element com-
ponent of its CE requirements. Before the
CE program was enacted in 1995, those
who had been registered and had clean
disciplinary histories for 10 years did not
have to take the exam.
Compliance officers frequently com-
plained the grandfathering of certain peo-
ple within the registered populations at their
firms made it difficult to track the com-
pletion of Regulatory Element exams, and
that many older registered persons would
claim they were exempt when, in fact, they
were required to complete Regulatory Ele-
ment CE. NASD requires suspension of
reps who don’t complete Regulatory Ele-
ment,so the exemptions were a bone of con-
tention between compliance and staff.
NASD says it has updated its regis-
tration database so that it will automat-
ically remind compliance officers when
testing windows open for personnel who
formerly had been exempt.
In a related development,on May 2, the
New York Stock Exchange (NYSE) ruled
that persons who perform administrative
roles at securities analyst firms will not be
subject to the qualification exam that full-
fledged analysts must pass to work in the
business. The rule change also exempts
employees of foreign firms who work
as securities analysts,when the Big Board
can determine appropriate registration
requirements are in place.
—Philip Porado
U.S. COMPLIANCE AT A GLANCE
C
FRONTENDLOAD
YOURTHOUGHTSMonthly QuestionHow do you help your senior and
baby boomer clients sort out nasty
credit card debt?
ADVISOR: Credit card debt is definitelya common problem, even among thosewealthy baby boomers. When doing
financial planning I like to ask, “Withinreason, what would your absolute idealfinancial picture look like?” I advise thatany debt against assets that lose valuesuch as cars, furniture, computers etc., isbad debt and should be attacked to payit off as soon as possible.
A common misconception is it’s moreimportant to pay off the mortgagequickly. This is a debt that is usually at
an attractive rate (relative to credit cardsor other borrowing)—due to the homebeing pledged as security—and is againstan asset that actually grows in value,albeit slightly above inflation over thelong term.
My advice is to complete a compre-hensively written financial plan to determine any areas where cash flow
Continued on page 14
AE06_012-014 05/18/2005 07:53 PM Page 13
FRONTENDLOAD
14 ADVISOR’S EDGE | JUNE 2005 www.advisor.ca
On April 14, Winnipeggers witnessed rock rivalry at its finest.
But unlike fisticuff forefathers The Rolling Stones versus
The Who, this showdown highlighted bands of a more compli-
ant nature, featuring such fiduciary acts as Soul Beneficiaries,
Disposable Income, Mutual Fun and The Disclaimers. In the same
vein as Toronto’s Baystock and Vancouver’s Vanstock, the
inaugural Financial Services Battle of the Bands was aptly
named Winnstock. Raising more than $20,000 for The Arthritis
Society, this rock out surely won’t be the Wintry City’s last.
Soul Beneficiaries bass player and advisor David Christian-
son says the gala held at Cowboys Bar exceeded expectations,
with a packed crowd of 700 swaying fans—“everybody from
Wawanesa Insurance Company to underage kids who heard
about it and snuck in the back door.”
Winnstock founding member Al Jacks said the evening allowed
financial players to doff the pinstripes and let loose in this very
highly regulated industry.“Golf tournaments are starting to wear
thin,” he adds. “I thought this was a great way to let their hair
down, pick up some instrument that’s probably been rusting
around in the basement, and show what they can do.”
The winning band, Disposable Income, included rockers from
Pricewaterhouse Coopers LLP and Investors Group Inc.
—H.S.
YOURCOMMUNITY
Playing in the Peg
Advisor PrideEdmonton Northern Lights Rotary Club charter member Sean
Melrose reads to Ms. Duncan’s grade one class of York Acad-
emic School. The CFP with Union Securities Ltd. says his
favourite read is Roald Dahl’s classic James and the Giant
Peach. Of his bi-weekly book banter, Melrose says:“Reading is
such a big deal to me, and I know how much it has benefited my
life in general that it would seem ridiculous for me to not try to
pass it along.”
may be freed up. Then use the differ-ence to attack all the bad debt first.This should seem obvious, but it’s sur-prising how few people actually do it!
As for seniors, sadly I’ve seen them getinto credit card trouble by falling prey to
the numerous telephone and televisionsolicitations that target them. This crimeshould be taken very seriously given itoften targets more trusting seniors.
Scott M. YatesPartners In Planning Financial Services Ltd.Calgary
What value-added client appreciation
events do you host?
YTContinued from page 13 Month’s QuestionNEXT
Please send your responses to Heidi Staseson
[email protected]. com
AE06_012-014 05/18/2005 09:58 AM Page 14
INVESTORS ARE PROVING INCREASINGLY
WILLING TO WALK AWAY FROM ADVISORS WHEN
THEY FEEL IGNORED OR MISTREATED.
