It's always about dollars and cents when the investment industry tries to make the case for getting financial advice, not the professionalism of the people offering the guidance.
The latest example is a new study showing that if more people used advisers, we could solve two challenges posed by our aging population. One is that people aren't saving enough for retirement, and the other is that economic growth could slow down with people aging and leaving the work force.
People save more with an adviser, the Conference Board of Canada study argues. With more put away, people will have money to both support themselves in retirement and circulate in the economy. Everybody wins.
The study was done with funding and support from the Investment Funds Institute of Canada, which represents the interests of the mutual fund industry. Advisers are the mutual fund industry's sales force and they have no better ally than IFIC, which previously tried to quantify the value of advice in a study released a couple of years ago.
In the investment industry's world, it's all about the money. That's why they toss numbers at you instead of trying to address the fact that the title "adviser" is just a word, not a profession backed by universal standards of training, transparency, ethics and regulatory oversight with clout. Pretty much anyone can call himself an adviser.
In this job, I've met lots of smart, diligent and highly effective people who use a financial planning process that assesses an individual's or family's needs and then develops an effective investing approach. But I've also seen a lot of work by clueless, even dangerous, sellers of investment products who were motivated by their own greed, their employer's greed or both.
All could be considered advisers, which must surely rank as one of the vaguest terms in the financial realm. This point is not addressed in the Conference Board study, though it does have some interesting things to say about advice.
One is that people may be missing the point when they invalidate what advisers do with the argument that their fees mean clients will make less than they would if they invested for themselves. "… [T]he real benefit of having an adviser may not be performance-related at all," the study says. "It may have more to do with engendering beneficial savings behaviour among clients."
The study assumes that 10 per cent of people not receiving advice today find an adviser and ramp up their savings rates to the same level as people who already have advisers. In the short term, economic growth would suffer as money was diverted from spending to saving. But the report says that by 2060, inflation-adjusted economic output would be an estimated $2.3-billion higher as the extra savings works its way through the system.
The study's assertion that people with advisers save more is based on previous research that looked at the experience of Canadians and Australians. The flaw in this finding is that it considers advisers as a group and doesn't address the different ways they do business. We cannot generalize that advisers are helpful, although we can say some of them are.
Complicating the situation even further is the fact that "adviser" is only one term used for people who sell investment products and/or advice. There are also brokers, financial planners, wealth consultants and money coaches, to name just a few. Quebec regulates use of the term financial planner, but on a national basis these terms mean nothing in terms of training or accreditation.
Studies showing the benefits of financial advice are money well wasted if they're supposed to put a halo on the advisory business as it stands today. For that, advisers need to recast themselves as providers of advice, period. As long as selling products is intertwined with advice, advisers will always be a second-class profession behind accountants, lawyers and such.
Another way for advisers to make an impression of trustworthiness would be to act as fiduciaries, where all recommendations are demonstrably in the interest of clients. Securities regulators have proposed both a fiduciary-like standard for advisers, and a separation of advice and product sales in mutual funds.
Both proposals are being fought by the investment industry and final decisions may not come for many months, or even years. In the meantime, studies on the value of advice cannot paper over the investment industry's unwillingness to make advisers more transparent and accountable.
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Who can I trust for advice?
Here are common financial industry designations that indicate an individual has been instructed on a wide number of financial topics and has demonstrated an understanding. Holding these designations does not mean someone is a good adviser, but it is a starting point in finding the right person.
1) Certified Financial Planner (CFP)
2) Registered Financial Planner (RFP)
3) Personal Financial Planner (PFP)
4) Chartered Financial Analyst (CFA)
Rob Carrick