Scott Starratt says that investment alpha has been commoditized, premium service requires a greater emphasis on quality of experience
Technology, regulatory change, and innovation have shifted wealth management from a trade defined by outperformance to a profession defined by service. That’s Scott Starratt’s view of his industry’s recent history. The investment advisor and portfolio manager at Starratt Wealth Management of Canaccord Genuity in Calgary now believes that market outperformance will no longer be the metric by which advisors are judged. Instead, he insists that service quality is the route to earning your fees.
Starratt explained how each innovation in the DIY investment space has been called a death knell for the wealth management business. Discount brokerages came, followed by robo advisors and model portfolios. In all those cases, advisors found that clients still valued advice. Now as AI becomes more prevalent in the investment management space and AI insights can be used to power portfolio decisions and even some personalized financial plans, Starratt believes advisors need to focus on service delivery over investment outperformance.
“I think investment performance will still be there because most of the money is moving towards passive investing. However, it’s the interpretation and the level of service that I think will continue to go on,” Starratt says. “I see more and more some of the AI frontier models saying they could do a really good financial plan for you and show you all the numbers and tell you some ways that you’re going to be able to retire earlier, or how to optimize your existing portfolio. However, it’s that nuance that is harder and harder for AI to come to terms with. That could be tax issues, or family issues, but that’s where I see the potential for the full service investment advisor to still provide that type of advice to clients.”
How service quality can create better investment outcomes
A focus on service quality, Starratt says, can actually help with the behavioural risks that are often the most damaging to long-term returns. Delivering a high level of service means understanding when clients are likely to be most sensitive to volatility and how to control for those periods of volatility when they arise.
He notes that recent experience on equity markets has been one of short corrections with rapid recoveries, which has trained many investors to prefer buying the dip. Nevertheless, awareness of clients’ sensitivity and allocating to protect them from themselves can be a core part of this improved service delivery.
Through their role as a trusted source of advice and a consistent sounding board for client ideas, advisors can coach their clients on the returns to expect and the returns that best suit their goals. Underperformance isn’t an issue in a bull market when balanced allocations can still exceed a client’s necessary annual returns, especially when those allocations allow the client to outperform a down market.
Defining quality service
While quality of service is an inherently more subjective metric than relative investment performance, Starratt still believes it can be measured on a client by client basis. For many clients, their expectation is defined in their plan, which should tell the advisor what the client wants in terms of risk, return, volatility, and the eventual end goal. Setting client-specific benchmarks for success is tied to the level of financial planning that has become table stakes in modern wealth management.
Beyond an investment model that serves a client’s unique goal, many advisors have elected to add additional services like estate planning, tax planning, or philanthropy planning. Starratt notes that these ancillary services are an essential way to justify any kind of premium fee an advisor might be charging, especially in light of the total cost reporting requirements baked into CRM3.
Those ancillary services can become metrics of success for advisors, Starratt explains. That could mean providing a client with an estate plan that gives them peace of mind and shows them that they will be okay. It could also mean demonstrating significant tax savings, which could be more positive for a client’s net worth than their particular annualized investment return.
Dealers’, advisors’ role in service improvements
Providing this level of service can’t be done in isolation and Starratt says dealers play an essential role. He believes that the tech stack dealers provide is essential, that includes planning software, administrative support platforms, and investment management tools. Continuing education can help advisors upskill and add those ancillary services as well.
“Dealers aren’t stupid,” Starratt says. “They know that if you have a really good advisor who’s doing a good job for their clients and are out there getting referrals from those clients or getting more money coming in through the door, that they’re going to win.”
For advisors, Starratt’s essential takeaway is that they need to set a standard for service that matches their fee. They need to know where they’re coming from and what they want to provide, using that self-awareness as a springboard to modern success.
“You have to understand what you are and who you are to people. Are you the Walmart, Amazon of the world? The low cost, super fast, getting things out there and doing a really, really good job on execution and giving a really good product,” Starratt says. “Or, are you more the Harry Rosen, Holt Renfrew, Nordstrom’s of the world. Are you providing that level of service and product that’s out there, and being able to make people feel really comfortable coming into your practice and giving them kind of a warm hug? If you are, you should be charging a premium for that kind of advice.”