By Philip Porado
AE06_018-028 05/18/2005 09:59 AM Page 18
www.advisor.ca ADVISOR’S EDGE | JUNE 2005 19
Cover Story
They’re well educated, have loads ofmoney, but don’t like to use financialadvisors. And they feel they have goodreasons not to bother.
They charge their former advisorsignored requests to invest more conser-vatively and consistently say advisor feesare too high and not adequatelyexplained. They also don’t take kindlyto “one-size-fits-all” asset allocationmodels. Often, they’ve watched as closefriends lost money in poorly managedportfolios. And certainly, the recentmedia scrutiny of various fund compa-nies is top of mind.
Another major beef: Their formeradvisors didn’t bother to understandtheir concerns beyond money mat-ters—things like hobbies and family.How did these investors react to whatthey perceived as indifferent treatment?They severed relations with those advi-sors and either moved to self-directedtrading or opted for money managerswho were willing to form closer part-nerships.
You may think these well-to-doinvestors are ignorant, crazy or both.But you’d be wise to take note of theirconcerns because people who are simi-larly disenchanted could be among yourpresent clients. It’s human nature to beemotional about money, even in stablemarkets, so it’s important to understandwhat drives these investors’ choices.
Jim Grant fired his advisor five yearsago. The 45-year-old, semi-retired com-puter professional now manages his owninvestments. “I was very dissatisfiedwith my advisor’s attitude on investingand the commissions he was earning forhimself given the amount of work hewas doing,” Grant explains. “I stoppeddealing with him as things were crest-
ing in June of 2000. One person I know had quite a lot of money in
Nortel with him andlost it.”
Grant, who residesin Calgary, says he’s confident enoughin his own investing skills that he feelsjustified eschewing his six-figure job fora part-time, lower-paying gig teachingcomputer skills to recently landedCanadian immigrants. His mortgage ispaid off, as is his portion of a vacationhome he shares with relatives, and hehas six figures invested. He and his wifecarry no insurance because assets areavailable to let the other maintain theircurrent lifestyle in the event one ofthem dies.
He still consults with a money man-ager from time to time. It’s a personalfriend of his with whom he’s entrustedhalf his money to invest. And althoughGrant stresses he does better with hisown stock and fund selections, he keepsthe manager’s account active in the eventhe and his spouse decide to travel exten-sively or opt for another situation whereself-management isn’t feasible. Grant’swife also generally handles her owninvestments.
The couple shares an account forjoint projects, such as buying anothercottage or a motor home, but they alsohave individual RRSPs, which theymonitor closely as a team. “We eachmake sure we know what the other hasdone with personal investments in caseanything happens,” notes Grant. “Imanage my stuff, she manages hers, butwe talk about what we’re investing inand why.”
Kelly Rodgers, a chartered financialanalyst and president of Rodgers Invest-
Continued on page 20Illu
stra
tion
by
San
dy N
icho
ls
FIRED!YOU’RE
AE06_018-028 05/18/2005 10:00 AM Page 19
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ment Consulting in Toronto, makes herliving helping people axe their advisors.Clients come to her to either have exist-ing portfolios evaluated or to get helpfinding a discretionary money manager.
INFORMATION PLEASEThe most common complaints Rodgershears? Clients never know how they’rereally doing because their advisors don’tprovide enough information. “If [advi-sors] want to go after the million-plusmarket, they have to give them credibleinformation. They have to give realnumbers,” she explains.
When Rodgers reviews portfolios,she finds striking similarities in the wayassets are allocated—similarities that
stem from the fact brokerage houses arerun too much like sales operations,instead of wealth management servicesgeared to individual client needs. “Thething I see frequently in the $1 millionto $3 million range is that portfolios arestructured to maximize fee revenue,”Rodgers says. “There might be$100,000 to $200,000 in the managedaccount and another $100,000 to$200,000 in mutual funds and$500,000 in laddered bonds. Every-thing’s set right before you get to thetapers. And they’ll often have a bunchof new issues thrown in. You can see theadvisor thinking, ‘Let’s put some of thatin so we can pick upthe new issue com-mission.’ ”
Rodgers explains advisors need toremind themselves the efficient frontieris supposed to belong to the client.“The biggest frustration clients have asthey acquire knowledge is the feelingthey’ve been scammed,” she says. “Thedifference between high-net-worth andmedium-net-worth people is that high-net-worth people have options.”
Those options include firing anyadvisor who doesn’t pay genuine atten-tion to their needs or myopically driveshis own agenda. Jill Peskowitz* canrelate. She recalls the time an investmentadvisor suggested that her elderly father-in-law get into equities. “I’m sorry. Theman is 90! He doesn’t need growth.He’s not on that kind of time horizon,”says Peskowitz, a Toronto accountantwho took on management of her family’s investments several years ago.
“I hear about people who are gettingbad advice and it’s for the benefit of theadvisor,” she notes, acknowledging how-ever, that a few bad eggs don’t neces-
sarily make the basketrotten.
