The vast majority of Canadian investors feel they benefit from professional financial planning, with more than one-fifth reporting the advice is “worth its weight in gold,” according to research by Toronto-based Credo Consulting Inc.
On the whole, Canadians with financial advisors think they’re worthwhile. The data, collected in partnership with TC Media, found 22 per cent of Canadian investors said their advisor’s counsel provides great value.
Other investors are satisfied too: 56 per cent of approximately 12,000 respondents reported receiving good value for money spent and 16 per cent said fair value.
Only a handful said they received no value, with 6 per cent questioning why they were paying at all.
The vote of confidence is likely welcome news for advisors, who continue to navigate a changing financial services industry. Today’s financial planners face competition from predictive technology, such as robo-advisors, and a new generation of clients who are unafraid to try do-it-yourself options with online brokerages. On top of that, advisors must adapt to increasingly complex regulations as reform continues across Canada, such as debate over restricting the use of the title “financial planner.”
Hugh Murphy, managing director at Credo Consulting, said, while he thinks Canadians feel pretty good about the advice they’re getting, it can be difficult for surveys to determine quality. Investors’ perspectives are influenced by financial literacy rates – the ability to understand wealth management, whether money is being made, invested or spent.
“There is a segment of the population that is very financially literate and feel as if they’re getting great value,” Mr. Murphy said. “There are also people who feel like they’re getting great value, yet they really have no basis for judging the quality of the guidance they’re getting.”
In addition to the high perceived value of financial planners, the consulting firm found investors are loyal. More than three-quarters are not looking for a new advisor at 76 per cent, while 24 per cent are thinking about it.
Mr. Murphy said the results reflect that financial planners and their clients often build strong, trust-based relationships over a long time. He said what’s more surprising is the quarter of investors who are considering someone new. He pointed to market volatility, geopolitical concerns and the plethora of financial products on the market as factors undermining investor confidence.
Age also influences client attitudes. The firm’s research looked at the proportion of investors who would recommend their financial advisor’s services to friends, family or colleagues.
It found Canadian investors older than 65 are more likely to vouch for their financial planner: 69 per cent are considered advocates or proponents compared to 50 per cent of Canadians under age 45.
It’s no secret younger Canadians are exploring tech-based investing products that are user friendly, cheap and marketed to them, threatening the conventional advisor-and-mutual-fund model.
However, Mr. Murphy said smart advisors can leverage algorithm-driven tools in combination with something robo-advisors can’t offer: a human connection. Many life events have financial implications, whether it’s a wedding, vacation, child care or retirement, and financial planners can help clients understand their changing financial situation and growth opportunities.
“The advisors that are worth their weight in gold are the ones who actually listen to their clients,” Mr. Murphy said. “A good financial advisor really understands what matters to you and helps you put together a set of goals.”
Mr. Murphy points to his model, called TEMPS, as a framework for advisors who want to foster strong client relationships and provide great value. The acronym stands for technical, emotional, mental, physical and social skills.
He said technical skills refer to the need for advisors to know their business well and stay on top of changing regulations, whether it’s new tax rules or certification standards.
Second, advisors need to pick up on emotional cues from clients. Financial decisions can often be sensitive, whether they involve grief from the death of a loved one or anxiety from market downturns.
Advisors must also acknowledge their clients’ financial literacy and understand where they stand on the spectrum in order to provide straightforward guidance.
Further, they should take a holistic approach to money management and determine whether their clients’ lifestyle choices match their financial goals. If a client sets a goal of going on a six-week trek across Australia, are they physically – and financially – prepared?
Lastly, Mr. Murphy said social skills are key. Overall, while the financial services industry evolves, he said it’s crucial that advisors don’t make the mistake of being complacent.
“Advisors need to keep up. They need to continually review their business and question the value proposition they bring to the table.”