Good financial advice helps investors avoid fluctuations in the market by steering them coolly through the ups and downs, says Bob Tillmann, Vice-President, Distribution Marketing & Sales Support Services, Manulife Financial. And they remain as important as ever in the information era, in which investors have greater access than ever to worldwide sources of data, 24 hours a day.
Q: Why is an advisor still valuable when most people have computerized access to so much information?
Bob: I would look at an advisor as a coach. Unless you have very strong knowledge and you’re going to take the time to stay knowledgeable and connected, the advisor as a financial coach is a good person to have on your team. People should try to learn as much as they can, but it only helps to a point. Afterward I think an advisor can be a truly important partner.
Q: What is the biggest mistake people make on their own that an advisor can help them avoid?
Bob: Reacting to market fluctuations because of emotion and the day-to-day news. Studies on mutual funds show that many investors tend to buy high, just as the market peaks, and at the other end of the spectrum, when markets are having their biggest downdraft, that’s when people are getting out of equities. They miss the upside. Quite often in equity investing that in-and-out of the market can cause you harm.
Q: How long should clients give their advisors to get results?
Bob: It depends on the individual. You have to look at what a client is looking to accomplish. If the client is receiving regular updates, do they feel that what the advisor has told them and what is actually happening are playing out? The question is whether they are ultimately achieving the goals that they set out to accomplish. That can be short, in terms of one to three years, but it could be much longer. If it’s longer, you want to have regular contact with the advisor and understand you are generally moving toward the objective that you agreed upon.
Q: How does the client know when the advisor is going awry or when the markets are just not behaving?
Bob: Part of the job of the advisor is to set reasonable expectations. If the advisor’s doing a good job, they understand the client’s risk tolerance. If they’re going to make suggestions that expose the client to equity risk, the client has to expect that their investments aren’t necessarily going to go in one direction, that there’s going to be fluctuation over time, that they’re taking on more risk but for the longer-term benefit of more upside. Having said that, I think you should also be looking at the return on your investments relative to how the market is doing generally. If there’s huge variation, I think it’s something you would question of the advisor.
Q: How important are an advisor’s interpersonal skills and understanding of people?
Bob: You can’t stress that enough. You have to have a passion for helping people. Advisors put their clients’ needs first. They really do think of the clients’ total situation when they’re making recommendations. It’s not a product orientation, but rather how my client and their family will be better served by my assistance in achieving their goals, and then making sure that the contact with those clients is regular. Clients’ needs do change, circumstances change as a result of changing priorities or life events.
Q: What other qualities make a good advisor?
Bob: A good advisor has a breadth of experience, and knows how products can be used effectively to help clients meet their future goals or immediate needs. A strong financial planning background is also valuable. Quite often the advisors, whether they’re licensed to sell insurance or securities and wealth products, have strong financial planning training that goes a long way towards creating solutions for clients.
Q: What makes a mediocre advisor?
Bob: Advisors who are not necessarily putting their clients’ interests first, who are looking at their business strictly as a business, and not one that is about the people they’re dealing with. They will tend not to have regular contact with their clients. They are more focused on continual business building as opposed to trying to serve their clients effectively. Most really good advisors try to build their clientele to a point where they feel they can provide good service to all their clients, and not just serve the next one. Good advisors gain the trust of clients who feel comfortable going with their recommendations and seeing the results of their recommendations over time.
Q: How can a client tell a good advisor from a bad one?
Bob: If they haven’t met the advisor before, they should try to do a thorough background review. You can ask the advisor for references, talk to people they dealt with over a long period of time and gain an understanding of the kind of advisor they are, the kind of relationships they’ve established with those individuals. A recommendation from someone you know helps an awful lot.
Q: You can ask an advisor for references?
Bob: Yes. It’s an important question to ask. Sometimes people feel they lack some comfort in actually reaching out and doing that. Certainly, if an advisor is uncomfortable in providing those references, that’s a signal that a prospective client should be concerned about. A client who has legal or accounting advisors can ask if they know that advisor and their reputation. That would not be an unusual request.