Bill Greenaway, a63-year-old, seven-figure investor inGuelph, Ont., recently ended a long-time relationship with an advisorbecause the firm’s orientation seemedtilted too much toward younger babyboomers. “The closer I got to retire-ment the more I determined they
20 ADVISOR’S EDGE | JUNE 2005 www.advisor.ca
Continued from page 19
*This client’s name has been changed.
FIRED!YOU’RE
FIRED!YOU’RE
AE06_018-028 05/18/2005 10:04 AM Page 20
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weren’t giving me the answers I neededabout my future,” he says. “They weren’tright for my times.”
He doesn’t consider himself a tirekicker but over the past 40 years, Green-away changed advisors and ended rela-tionships with two financial profes-sionals who didn’t listen or gave what heconsidered overly simplistic advice. Inone case, an advisor’s practice grew solarge that he handed Greenaway off toan associate with whom he didn’t see eye to eye. Another time he severed arelationship with a fee-for-service planner, because her retirement plan-ning advice started to sound like a bro-ken record. He recalls, “It reached thepoint where all she was saying was, ‘Takeout RRSP money in a tax-efficient way.’
Well thanks, I alreadyknew that.”
Whether a client ishappy about the fees paid hinges largelyon how well those fees are explained bythe advisor and understood by theclient. Grant views his relationship withhis money manager as a partnership andhe happily pays her top dollar. “I’mpaying a 15% participation fee. If theportfolio goes up $10, then $1.50 goesto the manager. I feel it’s well managedand the person is 100% answerable andhas fairly disclosed to me why she’smaking trades,” Grant explains. “Andshe’s not making a commission, whichwas my biggest complaint.”
Peskowitz, on the other hand, oftenfelt her advisor didn’t take the time toexplain the costs associated with trans-actions made on her behalf or to alert
Continued on page 23
www.advisor.ca ADVISOR’S EDGE | JUNE 2005 21
“I was very dissatisfied with my
advisor’s attitude on investing.”
—Jim Grant
Semi-retired teacher, Calgary, Alta.
Pho
togr
aphy
Joh
n S
alus
FIRED!YOU’RE
AE06_018-028 05/18/2005 10:04 AM Page 21
www.advisor.ca ADVISOR’S EDGE | JUNE 2005 23
her to fees that would be incurred whenshe bought and sold funds. “I’ve hadsome bad experiences where I felt likeI’d been snowed. They’d call me and sug-gest a move. And then at the end of theday it turned out to be a move from afront load to a deferred load,” she says.“So I had the potential to end up pay-ing two load charges for the same fund.I was only half listening because it wasa busy day. It was my fault for not pay-
ing attention, but this is why people areconcerned about being ripped off and
wonder if advisors areworking in their bestinterests.”
BLAME THE MEDIABefore starting a family, Kim Schwartz,*37, and her husband both worked for thesame high-tech company and found they
Continued from page 21
Continued on page 25
As a group, do-it-yourselfers (DIY-ers) are intensely interested in research. Many say they
listen in on institutional calls, as well as the quarterly financial calls put on by compa-
nies.They also devour the business sections of daily newspapers and read websites where
people trade opinions about companies and discuss investment strategies.
Technology also plays heavily into the DIY equation. Internet sites give investors access
to research along with the tools needed to make securities trades.Keith Sjögren of Tadding-
stone Consulting Group has seen studies showing 40% of millionaires have online bro-
kerage accounts but “that doesn’t mean they don’t have an advisor,” he notes.“They could
be doing some on their own and some with an advisor. People are using multiple chan-
nels. Even on the banking side, people use both Internet banking and branch banking.The
same is true on the investment side.”
Indeed, those DIY-ers interviewed were
consistently tech savvy and credit the
Internet with allowing them to buy and sell
stocks, bonds, and funds efficiently.“I used
to manage a group of people creating tech-
nical documentation. I’m comfortable with
the web,” says Kim Schwartz*. “I studied economics at university and that involves a
lot of calculus. And calculus and algebra are used in trading stocks. It helps you under-
stand the different trading theories.”
Other common traits include living well within their means and carrying little debt.
Nearly all the people interviewed had paid off their mortgages or were close to doing
so. Often, they had worked in remote parts of Canada or in smaller towns, where they had
few options to spend the cash they were accumulating.They then relocated to larger urban
areas with large sums prior to deciding how best to make investments. In the case of
married couples, one salary was often used to cover living expenses while the other
went straight to the bank. -P.P.
*This client’s name has been changed.
THEY’RE TECH SAVVY, CARRY LITTLE DEBT AND LIKE TO READ—A LOT.
DEFINING DIY-ERS
Other common traitsinclude living
well within theirmeans and carrying
little debt.
