What do Canadians really want from their advisors?

Donna Bristow, MD at Broadridge Financial Solutions, says clients are not getting enough advice and fee-based management is just the tip of the iceberg

What do Canadians really want from their advisors?

Donna Bristow is managing director and head of wealth product management at Broadridge Financial Solutions. In this op-ed for Wealth Professional, she says investor demographics and expectations are changing, creating opportunity for the intelligent advisor.

The shift to fee-based management is far more than a change in investor compensation. It’s a signal­ of a power shift from an industry-driven business to one in which the client has an increasingly strong voice. As investors now see their advisors as more than just money managers, the emphasis is firmly on the investor’s relationship with the advisor, rather than the advisor’s relationship to the market.

Where’s the wealth moving to? Women and millennials   

A range of social and cultural movements have led to the emergence of two powerful investor groups—women and millennials – who are not eager to accept old-school wealth management styles.

Wealth to women
You’ve heard of the upcoming CAD$1 trillion personal wealth transfer from one generation to the next. While the word “millennial” is often dropped in that sentence, what’s less frequently mentioned is the increasing financial power of women.

In Canada, it is estimated that by 2026, women investors will directly control approximately half of total personal wealth. Women bring their own investment and financial planning objectives to the table, which don’t always align with old school financial management practices.

One statistic in particular illustrates women’s disinterest in old-school practices: an astonishing 70% leave their advisor within one year of the death of a spouse. It’s a shocking number when you think of the power of the incumbent in any relationship. Not to mention the fact that, in the case of a spouse dying, the chances are good that the advisory relationship is a longer, well-established one.

Millennials shape the world
Millennials also challenge historical service models, as they expect a rich, on-demand, customer-centric experience.

Through a Broadridge study co-executed with CGK and ESI ThroughtLab, results showed that millennials are the generation that trust friends and family more than financial advisors. Millennials are more confident about investing in a savings account (66%) than a workplace retirement plan (58%)!

Similarly, a recent Accenture study revealed that millennials do not believe advisors provide sufficient value for what they charge, and more than half (57%) feel their advisor is only motivated to make money for themselves and their employer.

Lastly, the way millennials go, so goes the world. Rather than the expression of a younger group, they are the harbingers of the future; the new service models favoured by millennials are proving almost equally popular with Generation X and Boomers. The Accenture study showed that while 65% of millennials are interested in gamification to help them learn about investing, a full 39% of Gen X and Baby Boomers were interested as well.

What kind of advice are advisors providing Canadian investors now?

Guidance from advisors regarding key life decisions is increasingly valued by investors. In another Accenture study, investors reported that they benefit most from advice regarding retirement and ad hoc advisory support.

Motivated by the discussions of advisor compensation, The Investor Advisory Panel (IAP), an initiative of the Ontario Securities Commission, conducted a survey to learn what advice Canadian investors were actually receiving. According to the study:

Some commentators warn that a ban [on trailer commissions] will trigger an “advice gap” – a loss of access to beneficial advice for small and mass-market investors. This assumes investors in these categories currently receive, and therefore potentially stand to lose, a meaningful measure of advice that meets their needs.

The IAP surveyed 3,000 Canadian investors and the results were far from encouraging. Essentially, at all level of investor (affluent, mass-market, and small), Canadian investors are receiving very little attention or advice from their advisors. 60% of investors reported that their advisor communicated with them in the past year only “once or twice” or not all. Additionally, 49% of investors said that their advisors spent less than an hour annually, in total, communicating with them. 

What do Canadians really want from their advisors?

The transformation of our industry, coupled with the indications that investors are getting less advice than they need, creates opportunities for the intelligent advisor. The intelligent advisor is one equipped with a modern digital platform – an increasing number of investors see digital technologies as table stakes, necessary to consider a firm as a possible wealth management provider.

Transparency and seamless transition
Investors today do not view their money through the lens of products or accounts; they tend to worry about wealth, health, retirement, and family. Meanwhile, advisors and the industry as a whole tend to focus on business lines, accounts, and products. These product-led offerings, designed around traditional compensation systems, no longer seems to resonate with younger, more technology-adept investors. Across generations and genders, investors want to move seamlessly between types and levels of service, without having to transfer back and forth across business lines or open a new account.

Under the Canadian regulatory regime, investors need to create and manage separate accounts across different lines of business at the same financial institution in order to access both dedicated full-service and order-execution-only services. However, new platforms are making it possible for advisors to present client information in a seamless way – everything at a glance. This client-centred manner of presenting and reporting is certain to become the de facto standard for banks and brokers.

Millennials, the great influencers, look for frequent communication from their advisors. Close to 70% want at least monthly updates; over 1/4 prefer at least weekly. Social networks now provide advisors with the opportunity to be in touch at major life changes – a new home, a new child, a child off to university. Intelligent advisors will use these opportunities to provide timely support.

Holistic advice
Increasingly, Canadians who choose to work with an advisor are looking for holistic, goals-based advice to support their overall financial objectives. Many clients are looking for an approach that considers the financial objectives of the entire family, or household.

What’s next for advisors?

With the move towards fee-based, advisors are free to emphasize services that aren’t covered by commissions yet matter to clients. Cost is only a problem in the absence of value.

Rather than filter their behaviour through the constraints of a non-client-centred compensation system, advisors need to act as wealth managers and behavioural coaches. Advisors can help to instil discipline for clients who, without the advisor’s help, are more prone to make impulsive or emotional decisions. They have precious commodities to offer in the form of behavioural finance, retirement planning, estate maximization, risk management and investment strategy.