Posts Tagged ‘Globe And Mail’
Wednesday, February 29th, 2012
“Once an accident, twice a coincidence, three times a trend” is a rule of thumb among observers of political campaigns.
That’s why I was struck by articles last week in the Globe and Mail, New York Times and the Wall Street Journal.
These articles describe turmoil among high-net worth investors …. and have profound implications for financial advisors.
First came Business Week. A story in late June outlined how the number of affluent Americans looking to switch advisors has tripled in one year, leading to a spike in investors seeking out second opinions. (Links to all of these stories can be found at the bottom of this article.)
Many find this process excruciatingly difficult. “My planner was a friend, a good guy …. but I had to stop the bleeding” said one investor who had moved. “It was almost like a breakup …. you know, I’ll take the dog, you take the silverware.” Among the advice in the Business Week article was for investors to take any second opinion with a grain of salt and to work hard on the relationship before splitting, just as they would a marriage.
Wall Street Journal
Last Wednesday, the Wall Street Journal weighed in on how affluent investors are shifting from Wall Street brokerage firms to independent advisors using firms such as Charles Schwab, Fidelity and TD Ameritrade to provide a back-office platform. The key attraction behind the move: The perception that independent advisors will be more objective and more likely to put their interests first.
The article talked about the fact that independents operating as Registered Independent Advisors are held to a “fiduciary” standard in the advice they provide, in which they are obligated to operate in clients’ best interests; this is a higher level than brokers at Wall Street firms, who are guided by “suitability rules” in which they are merely prohibited from recommending inappropriate products. (The Obama administration has made noises about extending the fiduciary standard to all financial advisors.)
Just as in Canada, American investors struggle with the “Who Can I Trust?” question, plagued by the lack of consistent regulatory oversight and the same alphabet soup of credentials we have here. A sign of the times, the article’s closing piece of advice urged investors looking to move to hone in on potential conflicts of interest.
Globe and Mail
On Thursday, the Globe and Mail gave this a Canadian spin. In a front-page story in the Report on Business, it detailed how wealthy Canadians are rethinking relationships that have sometimes been decades in the making. It talked about the scrutiny that once-passive investors are bringing to the investment philosophies guiding their portfolios, the fees they’re paying and communication from their advisor. And it also pinpointed the dramatic spike in aggressive marketing to high net worth clients by other advisors seeking their business.
New York Times
And on Friday of last week, the New York Times focused on a Pricewaterhouse Coopers survey of 238 private banks and wealth managers serving clients with assets of $500,000 to $20 million. The study highlighted a huge gap in the training, skills and tools that client relationship managers are equipped with — driven in large measure by the priority these firms give to attracting new clients as opposed to serving existing ones.
One consultant quoted in the story summarized it this way: “In the past, people were incredibly loyal to their advisors even through periods of dissatisfaction. Today that’s changing.”
Given the level of paranoia that dominates the psyche of many American investors in today’s post Madoff world, more important than advisors’ brand, performance or pedigree is the level of transparency in how they do business and how they manage clients’ money. “Even if you think you’ve found an advisor you can trust, check and check again” the article concludes.
A five point response
Among the fallout from articles such as those in Business Week, the Globe and Mail, New York Times and Wall Street Journal will be an increase in the number of clients exploring their options — some investors who have been on the fence will conclude that if others are looking at moving, perhaps they should as well.
In some cases, disillusioned investors are going the discount broker route; over the past while the self-directed channel has picked up significant share in both the U.S. and Canada.
More often, clients will be moving to another advisor. Note that investors making a move will be asking tougher questions than in the past. A Globe and Mail column in June set out a process that investors could use in selecting an advisor, including questions they might ask. One advisor used these questions to his advantage. You can read more about this here:
Telling your story to prospects
In light of the increasing media coverage on investor movement, you have two choices: You can fume about know-nothing journalists, ungrateful clients and “media whore” advisors seeking out the limelight. Or you can accept these articles as reality and focus on the things under your control.
Since January, I’ve been running workshops that have received the best response of anything I’ve done in twenty years working with advisors. Here’s a five point strategy you might consider, drawing on ideas from those workshops and bringing together some of the things I’ve been writing about over the past year.
Step One: Revisit your value
In today’s value driven world, Canadians are taking a hard look at the value they get from everyone with whom they do business.
Like it or not, more and more investors will be pushing hard to understand how much they’re paying in fees and what they’re getting in return . This has already started at the top of market, as Investment Counsellors charging as little as half a percent annually have forced some advisors to change the way they operate in order to compete. Increasingly, the market is capping fees for million dollar plus clients at one and a half percent or less.