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were putting too much money into com-pany stock simply because it was easierthan developing an investment plan. Inthe years before the tech bubble burst, thecouple was in debt and carrying a largemortgage. Given their high salaries andaccumulated assets, they began question-ing their approach to cash management.
Then her husband changed jobs andSchwartz left the workforce to take careof a growing family. Her husband’s newcompany provided a lot of perks,including a home visit from a financialanalyst who confirmed their suspicionsabout how their debts were structured.That visit led to them diversifying theirassets—and prevented them from get-ting caught up in the tech stock crash.With money in hand, they paid offtheir mortgage and other debts. Thetwo then put the remaining money,around $1 million, into RRSPs,RESPs, GICs, mutual funds and stocksusing the services of an advisor at RBCDominion Securities.
Then things got interesting. “I wasthinking about going back to work andmy husband said, ‘Why don’t you starttrading stocks?’ ” The Schwartzes hadthree blocks of cash sitting in GICs
with RBC, each of which representedone year’s living expenses. The GICsweren’t earning great returns, so theydecided to close one of them and haveSchwartz use the cash to embark onsome self-directed trading. By puttingthe GIC money into the equity markets,the couple was able to ensure itremained liquid in the event theyneeded emergency cash. The experimentwas a success and more money wasmoved into Schwartz’s trading accounts.“Right now, I’m managing $100,000and we’ve got a further $900,000 ininvestments that I will eventually bemanaging. We’re basically looking atmoving $100,000 a year to home man-agement over the next nine years.”
As her husband moved up the cor-porate ladder, he became privy to infor-mation about his company and was ableto see how a good face was put onfinancial information distributed toadvisors. The experience made the cou-ple skeptical about the spin they weregetting from financial professionals.“It’s taught us not to have full confi-dence in our advisor because we knowthe information hasbeen tweaked downthe chain,” she says.
Wooing potential clients away fromdo-it-yourself investing isn’t a hopelesscause, though. Several do-it-yourselferssay they would use an advisor if theyfelt the person was truly in partnershipwith them to build a strategy for man-aging and growing wealth. “I needsomeone to give me something I can’tget myself. It would have to be someonewho wanted to point out errors ofomission and commission in order tohelp make the right decisions,” saysJason Soroko, a 32-year-old program-mer from Ottawa with six figuresinvested. “I’m even making sure thatcertain long positions I have are bal-anced. I play market-neutral positionswith options. If I were to pay someonethey’d have to make sure my marketneutral balancing is bang on, based ona proprietary model.”
www.advisor.ca ADVISOR’S EDGE | JUNE 2005 25
Continued from page 23
Continued on page 27
“The retired wealthy,who have more free time, are
starting to go out on their own.”
—Keith Sjögren
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www.advisor.ca ADVISOR’S EDGE | JUNE 2005 27
Those choosing to manage their ownmoney still represent the smallest per-centage of wealthy Canadians, accordingto Keith Sjögren, who leads the wealthmanagement practice at TaddingstoneConsulting Group in Toronto. Rightnow, the wealthy are still more likely toeither delegate financial management toan advisor or work in partnership withan advisor on their portfolios. That said,he notes the do-it-yourself cohort isgrowing. “The retired wealthy, who havemore free time, are starting to go out ontheir own,” Sjögren says. “It’s isolated tothe investment side, and not so much inareas like creation of trusts or estateplanning. You do need a lawyer for that.”
HOW ARE THEY DOING?Do-it-yourselfers obviously don’t have toworry about hidden agendas, but is itwise to invest with little or no profes-sional help? Rodgers notes there’s noth-ing inherently wrong with investorsdoing it themselves, so long as they keepa disciplined approach. Otherwise theirplans might backfire. “Typically do-it-yourselfers don’t do well because theylack that sounding board to prevent themfrom buying high and selling low. You
can look at the cash flows of mutualfunds and see people tend to buy whenit’s high and sell when it gets low. That’sbeen documented,” she explains.
But many of them are disciplined.Even when they don’t have formalfinancial plans, do-it-yourselfers set spe-cific goals regarding how much cashthey expect to accumulate in their port-folios, how and when they’ll diversify(in cases where they’re currently stockpicking), and how and when to movefunds into sheltered vehicles to fundtheir retirements.
Investing started out as a hobby forSoroko but he quickly got serious. “OnceI had an income of my own, I found Iwas saving a lot. I wanted to do smartthings with that money and I was willingto do the homework and get the most outof it,” he says. He also wasn’t impressedwith what he perceived as a formulaic
approach most advisors took to allocat-ing investments. “I don’t need someoneto say 30% in bonds and whatnot,”he says. “I found what [advisors] were
selling people was a bittoo simplistic for whatI wanted to do.”
