Survey reveals investors are not referring their advisors, who are not engaged in all of their financial lives
Advisors must change their job description if they are to repair broken relationships with investors, a survey has concluded.
Systelos commissioned an Environics Study to investigate what Canadians really think about their advisors. It discovered that while only 6% were not loyal to their advisor and just 12% had fired their advisor, only 47% have actually recommended their money manager to a family member.
The majority of those polled said they were satisfied with their returns but Jad Chehlawi, founder of Systelos, questioned this measurement of performance. He cited S&P Indices Data, which reports that less than 20% of Canadian money managers outperformed the market over the past 10 years despite 76% of investors believing that money managers beat the market more often than they do.
Chehlawi said: “The data behind investment performance always makes me rethink where advisors are creating value. Professional money managers who spend all their time in front of their portfolios and don’t have to deal with clients, these money managers rarely outperform the market.
“I feel like we have been fighting the wrong battle and missing out on the real value that human advisors can create.”
Chehlawi said there is definitely the feeling that advisors are supposed to beat the indexes, creating certain expectations that can’t be matched. If 80% of advisors are failing to beat the market, he said, that is negative alpha and total focus on the market simply “sets you up to fail”.
Chehlawi said advisors can bring value to other areas such as: helping clients save; disciplined financial planning; getting a will in place; or buying an insurance policy that could benefit your client’s loved ones.
He said: “Advisors need to shift the conversation from hit-and-miss valuations on the market to value that’s much more sustainable and actionable. The Morning Star did an analysis that said if advisors focused on the Gamma, it is anywhere between 1.85% of additional return to above 2%, so if an advisor is charging above 1% to manage investment and just focusing on that, we know that there won’t be a lot of value happening. But if they shift their focus on to other elements it is going to be easier.”
He added: “We need to focus on a new job description for advisors. People will always need people for a financial trade-offs and follow-ups with the right action.
“The robos have been getting some traction as the markets have been going up but the real value of the advisor is helping their clients through a market correction and looking at all the other things that they can be doing.”
The survey also reported that 74% of clients said their advisors are not engaging in all aspects of their financial lives, revealing that only 19% of clients are getting tax planning help; 16% insurance advice and 10% are being assisted with legal affairs.