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After the first year of the COVID-19 pandemic, one would assume things would have got easier. But the period after that has brought even greater challenges for the wealth management industry.
On the economic front, continuing supply-chain challenges and pent-up demand have led to multi-decade highs in inflation. To contain the heat, policymakers have begun to pare back the extraordinary stimulus they unleashed over the course of the pandemic. The era of record-low rates is over, and now clients are facing new uncertainties, whether it’s in the form of interest-rate risk in retirees’ fixed-income portfolios or increased borrowing costs for business owners and households.
On the regulatory front, the client-focused reforms introduced over the past year have raised the bar of compliance for advisors. Not only do they face stricter KYC and conflict disclosure requirements, but they also must satisfy a more stringent set of KYP guidelines. Looking ahead, they must also navigate a planned merger between Canada’s two self-regulatory organizations and, for advisors in Ontario, a newly enacted title protection rule.
“I believe now, more than ever, working with a trusted, knowledgeable advisor to create a well-diversified portfolio and help clients stay the course in working towards their financial goals is key”
Kristina de Souza, Kleinberg Private Wealth
Through the past two years of pandemic challenges, digital communications have emerged as a vital tool for advisors to preserve and maintain their relationships with clients. As social distancing and lockdown rules made in-office interactions impossible, practices took it upon themselves to migrate their meetings into the virtual world.
“I have found that the lines of communication have opened up significantly with clients,” says Kristina de Souza, registered financial advisor at Kleinberg Private Wealth. “The pandemic was a driving force behind my increased comfort with innovative forms of communication.”
With more avenues of communication available to her, de Souza says she’s been able to keep in regular contact with her clients, which has helped instil and maintain a certain level of comfort among them. David Little, senior wealth advisor at Blue Oceans Private Wealth, has similarly used remote chat and call capabilities to reassure clients through times of uncertainty, the most recent being the current tumult caused by conflict in Ukraine.
“In hindsight, communicating with clients has been much easier compared to the past. Clients have been cooped up at home, and what better way to kill the boredom than call your investment advisor?,” he says.
With the worst impacts of the virus now fading from view, there’s at least one reason to be cautiously optimistic. After what’s probably been the longest two years in the recent history of the world, Eastern Canada’s 5-star advisors are working with an expanded toolbox to reach out and hear from their clients.
Brian Himmelman, president and financial planner at Himmelman & Associates Financial Advisors, hopes that despite the recent dependence on digital communication, the value of in-person communication doesn’t fall by the wayside.
“There’s definitely been a greater quantity of communication, but the quality really comes from both verbal and non-verbal communication. Hopefully we can get back to a good balance of both,” he says. “The challenge will be people maybe not wanting to see you anymore. There’s a lot of value that an advisor can offer by showing clients how much they care in the moment, and I think that comes from being in front of people.”
For Little, next-level communication is just one piece of the puzzle. From holding town hall client meetings to constantly reminding his employees of the importance of indoctrinating clients, he takes every effort to go the extra mile in client service.
“I never want a client to tell me one of the staff didn’t go above and beyond to help them,” he says. “That is the minimum standard acceptable in my practice.”
“When I started in the business 25 years ago, I could see that … [being] a holistic financial planner was where the future was going”
Brian Himmelman, Himmelman & Associates Financial Advisors
After nearly a decade of growing equity markets and stability everywhere else, the 5-Star Advisors are also going through a roller-coaster period of volatility. While that might not be the ideal situation for the passive investor, it has also created a chance for advisors who are willing to take an active investment approach and are able to pick their spots to demonstrate their value.
“At one point in the pandemic, the global price of oil dropped to -$16 a barrel, and we knew that was crazy,” Little says. “We entered the market and bought oil and gas stocks, ETFs, and investment funds. By the summer of 2021, demand had roared back, and we’ve had an incredible run on returns for our clients on that trade.”
Of course, investing isn’t just a one-way street. Just as the performance of markets are affected by consumer and investor demand, the perceptions and reactions of investors also influence the performance of markets. To de Souza, that means the way investors react to world events will play a large part in what happens to markets, much more so than the direct, fundamental market impact of the event itself.