What Soroko does is rotate sectors.He’s analyzed market trends and deter-mined moving his holdings among eco-nomic sectors provides better returns.“It’s not a ‘buy, hold and prosper’ modelyou should work on,” he says. “It’s morelike buy, shift when you need to, andprosper. I haven’t had a down year in 10years. I played the crash nicely.” So nicely,in fact, he says he’ll be able to decidewhether or not he wants to keep his soft-ware job in five years. He admits thereare no guarantees and acknowledges a lotof work and time goes into doing theresearch leading to his investment decisions. “It’s a second job,” he says.
Schwartz and her husband use Excelspreadsheets to create income-streamanalyses and have established a budgetfor every year so they’ll know how muchthey’ll need to save to make retirementincome last through age 90. They’vedetermined the husband will be able to
Continued from page 25
Continued on page 28
“I found what [advisors] were selling people was a bit too simplistic for what I wanted to do.”
—Jason Soroko
FIRED!YOU’RE
AE06_018-028 05/18/2005 10:09 AM Page 27
retire at his present income level, plusthey’ve factored in downsizing theirhouse, inflation, and changes to incomeneeds such as sending their three childrento university. “Our spreadsheet also tracksthe adjusted cost base of every stock sowe know how much tax we’ll have to payon each. I set aside enough in savings tocover that off,” Schwartz notes, addingthey also hired an estate planner to imple-ment wills and powers of attorney.
Peskowitz says another hurdle to fly-ing solo is the lack of impartiality on cer-tain investments. “You get attached toyour decisions and it makes you reluctantto get out of something when it goesdown. You can be too emotional aboutyour personal choices,” she says. “Youcan also be reluctant to sell when a stockis going up because you start expectingit to go through the roof. Both the upsand the downs can be problematic.”
That need for perspective hasprompted Greenaway to continue usingadvisors, even though he’s sometimesdissatisfied with their work. “I hungonto Royal Group as it went down.That was my decision, not the broker’s,”he says. “You need someone objective.You can fall in love with a stock.”
Andrew Burton, an investment advi-sor at RBC Dominion Securities inToronto, started his career at a discount
brokerage eight years ago. He says it’sdifficult to lure do-it-yourselfers backonce they cross over because they tendnot to see the value in what advisors dofor their clients. “They don’t want topay fees and they seem to feel deepdown they can do it themselves,” hesays. “I’d argue they can’t because theydon’t have the time. They already havefull-time jobs and they don’t have timeto do the necessary research.”
In Burton’s experience, a lot of do-it-yourselfers were simply after cheapcommissions so he offers two pieces ofadvice for advisors who think a clientmight be ready to bail. First, ask theclient what he thinks he’ll be getting ata discount firm, other than a $29 trade.“When I worked at a discount firm,people kept asking for my advice on cer-tain stocks or bonds but my hands weretied because you’re essentially an ordertaker,” he says. “When somebody wantsresearch or an opinion, they’re not pay-ing for it so they don’t get it.”
Then, explain the value of whatyou’re offering. Show your clients you don’t just give them buy-and-sellrecommendations, or research. The relationship is also about the monthlycontacts, or weekly if the client is moresophisticated. It’s about your desire toforge a partnership and develop a realistic financial plan based on theclient’s income needs and time horizons.“It all comes down to service. I want allthe clients to be involved in what they’redoing,” says Burton. “I don’t just wantthem to hand me the money and say,‘Go at it.’ ”
Philip Porado is associate editor of
Advisor’s Edge.
28 ADVISOR’S EDGE | JUNE 2005 www.advisor.ca
Continued from page 27
“They don’t want to pay fees and they
seem to feel deep down they can
do it themselves.”
—Andrew Burton
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www.advisor.ca ADVISOR’S EDGE | JUNE 2005 31
COMPENSATINGHEIRS
Marie Smith* could neverhave foreseen the trouble thatwould ensue upon her death inlate 2001.
She had carefully crafted the termsof her will, and instructed her executorsto divide the estate equally into fourparts and then purchase four 25-year,term-certain life annuities on “the mostfavourable terms” for her beneficiaries:three adult nieces and one adultnephew. The will insisted the annuitiesdefer any income payments until eachbeneficiary was 50 years old (the oldestwould soon be 50; the youngest was39). The will also named contingentbeneficiaries for each of the annuities.
When the lawyer acting for the
executors sent out a general request forproposals for the annuities required bythe will, Mark Lajambe stepped in. Heprepared a report for the lawyer, includ-ing a CANNEX financial survey ofcompetitive annuity rates. He alsoexplained how the use of the mandateddeferred annuities would create unequaltax consequences for the beneficiarieswhereby the three younger beneficiarieswould be taxed annu-ally on the growth ofprincipal on depositwith the annuityprovider prior to thestart of the incomestream at age 50.
Additionally, Lajambe suggested theuse of a corporate trustee to own and paytax on the three deferred annuities untilownership could be transferred to thebeneficiaries when they began receivingincome. The lawyer was impressed andthe products were secured.
