Industry veteran on how to pick a good product and the trends that are driving the industry forward
Advisors who spend hours trying to beat the market are wasting precious time and energy, according to an experienced industry insider.
John Kelleway, President of iA Securities, and a former advisor, is preparing his advisor and business associates for the future of wealth management. An advocate of the value of human advice leveraged by technology, he recognizes that times have changed, particularly when it come to how client information is delivered and updated.
In the second part of his interview with WP, Kelleway emphasized how increasingly important it is to put the client at the centre of all business offerings and activities, especially given the “race to the bottom” over fees and product delivery. Numerous low-cost solutions have come to market in recent years, predominately via ETFs, as funds become increasingly competitive.
Kelleway noted that manufacturers are having to be really sharp with pricing as they strive to live up to client expectations. He believes, however, that this trend has not moved as quickly on the advisor side, in which fees have largely “held pretty steady” despite the net effect of clients paying less in total costs.
He told WP: “We’re working to help advisors find good quality products at reasonable prices. And then, take a step further and differentiate themselves by providing true value through advice.”
But what about the “quality” of the products provided? What should an advisor look for when sifting through the supermarket of funds? For Kelleway, it’s simple, especially on the active side: the manager has to deliver!
With so many low-cost options available on the passive side, if there’s a 2%-plus fee involved, advisors have to make sure they’re producing the returns needed – and expected.
“I think advisors are becoming a lot more selective to ensure that they are delivering value. Otherwise, why would a client pay an additional fee with so many lower cost alternatives on the table. This, in part, is why we’ve seen the industry product shelf get a lot tighter. Ten years ago, an advisor would have 20 different mutual fund companies on their shelf but today I would say it’s an average of five or six.”
As well as the impact of fee compression, Kelleway highlighted three other industry trends that are affecting the direction the industry: enhanced regulation, increased transparency and shifting demographics.
He believes the significant changes in regulation over the past five years has forced dealers, like iA Securities, as well as advisors, to change their behaviour and approach things differently – although not necessarily in a bad way. Providing clients with far more transparency, for example, is a positive in his view.
“We are seeing a large shift of accounts away from transactional to fee-based and that means clients are seeing greater transparency of fees and this alone is making people do things differently.
“In my world, I can see a significant difference between an advisor who has a fee-based platform versus one who does more transactional or embedded fees. With greater visibility of pricing, most advisors feel they need to provide a higher degree of service and support to validate the cost.”
The final trend Kelleway perceives as noteworthy is the changing demographics among clients. He maintains there’s not a big transfer of wealth happening just yet but there is a big change underway in how clients want to see information. Why? Because technology and digital innovation are at the forefront of the client experience and expectations – and that means increased pressure on firms and advisors to deliver.
Kelleway said: “The number of financial firms in Canada has declined considerably over the past ten years – iA Securities is a great example of that as we have acquired ten companies in the last ten years. Suffice to say, we are witnessing rampant consolidation across the industry in the independent and manufacturing space.
“The number of mutual fund companies is getting smaller and we are also seeing that on the advisor side as well. Our AUM has grown considerably over the past decade but we’re probably down almost 40% in the number of advisors we have. This is happening primarily because regulatory requirements are becoming too onerous for some, many advisors are nearing retirement age and starting to exit the business, while other advisors are taking more of a team-based approach resulting in smaller practices coming together to provide more holistic services.”