“I believe that ongoing and persistent volatility will create the greatest challenges to portfolio performance [and that] investor psychology will play a large part in how the markets react over the near to medium term,” she says. “I believe now, more than ever, working with a trusted, knowledgeable advisor to create a well-diversified portfolio and help clients stay the course in working towards their financial goals is key.”
Inflation is the overarching problem across the world: by February, inflation in Canada was sporting a 5% handle, significantly above the 2% threshold that the central bank has long committed to. While Himmelman says he has run retirement plans for clients conservatively by projecting inflation scenarios at 3%, he says the deep and broadening impact of inflation across a wider diversity of goods and services means raises important questions about companies’ future earnings.
“Obviously, the central banks have to raise rates and cool off the economy. If they don't get it just right, we have the risk of certain places being driven into recession,” he says. “My outlook would be that investors shouldn’t expect the returns we’ve been accustomed to for the last five years to be what we’ll see for the next five years.”
With a mixed outlook for the future path of public markets, there’s a growing onus on advisors to explore ways to diversify their clients’ portfolios with alternative investments. While the private markets have had a tremendous record over the years, some recent high-profile failures have highlighted the need to get exposure through the right vehicles. For Little, that means investment product knowledge and analysis will be as important as it’s ever been.
“As long as we can get the analysis that is needed to ensure our clients are protected from such losses, I would think that the alternative investment product space is the next big thing in the investment industry,” he says.
“I never want a client to tell me one of the staff didn’t go above and beyond to help them. That is the minimum standard acceptable in my practice”
David Little, Blue Oceans Private Wealth
In the past two years, Canadian investors have also driven an exponential increase in responsible investing or ESG investments. According to statistics from the Investment Funds Institute of Canada, net sales in responsible investment funds have exploded from roughly $800 million in 2019 to $5.1 billion in 2020, and again to $17.4 billion in 2021.
For de Souza, that’s one of the multitude of reasons why it’s important for today’s advisors to become familiar with ESG investments.
“I agree there is still a long way to go in the measurement of ESG factors, and there is room for continued growth. However, given the current world events and inflation, it appears that diversification of energy sources would be ideal to enhance global economic stability,” she says. “Thus, a shift towards renewable energy is becoming more probable.”
She also points to research indicating that most millennials and women are interested in sustainable investing, and both groups are set to increase their share of the world’s total investable assets in the coming decades. That means for advisors to continue meeting their clients’ needs, they must expand their expertise to include this growing category of investments.
De Souza has already earned her Responsible Investment Specialist credential from the Responsible Investment Association. Himmelman also recently received his designation in January, and he believes it’s the next logical step in the movement towards holistic financial planning.
“When I started in the business 25 years ago, I could see that … [being] a holistic financial planner was where the future was going,” he says. “How has it taken so long for something this important to be adopted in the mainstream?”
While helping clients avoid misleading claims and greenwashing is of utmost importance, Himmelman believes that advisors have a bigger role to play in the ESG movement. He aims to integrate ESG broadly into his practice, and make sure every client has an opportunity to understand the potential to achieve the returns they need while feeling the joy of making a positive impact.
“My goal would be to have more than 90% of our clients be exposed to the option of investing responsibly in the next 12 months, and to have a proper screening of investment products and managers in their portfolio,” he says. “It’s not fair to not present these options to clients when they’re now increasingly within reach.”
In 2021, Wealth Professional conducted its inaugural search for 5-Star Advisors in Canada. Our goal was to answer one question: who are the best advisors in the East and the West when it comes to acting in their clients’ interests?
From a diverse cross-section of financial professionals, we got the opportunity to spotlight remarkable examples of passion, dedication, and commitment – and we wanted to do it again.
From January 3 to 28, the WP team undertook a rigorous marketing and survey process, leveraging its connections to thousands of advisors across the country. Investors were asked to nominate their advisors and rate them on six key criteria: communication, portfolio performance, product knowledge, client trust, client knowledge and customer service.
The most voted-for advisors that received an average score of 4.00 or higher were named as 5-Star Advisors who are recognized based not on AUM, but rather the service provided to their clients.