However, in June 2002, the benefici-aries contested the estate. They had sep-arated into two groups and engaged
lawyers to represent their interests. First,they wanted an immediate lump-sumpayment (rather than a deferred annu-ity). Second, they were concerned aboutinterest owed on a loan unaddressed in
Continued on page 32
*All client names have been changed.
An advisor sorts out complicated taxproblems created by a will.
M A R K L A J A M B E
BBA, MBA
THE LAJAMBE GROUP INC.Sault Ste. Marie, Ont.
HONOURABLEMENTION
Beneficiarieswanted an immediatelump sum.
By Michael Berton
The Advisor of the Year Awards cel-ebrate advisor excellence in helpingclients achieve their financial goals.We awarded Mark Lajambe an hon-ourable mention for his solution toone client’s estate planning needs.
AE06_031-032 05/17/2005 11:50 AM Page 31
32 ADVISOR’S EDGE | JUNE 2005 www.advisor.ca
the will, that unless resolved, wouldreduce the funds available for thedeferred annuities.
Lajambe simplified the case into fourseparate challenges:❶Structure the annuities with respect
to the income tax liability.❷Structure the annuities to let the
executors obtain a clearance certifi-cate from the CRA and close offtheir involvement in the estate assoon as possible.
❸Ensure the four beneficiaries couldnot access the principal on depositwith the insurance company at anytime, as required by the will.
❹Arrange the proper signing of allappropriate documents with the pri-mary beneficiaries, contingent bene-ficiaries and various professionals.Working in concert with the execu-
tors, lawyer, accountant and the CRA,Lajambe produced a package and pre-sented it to the beneficiaries and theirlegal counsel. He proposed four distinctoptions:❶ Immediately purchase four deferred
annuities, with the attendant tax bur-den placed on the three waiting ben-eficiaries as the will originally directed.For the youngest annuitant, this wouldresult in roughly $28,716 in addi-tional taxable income (without receiv-ing any money to pay the taxes owing)over his 11-year waiting period.
❷Use a corporate trustee as an interimowner of three deferred annuities.Under this scheme, the corporatetrustee would pay the taxes on thedeferred amounts and equalize thetax burden among the waiting bene-ficiaries.
❸Make a partial lump-sum payment to
each of the four beneficiaries repre-senting each person’s estimated tax lia-bility during the waiting period. Theoldest would receive a $100,000immediate annuity, while the youngestwould receive an $86,791 deferredannuity and $13,209 in cash to fundhis taxes during the waiting period.
❹Purchase four 25-year, term-certainimmediate annuities, thus eliminat-ing the issues (both tax and owner-ship) around the waiting period.Lajambe’s proposal included a revised
CANNEX survey of annuity rates togive the beneficiaries an idea of howmuch income they could expect in eachinstance. He also provided credit ratinginformation for each annuity providerto help assuage concerns about any cap-ital risk the annuities might represent.
The beneficiaries were obtainingcompeting quotes from their own advi-sors, so Lajambe provided a detailedquote from one company which illus-trated the levelled income and taxationof a prescribed annuity.
His proposal was the subject of ayear-long legal wrangle that ended whena judge amended the will’s provisions toallow for immediate annuities ratherthan the original deferred ones.
By early 2004, the executors advisedthe four beneficiaries of their entitle-ment amounts. The beneficiaries’ advi-
sors then came forward with their ownannuity quotes. However, after revisingthe CANNEX survey, Lajambe wasable to demonstrate how these quotesin fact provided less income than thehighest provider.
In order to prevent the beneficiariesfrom cashing out the annuities (and thusprejudicing the contingent beneficiaries’interests), Lajambe had the estate pur-chase the annuities and named irrevoca-ble beneficiary designations. Once issued,ownership would be transferred to theprimary beneficiaries. However, Lajambelearned that ownership could not betransferred without the contingent ben-eficiaries signing off. So, he had the annu-ities issued with revocable designations,with the stipulation that when ownershiptransferred from the estate to the primarybeneficiaries, the contingent beneficiarydesignations would become irrevocable.
The ongoing tax liability was trans-ferred along with the annuities to thebeneficiaries, and the income interestsof the contingent beneficiaries wereprotected with irrevocable designationsconsistent with the requirements ofSmith’s will. Lajambe also protected theexecutors by providing them with a finalreport which included the annuity ratesurvey (confirming the superiority ofthe contracts chosen), copies of theoriginal annuities, and copies of thetransfers of ownership and irrevocablebeneficiary designations.
Michael Berton, CFP, CLU, R.F.P., FMA,
is a financial planner with Assante Financial
Management Ltd. and part-time instructor at
the B.C. Institute of Technology (B.C.I.T.) in
Vancouver. The opinions expressed are those of
the author and not necessarily those of Assante
Financial Management Ltd. or B.C.I.T.