Historically, some advisors have promoted their investment and asset allocation discipline as their key point of differentiation — although for many, the last year’s events have called into question the ability to define value in this fashion.
Another approach to value lies in the total wealth approach that more and more high end advisors are taking. This was a recurring theme by speakers at last spring’s Top Advisor Summit.
Five takeaways for advisors
Still another example is the peace of mind and sense of control that can come from a planning approach, summarized in this post from last fall:
Translating crisis into opportunity
Or perhaps you have gone the route of specialization and built expert knowledge in a narrow product area or bring deep understanding and strong credentials in the needs of a defined niche market.
Whatever approach to value you offer, being able to clearly articulate your value proposition and what clients get from working with you will become the necessary cost of doing business going forward. Now’s the time to take a hard look at how you describe the value you bring.
Step Two: Start with defence.
Identify your top clients, the ones most likely to be approached by competitors. Think about when you last met and consider whether a meeting is overdue.
What happens when you meet is key. In that meeting, you need to provide perspective on what you’ve learned from the events of the past year, a point of view on where we are today and clear guidance on what clients should be doing going forward.
Many clients are looking for a departure from the investment approaches that failed them in the past year and have frequently led to disappointing returns over the past decade. Given that many investors are looking for changes from the status quo, focus on modifications in the strategy you’re recommending. Even saying something like: “The core strategy we had a year ago still makes sense, but I’d like to talk about a few changes responding to today’s market opportunities in investment grade corporate bonds” will be well received by many clients.
If you’re advising a stay the course approach, emphasize why it still makes sense and ensure clients understand the alternatives you’ve considered before arriving at a do-nothing recommendation.
When you meet, make it a priority to dig deep for how clients really feel and focus on hearing them out. A recent article outlined five steps to an effective meeting, with particular emphasis on getting clients engaged in meetings.
Five steps to high-impact meetings
Even if you haven’t conducted a formal client survey, consider asking key clients to complete a short report card before the meeting and use that as a jumping off point for your conversation.
And here’s a comfortable way for clients to tell you how they really feel:
Getting a reading on where you stand
Step Three: Make trust your top priority
At one time, trust was given by clients — increasingly today it’s earned.
Recognize that rebuilding client trust is your number one priority — erosion of trust is a cancer that inevitably undermines your relationship.
Research by consultant Charles Green has identified four drivers of trust — credibility, reliability, intimacy and client focus. For strategies on building trust, take a look at his http://www.trustedadvisor.com/ website — you can also read more about rebuilding trust below.
Rebuilding trust — today’s #1 client challenge
Step Four: Tackle perceived conflicts head-on
Investors today are paranoid about conflicts of interest — in many cases the pendulum has swung from indifference about conflicts to fixation on them.
Consider publishing a code of conduct and sharing that with clients; this was an idea profiled in this post by a U.S. industry insider published earlier this year.
The case for an advisor code of conduct
And think about being proactive in embracing a “fiduciary approach”, in which you commit to taking the initiative in disclosing potential conflicts and putting client interests first in everything you do. At one time, advisors would have been concerned that talking about a fiduciary approach would create suspicion among clients and raise concerns where none existed; in today’s hyper-vigilant world, we need to pre-empt the concerns that may be weighing on clients but that they aren’t comfortable raising.
Step Five: Shift to offence
No matter how good a job you do, today’s reality is that you will inevitably lose some clients.
You need to put steps in place to replace them. Start by carving out a regular time block in your schedule — say two ninety minute periods each week, during which you focus on one prospecting strategy.
You could use that time to meet with professional advisors of existing clients. Or systematically reach out to people you know, offering to send them the articles you email clients, with the goal of increasing the number of prospective clients in your pipeline.
Alternatively, you could focus on client development via the client sandwich lunch initiative outlined in this article and free one hour webinar:
Getting client development into first gear
Free webinar: Building a client lunch prospecting program
Or you could seize on opportunities to position yourself as to the go-to resource for people who face corporate downsizing; this was the topic of my August column in Investment Executive:
Turning downsizing into prospecting success
And don’t ignore planting referral seeds when meeting with clients. If you’re unsure about how to raise the topic of referrals, try this at the end of a meeting: “In the next twelve months, I have the capacity to take on 10 new clients. I have recently identified the profile of the clients I find I can help the most and work with the best — a profile that you fit almost exactly, by the way. I wonder if I could take two minutes to walk you through the qualities of the clients I work with best, in case you’re talking to a friend who is considering making a change.”
