When assessing the fate of the modern-day financial advisor, it is not the strongest of the species that survives, nor the most intelligent, but the one that is most adaptable to change.
Often attributed to the father of evolutionary theory, Charles Darwin, this quote is also a favourite of licensed portfolio manager Neil Nisker, particularly within the context of the internet and the online financial trading that has made possible for anyone who wishes to join in.
“If I were an investment advisor today and more of my clients were trading online, I would ask myself, ‘Why are they doing business away from me? Have I not served them well?' ” says Mr. Nisker, co-founder and executive chairman of the Toronto-based Our Family Office Inc., which caters to families with at least $50-million in net worth.
“Are my fees too high? Am I not giving them good advice?’”
New technologies in financial planning, combined with the coming-of-age of a millennial generation whose habits and attitudes are markedly different from those of their parents, are leading to major changes in the typical client-advisor relationship. The spread of robo-advisory services has been hailed for making wealth management more accessible to the masses, but it has also led to human advisors being increasingly eschewed in favour of mathematical algorithms.
So how can today’s advisors stay relevant in an environment where clients are increasingly trading on their own?
First, advisors should embrace technology as a means to better serve clients and scale the business accordingly.
Secondly, they should look for ways to add value where algorithms cannot, such as by assisting clients with non-traditional investments such as farmland, infrastructure or real estate that cannot be managed online.
Another way is through providing the compassion and empathy that robo-advisory services will never deliver, Mr. Nisker says.
“It’s human nature to need comfort and support when the market is going down – someone with experience with whom you can talk,” he says.
This has been the longest bull market in history, he says. "A rising tide lifts all ships, but things don’t go up forever. When it goes down, people who lose money will say, ‘I need some help, because I am not good at this on my own.’ "
That said, millennials are looking for different things than their parents.
For Shyam Ganesh, a financial planner with Grow Your Wealth Financial Planning, whose client base is comprised of 80 per cent millennials, do-it-yourself trading has only increased the perceived value of professional advice.
“I really love new innovations like robo-advisors, because I can focus on high-level planning and strategy rather than the minutiae and the paperwork that sucks up time,” says Mr. Ganesh, who is based in Fort McMurray, Alta. “They’re also a great challenge for advisors to be more relevant and charge fees more fairly and transparently.”
As a financial planner, Mr. Ganesh cannot advise his clients on securities and stocks, but he can guide them on what to expect by asking why they might be interested in investing on their own and what influenced them along the way.
“My clients really like the idea of unbiased financial planning, with some support and guidance on trading on their own if they wish,” he says.
“I do advise them to go ahead and have a separate play account, but with no more than 10 per cent of their assets. It’s great fun – they get to understand how the entire portfolio is managed, how volatile the market is, and what value the financial manager brings.”
One of his clients is Jees Joseph, 33, an operations manager in Calgary who is focused primarily on building wealth. Mr. Ganesh introduced him to Wealthsimple, a low-cost robo-advisory, where Mr. Joseph chose a balanced portfolio catering to beginner-level, risk-averse investors.
“What I liked about the Wealthsimple platform is that it gave me the option to invest in a range of socially responsible stocks, which I am passionate about. So I was able to choose a portfolio in line with my values,” Mr. Joseph says.
“The process is very seamless. The initial purchase is done with the advice of your financial planner and a representative from Wealthsimple over the phone. After your account is set up, the intervention is minimal – it’s just me managing my stocks on my phone.”
Mr. Joseph also has a “play account” with Toronto-Dominion Bank, where he invests in stocks based purely on his gut feeling and any news reports he might read. “I wasn’t comfortable with exchange-traded funds and the concept of putting all my eggs in one basket, because if something happens, all my money will be affected,” he says.
Despite the popularity and ease of trading online, few people can allot enough time to monitor their investments properly, says Toronto-based Brian Shumak of Brian Shumak Financial Services.
Investing is just one piece of financial planning, he says; tax planning, insurance, estate planning and cash-flow management are just as crucial.
“I look at the whole person, what’s important to them, and their goals down the road. If trading on their own is something they want to do, I will make sure they know what they’re doing, then recommend a stockbroker or a discount brokerage.
“The money you’re playing with should not constitute more than 10 per cent of your portfolio.”
Their efforts typically are short-lived, he says. "Especially in the last year with all the marijuana stocks and everyone jumping on the bandwagon. It’s a good inauguration when you see your investments going up and down by that many percentage points in a day.
“Most people can’t stomach it and get in and out quickly.”
What’s trickier, however, is when clients choose to have the bulk of their wealth managed for them but also want their advisors to try something new.
“They might hear about a company at a cocktail party and say, ‘I would like you to buy some shares for my portfolio.’ The dilemma is, it’s their money but we don’t want to take responsibility for that decision,” says Michael Sprung, president of Toronto-based Sprung Investment Management.
“If you give us written direction to buy a certain amount of this asset, we will buy it and keep track of it for you in the portfolio," he says. “But when it comes to measuring and calculating overall performance we will exclude that asset.”
If the client decides to sell, he or she must give written direction. "Because it’s not our decision to buy it, we don’t want to be measured either positively or negatively by its performance.”
Ultimately, the Internet is an asset for both advisors and investors, but it’s also the worst resource on which to base financial decisions, says Mr. Shumak.
“It’s a great place to learn and come up with ideas, but I think everyone needs a professional to bounce those ideas off of to make sure they’re applicable to their personal situation.”