Continued from page 31
A judge amended the
will’s provisions to allow
for immediate annuities
rather than the original
deferred ones.
AE06_031-032 05/17/2005 11:50 AM Page 32
BREAKTAX
Income trusts are the new hot product, but they’re not tax efficient for everyone. By Gena Katz
TRUST BUT VERIFY
During the past year, income trustshave been the IPO darlings in Canadaand now represent around 10% of theToronto Stock Exchange’s total currentvolume.
Resource royalty trusts and realestate investment trusts have beenaround since the 1980s, but businesstrusts are a more recent phenomenonand currently represent in excess of$125 billion in market capitalizationacross 175 issuers.
Why the recent surge in popularity?Today’s economic environment facesinvestors with low interest rates andvolatile stock markets. They’re look-ing for instruments with higher poten-tial returns but remain nervous abouttraditional equities. What they read inthe papers makes it look as if incometrusts are the answer to their woes.
But watch out, they’re not appro-priate for everyone. It’s important foryour clients to understand exactlywhat income trusts are, and to beaware of their associated risks.
Typically, business income trustshold a combination of commonshares and high-yield debt of theiroperating companies. Substantially allthe cash inflows of the operating busi-nesses are distributed to the trust,which in turn disburses funds to unitholders. The combination of thetrust’s equity and debt holdings allowsthe income to flow through toinvestors with little or no underlying
tax, resulting in higher payouts—typ-ically ranging between 8% and 15%.In addition, the cash distributions oftenexceed the income allocated from the trust and this excess, or return ofcapital, is tax-free but reduces the costbase of the investment.
Income trusts are intended to pro-vide investors with regular, steady, tax-efficient and generous returns.And for many, they appear to be theperfect fixed-income alternative. Butit’s important for advisors to point outto clients, especially if they’re conser-vative investors, that income trusts aremore like equity investments, ratherthan bonds or other debt securities.
There are two fundamental and sig-nificant differences between tradi-tional fixed-income investments andincome trusts. Unlike interest pay-ments on debt, an income trust has noobligation to make fixed regular dis-tributions. Instead, payments dependon the performance of the underlyingbusinesses and can be reduced or sus-pended at any time. When a fixed-income debt matures, the principal isreturned. But with income trusts thereis no guaranteed return of capital. Theinvestor’s disposition proceeds willdepend on the market trading value ofthe income fund.
So, despite the potential for supe-rior returns, income trusts may not bethe answer for a conservative investorwho counts on fixed cash flows and is
concerned about capital preservation.Income trusts are also not ideal invest-ments to hold in an RRSP. Many ofthe tax benefits are lost and regularcash flows don’t necessarily providebenefits to a registered plan.
When evaluating income trusts rel-ative to other investment vehicles for aclient, advisors must keep in mind thequoted returns represent cash distribu-tions, some of which represent a returnof capital while others do not. There-fore, a direct comparison of yields with other dividend or interest-payinginvestments may not be fair. In theevent a client is looking for growth, butnot regular cash flow, traditional equi-ties might be more appropriate.
Ultimately, the investment decisionshould be based on the merits of theunderlying businesses. The companiesshould have healthy, mature opera-tions with long-term stability. Thereshould be limited need for capitalreinvestment to maximize cash flow toinvestors. Sustainable cash flows arevery important and therefore, investorsshould consider the risks associatedwith fluctuations in market demandand prices of the underlying com-modities or services provided by thebusinesses.
Gena Katz, CA, CFP, is a senior principal with Ernst & Young’s NationalTax Practice in Toronto. “Tax Break”appears monthly.
www.advisor.ca ADVISOR’S EDGE | JUNE 2005 35
AE06_035 05/17/2005 11:50 AM Page 35
REPORT
Leveraging existing contacts helps you build a more profitable client base. By John J. Bowen Jr.
RELATIONSHIP MARKETING
Attracting new clients comeswith plenty of options. There are somany, in fact, your real challenge willbe to sort through the marketing tech-niques that don’t work and zero in onthe most effective handful.
Consider the three major channelsfor marketing to prospects:• Mass marketing, which relies on
things like mailings to reach largenumbers of prospects. This shot-gun approach sends thousands ofmarketing messages in hopes onewill hit its target.
• Credibility, which opens doors bybuilding your reputation withinyour target market. Techniques forthis channel include writing articles,making presentations, and appear-ing on radio or television.
• Relationship, which leverages yourcontacts with key clients and otherprofessional advisors, such asaccountants and lawyers, whoalready work with the people inyour target market.The mass marketing channel rarely
attracts affluent clients. The credibil-ity channel is useful for introducingyourself to a community of affluentinvestors. But a good reputation alonewon’t bring in qualified prospects. Toensure a steady stream of pre-qualifiedreferrals for prospects you can servewell—and profitably—you must turnto the relationship channel.