The four articles that appeared recently and others like them are a wakeup call for advisors. The only question is whether you answer that call or press the snooze button.
If you decide to respond, schedule some time in your calendar right now, perhaps along with your team or colleagues. In that time slot, you might go through this article in detail and pick one or two areas to focus on in the period ahead, clearly defining the steps you need to take in the next 30 days.
Just remember: Advisors are no different than automakers or retailers. Those who embrace fundamental change in response to an altered competitive landscape and shifting customer reality can position themselves for future success. Those who fail to do so risk being left in the dust.
P.S. For those who want to send this article to a team member or colleague, note that the email forwarding system on the platform for this blog has developed a glitch.
Copy and send this link instead:
To forward this article: http://www.strategicimperatives.ca/blog/?p=198
Links to articles:
Business Week — June 25 Thinking of Switching Financial Planners?
Wall Street Journal — July 29 WSJ.com — Wary Investors Are Seeking Out Objective Voices
Globe and Mail Report on Business — July 30 “Wooing the Wealthy” <http://www.globeinvestor.com/servlet/story/GAM.20090730.RHIGHNETWORTH30ART1944/GIStory/Email>
New York Times — Aug 1 Wealth Matters: In Search of Competent (and Honest) Financial Advisers
Tags: Affluent Americans, Brokerage Firms, Business Week Article, Charles Schwab, Financial Advisors, Globe And Mail, Globe Mail, Grain Of Salt, High Net Worth Investors, Independent Advisors, Independents, New York Times, Obama, Political Campaigns, Profound Implications, Rule Of Thumb, Second Opinion, Silverware, Wake Up Call, Wall Street Journal
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Wednesday, February 8th, 2012
A couple of weeks back I had a conversation that got me thinking.
Some friends had invited me over to join them for a casual dinner party. As it happens, the guy who was sitting beside me recognized me from my column in the Globe and Mail and in short order asked for advice.
“My wife and I have been talking about the possibility of changing our stockbroker,” he said. “I wonder whether you could suggest a couple of brokers we could talk to.”
The roots of dissatisfaction
I answered that there were obviously lots of alternatives depending on what he and his wife were looking for, and how much they had to invest. Before going further, I asked him to tell me more about his current advisor.
“We’ve been working with this woman for about five years,” he said “and in most respects we’re not unhappy with her. Before starting with her, I’d been managing our own money. She helped us develop a bit of a plan; whenever we call she gets back quickly, and when we finish our annual meeting to make sure we’re on track both my wife and I walk away feeling our time has been well spent.”
“All of that said, I think we may need someone who’s more on top of what’s happening in markets and who’s more proactive in managing our portfolio. We don’t get much in the way of information from her between meetings, aside from the generic quarterly newsletter that her firm sends which is generally a waste of time.”
“And, when we do meet all she says is that we have lots of time, to stay the course and we’ll be fine. That may be true, but I really wonder how on top of markets she really is; and whether we’d be better off working with someone who is more proactive in identifying better opportunities.”
Today’s desire for change
After hearing him out, I suggested that before looking at alternatives, he and his wife should sit down and talk to their advisor and air their concerns. I haven’t heard from him since our conversation, so perhaps they’ve had that discussion and cleared the air. Or maybe this investor got busy, as all of us do and he never followed up with his advisor and is now vulnerable to the next advisor who approaches him.
Advisors reading this may shake their heads about how fickle and unreasonable clients are. And certainly, there are clients who are irrational.
Look at this however, from the investor’s point of view. Given the market turmoil of the past four years, many investors take the view that if they haven’t seen recommendations for changes in their portfolios, it is lack of interest or effort on their advisor’s part. In today’s environment, even investors with a long term view want to feel that their investments are being actively managed. That doesn’t mean you recommend changes for the sake of changes; but everything being equal, investors want to feel that their advisor is on the lookout for ways to improve their portfolio.
Certainly, you can recommend that investors maintain the status quo. Just understand that today you have to work harder to get clients to buy into that status quo mindset than to make changes. If you’re recommending no changes in a portfolio you need to demonstrate the alternatives you’ve looked at and to explain why maintaining their portfolio as is makes sense.
Communicating that you’re on top of markets
A related issue is letting clients know that you’re on top of what’s happening in markets. Regrettably, in today’s cynical and skeptical world if you don’t let clients know the kinds of things you do to stay abreast of market developments some will conclude the worst, and assume that you’re not investing the time to stay informed.
