“Investment jockeys” are in a commodity race now fees have hit rock bottom and must evolve to survive.
That’s the view of Jason Pereira, partner and senior financial consultant at Woodgate Financial, who said Fidelity’s new 0% funds were no surprise given they are only marginally more expensive than, for example, Vanguard and BlackRock products.
He also said that Wealthsimple Trade, a new free trading app unveiled last week, means the industry is at “pure commoditization point”.
He said: “I think the bigger issue, and what this really signifies, is that if there is going to be any pressure from here on out, it ain’t going to be on the manufacturers any more. This is something I’ve been saying for a long time: the last shoe to drop on compensation has been advisors and that is going to start to intensify.”
He added: “That means if you are an investment jockey and provide nothing but investment services, you are in a commodity race. If the commodity end solution is lowest cost wins, I would very much hate to be a stock jockey providing no value add and competing with robo advisors. I would really hate to do that.”
The necessity to give a client value and expertise to keep their book means there is a growing trend towards offering comprehensive planning services.
The trouble is, said Pereira, that is a little too much like hard work for a lot of guys and girls who got into the industry for the sexiness of stock picking.
He said: “If you actually do financial planning right, that provides a lot of value add. Those are margins that are much more secure than just being a market guy.
“It comes down to what is you value proposition? If it’s [a case of] ‘I’m going to pick better stocks than the next guy’, here’s the reality, the average advisor and average bank has the same information and the same technology, the same speed as everyone else in that situation.
“They have no advantage, so how do you sustain yourself in a world where you have no advantage? You don’t. People got into it for the sexiness of being a stock jockey. Will they evolve? I don’t know. I’m not sure they have it in them because the thing about financial plan is, it’s real work.
“You got to actually collect information, crunch numbers, understand what the output is and play with scenarios. Plus, there is a world of difference between a really comprehensive plan and one done by someone who knows the bare minimum.”
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