That channel is aligned with theway affluent people want to find theiradvisors: through referrals. Thewealthy simply don’t choose an advi-
sor based on advertisements that arrivein their mailboxes. They seek recom-mendations from people they trust.
Advisors who use the relationshipchannel understand a fundamentaltruth about the affluent: To successfullyreach prospects, you must contact themin the ways they want to be contacted.Accordingly, these advisors focus theirattention on key relationships that willlead to qualified referrals. Their effortsgenerally centre on two things: usingsystematic referral-request processeswith existing clients, and formingstrategic alliances with accountants andlawyers who serve the wealthy.
As the chart shows, client referralsare important to nearly three-quartersof Canadian advisors earning netincomes greater than $200,000. How-ever, fewer than 60% of those earn-ing less than $100,000 rely on clientreferrals to bring in prospects—a substantial difference.
The relationship channel can betime-consuming, because it requiresyou to methodically build contactswith future clients and their profes-sional advisors. But it’s also the mosteffective way to draw in wealthyclients, so its rewards can be signifi-cant.
John J. Bowen Jr. is founder and CEO of CEG Worldwide, a U.S.-based globaltraining, research and consulting firm. “The Bowen Report” appears monthly.
www.advisor.ca ADVISOR’S EDGE | JUNE 2005 37
THE BOWEN
LESS THAN
$100,000
$100,000 TO
$200,000
MORE THAN
$200,000
0%
20%
40%
60%
80%
58.8%
18.6%
64.7%
35.7%
73.7%
44.7%
Annual Net Income
Client referrals
Referrals from centresof influence, such as lawyers or accountants
PROSPECTING STRATEGIESCanadian advisors at higher-income levels consistently
make more use of referrals.
Source: CEG Worldwide, 579 Canadian financial advisors surveyed.
AE06_037 05/17/2005 11:35 AM Page 37
38 ADVISOR’S EDGE | JUNE 2005 www.advisor.ca
Clearly some of this drop-off is due to rising membership fees and the requirement that every member have a professional designation by 2010.
The proposed solution? Create a new category of membership for non-accredited salespeople. Bad plan.
When Advocis first floated this idea, I assumed it was to give would-be advisorsaccess to better educational opportunities, exposure to the benefits of a profes-sional designation and to a more committed group of advisors. This would, in turn,motivate them to aspire to higher standards.
However, I was wrong. Advocis now seems to be saying they have room for trans-action-based salespeople, simply because they are also “professional.” I know thatmany of them are experts in their fields and conduct themselves in an exemplarymanner. That’s not the point. An organization of “advisors” has to be just that—an organization of advisors, with all the requirements and trappings of a profes-sion, or else morph into a trade association. You can’t have it both ways.
Providing comprehensive advice is different than professionally selling or pro-viding transaction services. We really need to ask ourselves the following questions: • Is giving financial advice an important activity for Canadian society? • Does what we do make a significant difference in peoples’ lives? • Can we mess them up badly if we screw up? • What if we focus on selling instead of advising—can we do a lot of damage?
I hope you answer yes to all of those questions. We do not work with life anddeath daily like emergency surgeons, but short of that, don’t we have as much impacton peoples’ lives as any other profession?
Why would we even consider allowing under-educated, unaccredited and possiblyunsupervised practitioners into our associations? If regulators want to allow suchpeople to sell investment and insurance products, that’s their business. A profes-sional association, on the other hand, makes sure people cannot call themselves“advisors,” “planners” or any other term that suggests a fiduciary responsibility,without first obtaining a professional designation, following a code of ethics and
making a commitment.By allowing membership of non-
accredited advisors, Advocis is playingright into competing associations’ hands.R.F.P.s have maintained their designationbecause the Institute of Advanced Finan-cial Planners’ standards have continuedto rise, most recently with the new Professional Standards of Practice for R.F.P.s.
The Financial Planners StandardsCouncil is trying to do the same thing,and credit to them.
If we are in a serious business, thenit behooves us to make serious moves inthe right direction. Let’s look to theAustralian model as proof it can bedone. As of 2002, all financial servicesthere are regulated by one group, theAustralian Securities and InvestmentCommission. All participants need anAustralian Financial Services Licence,which requires suitable education andcompliance for each class of licence.One class covers all “financial productadvice.” Over 30% of “planners” leftthe business when this requirementcame in, so the part-timers and dilet-tantes are now gone. That sure soundspositive to me.
Beasley Hawkes is a pseudonym. He is apractising financial advisor with a firm he’drather not name. Hawkes can be reached [email protected]
LOWER HURDLES,MORE ADVISORS?
B Y B E A S L E Y H A W K E S
closingBELLAdvocis, our largest advisor organization,
is facing a serious dilemma. Its membership
has fallen off sharply (from 16,000 to
around 13,000 members in the last year).
AE06_038 05/17/2005 11:35 AM Page 38