This isn’t true of all clients of course, but it does apply to a significant number. That’s why you need to let clients know what you’re doing to ensure you’re providing the best possible advice.
So if you’re going to a conference, consider sending clients a short note summarizing the speakers you heard and the key messages you walked away with.
Another alternative is to send clients a monthly email with a link to one article or video that illustrates the sources you tap into as part of your ongoing research. The key is to have that article come from a credible source; The Economist, Financial Times, Fortune, Forbes, New York Times and Bloomberg Business Week are examples of sources that inspire confidence among clients.
In the perfect world, clients would trust us fully and we wouldn’t have to go to the effort of demonstrating what our efforts are on their behalf. And while that’s certainly true of some clients, a growing number want the reassurance of knowing that their advisor is on top of important developments. That monthly email with an article from Forbes or the New York Times could be one of your investments in reinforcing client confidence that they’re working with the right advisor.
Tags: Annual Meeting, Casual Dinner, Desire, Dinner Party, Dissatisfaction, Email Client, Globe And Mail, Money, Quarterly Newsletter, Respects, Roots, Stockbroker, Waste Of Time
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Wednesday, January 4th, 2012
Lots has been written about what advisors can do to create outstanding client relationships.
What’s often missed is the role that clients themselves play – quite simply, there are some clients whose mindset and behaviour make a deep bond impossible. In many regards, it’s clients themselves that more than any other single factor determine whether a strong connection is possible.
The fact is that advisors aren’t powerless victims when it comes to the clients you deal with – advisors do have a choice on this matter.
In August, a column in the Globe and Mail outlined seven attributes that investors can bring to the relationship with an advisor that allow an advisor to work more effectively and maximize the value those investors get.
While written for investors, this column also offers useful guidelines for advisors when talking to prospective clients. A previous Globe column outlined guidelines for investors seeking a new advisor, suggesting that investors write down the key things they’re looking for before meeting with a potential advisor.
Advisors should do the same – while you might still choose to work with a new client who doesn’t meet all your criteria, it’s nevertheless worthwhile to identify the important things you’re looking for in a new client – and the dealbreakers that might cause you to take a pass.
Finally, please note that the seven attributes in this column won’t be a fit for every advisor – they may be a starting point, but to be effective you have to take the time to identify the qualities in a new client that apply to you.
Tags: Attributes, Client Relationships, Financial Adviser, Globe And Mail, Globe Investor, Globe Mail, Important Things, Investment Ideas, Investor Investment, Investors, Mindset, Podium, Powerless Victims, Prospective Clients, Relationship
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Wednesday, December 21st, 2011
As European debt woes continue to dominate headlines, it’s hard for this not to have an impact on our mood and our outlook. That’s true of us and it’s equally true of our clients.
It’s in times like these that investors look to their advisors for guidance and direction. Note that if clients don’t get this from you, they’ll get that guidance elsewhere; whether from friends, relatives or self-appointed investment gurus on television or in newspapers.
That’s why it’s essential for advisors to be proactive in providing clients with context on the current issues. In doing so you’ve got to deal with two timeframes; the immediate situation as well as the longer term outlook.
Recently, I came across a couple of highly credible and insightful perspectives that paint a daunting picture for the near term, and a more positive prospect for mid and long term global growth. Today’s article focuses on near-term; Monday’s article will talk about the mid-term outlook.
“The best speech in a very long time”
Even though advisors preach a long term focus, the reality is that in times like these, the immediate timeframe is what dominates many clients’ thinking.
That’s why a December 12 speech by Bank of Canada Governor Mark Carney is essential reading. This talk was cited by the Globe and Mail’s Jeffrey Simpson as “a discourse so intelligent in its analysis and perceptive in its recommendations that it stands as the best speech by any public figure in Ottawa in a very, very long time.”
Titled Growth in an Age of Deleveraging, Carney pulled few punches in laying out the background to today’s issues in blunt language not usually associated with central bankers.
Note that to provide a good flavour of Carney’s remarks, today’s article is longer than the norm. Some of his comments follow:
The end of the debt super cycle and a new era of deleveraging
- Advanced economies have steadily increased leverage for decades. That era is now decisively over. The direction may be clear, but the magnitude and abruptness of the process are not. It could be long and orderly or it could be sharp and chaotic. How we manage it will do much to determine our relative prosperity.
- Accumulating the mountain of debt now weighing on advanced economies has been the work of a generation. Across G-7 countries, total non-financial debt has doubled since 1980 to 300 per cent of GDP. Global public debt to global GDP is almost at 80 per cent, equivalent to levels that have historically been associated with widespread sovereign defaults.
- As a result of deleveraging, the global economy risks entering a prolonged period of deficient demand. If mishandled, it could lead to debt deflation and disorderly defaults, potentially triggering large transfers of wealth and social unrest.
Big challenges for Europe
- In Europe, a renewed crisis is underway. An increasing number of countries are being forced to pay unsustainable rates on their borrowings. With a vicious deleveraging process taking hold in its banking sector, the euro area is sinking into recession. Given ties of trade, finance and confidence, the rest of the world is beginning to feel the effects.
- Debt tolerance has decisively turned. The initially well-founded optimism that launched the decades-long credit boom has given way to a belated pessimism that seeks to reverse it.
- In Europe, a tough combination of necessary fiscal austerity and structural adjustment will mean falling wages, high unemployment and tight credit conditions for firms. Europe is unlikely to return to its pre-crisis level of GDP until a full five years after the start of its last recession.
- In most of Europe today, further stimulus is no longer an option, with the bond markets demanding the contrary. There are no effective mechanisms that can produce the needed adjustment in the short term. Devaluation is impossible within the single-currency area; fiscal transfers and labour mobility are currently insufficient; and structural reforms will take time. Actions by central banks, the International Monetary Fund and the European Financial Stability Facility can only create time for adjustment. They are not substitutes for it.
- The route to restoring competitiveness is through fiscal and structural reforms. These real adjustments are the responsibility of citizens, firms and governments within the affected countries, not central banks. A sustained process of relative wage adjustment will be necessary, implying large declines in living standards for a period in up to one-third of the euro area. We welcome the measures announced last week by European authorities, which go some way to addressing these issues
- Austerity is a necessary condition for rebalancing, but it is seldom sufficient. There are really only three options to reduce debt: restructuring, inflation and growth. Whether we like it or not, debt restructuring may happen. If it is to be done, it is best done quickly. Policy-makers need to be careful about delaying the inevitable and merely funding the private exit. Historically, as an option to restructuring, financial repression has been used to achieve negative interest rates
Getting growth restarted
- (Americans’) net worth has fallen from 6 ½ times income pre crisis to about 5 at present. These losses can only be recovered through a combination of increased savings and, eventually, rising prices for houses and financial assets. Each will clearly take time.
- The most palatable strategy to reduce debt is to increase growth. In today’s reality, the hurdles are significant. Once leverage is high in one sector or region, it is very hard to reduce it without at least temporarily increasing it elsewhere.
- In recent years, large fiscal expansions in the crisis economies have helped to sustain aggregate demand in the face of private deleveraging. However, the window for such Augustinian policy is rapidly closing. Few except the United States, by dint of its reserve currency status, can maintain it for much longer.
- With deleveraging economies under pressure, global growth will require global rebalancing. Creditor nations, mainly emerging markets that have benefited from the debt-fuelled demand boom in advanced economies, must now pick up the baton.
- This will be hard to accomplish without co-operation. Major advanced economies with deficient demand cannot consolidate their fiscal positions and boost household savings without support from increased foreign demand. Meanwhile, emerging markets, seeing their growth decelerate because of sagging demand in advanced countries, are reluctant to abandon a strategy that has served them so well in the past, and are refusing to let their exchange rates materially adjust.
- (Both advanced economies and emerging markets) are doubling down on losing strategies. As the Bank has outlined before, relative to a co-operative solution embodied in the G-20’s Action Plan, the foregone output could be enormous: lower world GDP by more than US$7 trillion within five years. Canada has a big stake in avoiding this outcome.
Implications for Canada
- Canada has distinguished itself through the debt super cycle, though there are some recent trends that bear watching. Over the past twenty years, our non-financial debt increased less than any other G-7 country. In particular, government indebtedness fell sharply, and corporate leverage is currently at a record low.
- Over the same period, Canadian households increased their borrowing significantly. Canadians have now collectively run a net financial deficit for more than a decade, in effect, demanding funds from the rest of the economy, rather than providing them, as had been the case since the Leafs last won the Cup.
- Developments since 2008 have reduced our margin of manoeuvre. In an environment of low interest rates and a well-functioning financial system, household debt has risen by another 13 percentage points, relative to income. Canadians are now more indebted than the Americans or the British. Our current account has also returned to deficit, meaning that foreign debt has begun to creep back up.
- Canadian firms should recognize four realities: they are not as productive as they could be; they are underexposed to fast-growing emerging markets; those in the commodity sector can expect relatively elevated prices for some time; and they can all benefit from one of the most resilient financial systems in the world. In a world where deleveraging holds back demand in our traditional foreign markets, the imperative is for Canadian companies to invest in improving their productivity and to access fast growing emerging markets.
Putting today’s challenges in context
In reading this talk and in sharing Mark Carney’s perspectives with clients, sobering as they are, there are three considerations to bear in mind:
Perhaps the most positive news is that Europe’s leaders appear to be coming to terms with reality. It does seem that not just Carney, but politicians and central bankers across Europe do grasp the gravity of the challenges; and are starting to implement strong measures in response.
Second, strategists universally agree that the market has priced in a recession in Europe. Unless things get much worse, virtually all of the challenges Carney outlines are reflected in current stock prices.
And finally; a reminder of the continuing divide between the bad news when it comes to debt and economic growth on the one hand and companies that are continuing to find ways to deliver strong earnings on the other. Just remember that at some point company earnings have to re-establish a connection with overall economic growth.
If you’re interested in reading more, here’s a link to Jeffrey Simpson’s Globe column:
And here’s the full text of Mark Carney’s speech:
Tags: Bank Of Canada, Bank Of Canada Governor, Current Issues, Debt Woes, Discourse, Flavour, Global Growth, Globe And Mail, Insightful Perspectives, Investment Gurus, Jeffrey Simpson, Leverage, Mark Carney, New Era, Norm, Proactive, Punches, Term Focus, Term Outlook, Timeframe
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Wednesday, December 7th, 2011
In light of the events of the last nine months, investors and advisors alike are reexamining the process used to build portfolios.
A May 25 in the Globe and Mail highlighted two tools to overcome investors’ (and some advisors’) emotional reactions to market movements, creating the impulse to buy and sell at exactly the wrong times. The article quoted the words of Walt Kelly’s 1950’s cartoon character Pogo: “We have met the enemy and he is us.”
The solution for advisors lies in bringing much more discipline to how client portfolios are managed, using two tools from institutional investors. The goal is to borrow Warren Buffett’s dispassionate approach to investing, which he summarizes as: “Be fearful when others are greedy and be greedy when others are fearful.”
To read the article click on :
Tags: Advertisement, Buy And Sell, Buy Sell, Cartoon Character, Client Portfolios, Emotional Reactions, Globe And Mail, Globe Investor, Globe Mail, Impulse, Institutional Investors, Investing, Investment Ideas, Investor Investment, Lt, Mail Tools, Nine Months, Podium, Pogo, Portfolio, Strict Discipline, Target, Two Tools, Walt Kelly, Warren Buffett
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Wednesday, December 7th, 2011
Many Canadians are unsure if they’ll be able to hit their long term goals and as a result feel out of control of their financial future.
In a recent article in the Globe and Mail, I discussed the need for investors and the advisors they work with to review and update financial plans, stress testing those plans by looking at the impact of different scenarios going forward in three categories. Advisors need to stress test three things with clients — how much they’ll spend in retirement, how much they’ll save for retirement and the risk they’ll take in investing those savings along the way. For each of these you can create a base case and then examine the impact of different scenarios.
Stress test one: Spending in retirement
Once you’ve created a base case (perhaps with a high spending and low spending scenario) you can stress test for the impact of higher than expected inflation (a growing concern among some economists due to the record levels of spending by Governments around the world) and the effect of unanticipated expenses such as an extended stay in a long term care facility or nursing home.
Stress test two: How much clients save before retirement
Many clients have already increased savings levels and made the decision to defer retirement. A recent survey indicated 60% of Canadians are concerned about someone in their house being laid off — you can stress test the impact of clients losing their jobs or earning less part time income after retiring than expected.
Stress test three: The risk on savings
Given what’s happened to markets, many Canadians would prefer to avoid risk entirely … so you could start by stress testing a retirement plan for the impact of the 2% return currently available on GICs.
For most Canadians without guaranteed company pension plans, a 2% return means they’re almost certain to run out of money in their 80s. You can do further stress tests at 4%, 6% and 8% returns– looking at the greater volatility and risk that comes with each of those higher return levels and helping clients understand the tradeoffs between risk and return.
You need to emphasize to clients this is not a static process, for this stress testing process to be remain accurate, it needs to be updated every year or two. The good news is that even if clients aren’t exactly where they hope to be, events in a year’s time may have changed so they are closer to their goals.
To read the full article, go to: http://www.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/take-a-stress-test-of-your-own-portfolio/article1187964/
Tags: Base Case, Canadians, Company Pension, Financial Future, Gics, Globe And Mail, Globe Mail, Growing Concern, Long Term Care, Long Term Care Facility, Recent Article, Retirement Plan, Stress Test, Stress Testing, Stress Tests, Term Care Facility, Term Goals, Test One, Time Income, Volatility
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Wednesday, September 21st, 2011
Recently, my weekly column in the Globe and Mail talked about the desire by many clients to be more involved in the decisions on their accounts and to act more like partners with their advisors.
In response I got an email from a C.A. in a mid-sized community in southern Ontario – we subsequently spoke on the phone.
His approach to referrals
This C.A. has spent twenty years working on his own supported by a small team of associates, focusing on business owners.
As well as audits and tax advice, he also is a certified financial planner and does financial planning. He has historically supplied clients without an investment advisor with a list of three to five advisors who they could talk to about implementing their plan – generally based on advisors that existing clients were working with.
He does this as a service to clients with no expectation of being rewarded by either clients or advisors– he mentioned that he takes pride in going above and beyond to help clients. He doesn’t initiate referrals to advisors – if clients are happy where they are, he’s fine with that. The only time he makes referrals is when clients are unhappy, ask for suggestions or don’t have an advisor in place to implement a financial plan he’s developed for him.
In some cases, he has participated in meetings with clients and advisors two or three times a year, provided that clients were prepared to pay for his time to do this – but generally he has not been involved in the process after making referrals, other than preparing taxes.
The historical experience
Historically, his clients were generally happy with the advisors he referred them to, although there were a couple of consistent irritants.
One related to the quality of reporting. He commented that investment industry reporting is not uniform and difficult to decipher – it can take him an hour to calculate how clients have actually done.
He went on to say that some firms look like they’re deliberately making it hard for clients to figure out what their annual return looks like and to determine what clients have paid in fees. He did say that this has become better recently as some advisors have moved to charging fees separately, so that they are deductible on client taxes.
He’s also had some clients comment on the fact that after having paid him to develop a financial plan, there was no reduction in fees charged by their investment advisor – in effect they felt they’re paid twice, once for the C.A. to develop the plan and a second time for the investment advisor’s embedded cost of doing this plan.
He’s never had an advisor try to find a way to have the time they saved by not having to do a plan reflected in reduced fees to clients or ask about trying to find a way to help offset the cost for this C.A. to continue to be involved in client meetings.
And when I asked about whether advisors had offered to sit down with him to walk through their investment approach or process to manage client risk, he said he’s never had someone offer to do that.
Rethinking the approach to referrals
A couple of things are causing him to rethink his approach to referrals.
One was an article in the March issue of C.A. magazine, talking about the opportunity for C.As to become more involved in helping clients reevaluate their investment strategy and philosophy and monitor their investment plan.
He said it’s also become apparent to him that some clients have seen the names he suggested they talk to as an endorsement. This was particularly a problem where clients were not actively involved in the investment process, but delegated and deferred to the advisor.
As a result, in future he will be more careful both about the clients he refers and the advisors he refers them to. He also plans to make his role more explicit, both verbally and in the engagement letter he has clients sign and encourage clients to talk to more than one advisor before picking someone. He said that most advisors seem fine with this, although some years ago one advisor called him and said that he was not interested in participating in a beauty contest and that if this C.A. was going to give his clients multiple advisors to talk to, then to take him off the list.
Taking versus giving
At the end of our conversation, I asked about the kind of acknowledgement he’d received from advisors he’d referred clients to.
His comment was that in his experience most financial advisors are much better at taking than giving.
Historically he’s made two to three referrals a year, so about fifty referrals over the past twenty years. In that time, he’s never received a referral in return or had an advisor ask about the nature of his business, should he or she run into a business owner who might benefit from this C.A.’s services.
And while he normally receives a thank you call after referring clients, typically that’s as far as it goes.
He did comment that there are a couple of advisors in his community who’ve picked up half a dozen clients in the past three or four years as a result of his referrals.
One of those advisors makes a point of inviting him and one of his clients out to lunch two or three times a year. He went on to say that even though he considers these two advisors equally competent, he can’t help being more disposed to making additional referrals to the advisor who takes him and his client out to lunch periodically.
“I’m human like everyone else” this C.A. said. “Even though I know this shouldn’t affect my decisions, it’s still nice to feel that someone who’s making money from referrals I’ve made doesn’t take me for granted.”
I took a few things away from this conversation.
The first is that the changes as a result of events of the past couple of years aren’t limited to clients but also extend to the professionals who sometimes refer those clients.
As a result, advisors need to do a better job of communicating the process they have to monitor and manage risk.
They and their firms need to do a better job on reporting and on transparency of compensation.
And finally, many advisors need to think harder about how they acknowledge the sources of referrals.
None of these were necessarily critical in the past – but will play an increasingly important role for advisors who want to maximize referral opportunities in future.
Tags: Audits, Business Owners, Candid Feedback, Certified Financial Planner, Compendium, Email, Expectation, Financial Planning, Globe And Mail, Investment Advisor, Investment Industry, Preparing Taxes, Referral Source, Referrals, Southern Ontario, Target, Tax Advice, Three Times, Twenty Years, Weekly Column
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Wednesday, June 29th, 2011
Last week’s “Night of the bears” in Toronto drew lots of media coverage.Here are three articles you can send clients that provide perspective on the celebrity bears — two come for the Globe and Mail, the other features Professor Jeremy Siegel from Wharton in an article and audio interview.“Celebrity bears all the rage; but we’ve seen fads before”
Bearish mantras need to be heard; but with a grain of salt
”Bears, bulls and the hazards of gurudom”
Consider the possibility that the bears might miss it when the economy turns
Jeremy Siegel: ‘Once the Market Has Fallen 50%, Your Future Returns Are Even Better’
U.S. stocks raised eyebrows this week and last, closing higher in six of seven trading days, including four in a row from March 10 to 13. But how does the market look for the longer term? In an interview with Knowledge@Wharton, Wharton finance professor Jeremy J. Siegel says he was pleased to see consecutive gains after so many declines. He adds that history provides lots of evidence that stocks remain good long-term investments, especially when they are down 50% from their peak.
Visit http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2188 for the complete story.
For more information, please visit http://www.getkeepclients.com.
Tags: All The Rage, Audio Interview, Declines, Eyebrows, Fads, Finance Professor, Future Returns, Globe And Mail, Grain Of Salt, Jeremy J Siegel, Jeremy Siegel, Mantras, Media Coverage, Peak Visit, Professor Jeremy, Servlet, Term Investments, Theglobeandmail, Upenn, Wharton
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Wednesday, June 15th, 2011
Amidst all of the market uncertainty, some advisors find it helpful to email articles that provide a generally upbeat view of mid term prospects.For example, a recent cover story on Macleans featured “The case for optimism.” Other articles come from the Globe and Mail, National Post and Toronto Star.
To view “The case for optimism”, March 24 — go to www.macleans.ca
Globe and Mail Report on Business
“Bear rally or not, there will be a recovery” — March 24, Rob Carrick When the market does come back, it’s going to look a lot like it has in the past couple of weeks
Taking (Buffett’s) measure of the market” — March 12, Derek DeCloet
Where is the bottom? Even Warren Buffett doesn’t want to guess
The art of ignoring the pendulum’s swing — March 13, Dan Richards
The preferred approach” — March 27, Rob Carrick
Banks have lately issued hundreds of millions of dollars in preferred shares, and investors have been ready buyers
“New faith in energy stocks” — March 23, Rob Carrick
Suncor’s bid for Petrocan might be a signal it is time to dip back into the oil patch
Levi Folk, March 26
We now have a market that wants to rally, and that is a very different beast from prior months. U. S. stock markets clawed their way back to gains late in the day yesterday, extending the best monthly result for the S&P 500 in nearly two decades. The catalyst is a string of data suggesting that a massive inventory rebound will take the U. S. economy back from the brink, aided by a flood of cheap financing.
Fairfax Contrarian Cashes in Mightily — March 28, James Dawe http://www.thestar.com/article/609732
For more information, please visit http://www.getkeepclients.com.
Tags: Decloet, Energy Stocks, Globe And Mail, Late In The Day, Mail Report, Market Uncertainty, New Faith, Oil Patch, Pendulum, Preferred Approach, Preferred Shares, Report On Business, Rob Carrick, Suncor, Swing March, Term Prospects, Theglobeandmail, Toronto Star, Upbeat View, Warren Buffett
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