Advisor Forum update: Advisor panel offers tips to thrive on

(November 21, 2003) It’s been a difficult century so far for the financial services industry, with markets collapsing, clients panicking and then a long, slow slog of a recovery. While many advisors survived the shake up, some managed to even thrive.

Three top advisors shared their strategies for making the most of a tough market at the closing session of Advisor Forum Toronto earlier this week.

They’ve taken some bold steps — including culling their books and even offering a “mea” culpa for returns they thought could have been better.

“Essentially what I did with 30% of my clients back in 1999, I said ‘I’m going to fire myself as your stock-picker,'” said Mike Newton of CIBC Wood Gundy. “This has been my approach to what I would call a complete managed money approach.”

He says his style had been too speculative in the high-flying days of the dot-com bubble, but that he now takes a far more conservative approach. He says he now makes sure his clients understand they are working together toward long-term goals.

“I tell my new clients that I will keep the promise,” Newton says. “I tell my existing clients that I’m re-applying for this job and that what we’re doing, going forward will be in place consistently for the next six or seven years.”

Newton says he had little choice with the clients that were not buying into the new approach and had to cull his book.

“I moved nearly 250 clients off my book onto other advisors in the office,” said Newton “It wasn’t just small clients, it was people that were cancer in my view, people who weren’t onside.”

Clients no longer come in with money and ask what they should do with it, they bring it in and know that it will be applied to “the plan.” Newton says this is gratifying, because it shows his clients have bought into the process he has laid out for them.

“I think people are realizing that there in a partnership. My job is to get a certain consistent, probable rate of return but their part is to add money to the program on a regular basis.”

Newton streamlined his operation, scrutinizing the fund companies and money managers he was dealing with. “Against this backdrop was the loss of faith in the underpinnings of how the capital markets work,” he says. “We’re still seeing that today in the newspapers with the mutual funds now. It seems to never end.”

Murray Morton of Cartier Partners agrees that the hardest part of the past few years has been managing clients’ expectations and guiding them through the turbulent times.

“In the last three years, I think the biggest challenge for me has been more psychological,” Morton says. “The never-ending shaking that went on in the three years of the bubble, September 11, etc… it shakes everyone to the core, you’re even wondering if the market cycles really work.”

Morton says while his clients were seeing the markets collapse, he realized this was a normal, albeit exaggerated, market correction and his clients needed comforting, not a new sales pitch.

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“When there were critical days, there would be key people you would be pro-active in phoning to hold their hands,” he says. “Never mind talking about the investment, talk about the process.”

Like Newton, Morton says the long-term goals do not change, just because the markets are suffering. He says that a strong financial plan will take such market swings into account and that the client needs to understand this.

He agrees with Newton’s approach of streamlining the number of funds he deals with, saying that focusing on just a handful of funds allows him to more fully understand their offerings.

“You have to have a gatekeeper,” he says. “You only have so much shelf space and I think you have to narrow down who you are dealing with to maybe only a half dozen fund groups. I have about 90% of my assets with six fund groups.”

The outsource approach

Other advisors have found success through another approach. Cynthia Kett of Stewart & Kett Financial has taken adopted an advice-only model, with no product offering whatsoever.

“Consumers, especially high net worth individuals want an independent third party assessment of their financial affairs and they’re willing to pay for it,” says Kett.

She says other firms will outsource the role of investment assessment to Stewart & Kett, to provide this peace of mind to their clients. She says they have established trust with these referral firms, to remove the fear of client-poaching by Stewart & Kett.

“Even though we do a lot of accounting and tax, we still get a lot of referrals from accountants, because they know that we’re only going to provide the services that our accountant referral sources don’t.”

She says there is a great deal of movement in the industry right now, with advisors adopting fee-based business models and a growing emphasis on independence. At the same time, she sees fewer and fewer firms that do not sell investment products.

“There were a lot of people moving out of the advice-only services, and getting into product sales with the financial planning,” Kett says. “My business partner and I are constantly re-evaluating it, asking ourselves if we still believe in [advice only]. Yes, we still believe in this.”

Many advisors say their biggest challenge is prospecting for new clients. How are you supposed to build your book when the public harbours so much distrust for the industry?

“We’re really making an effort to go out and speak to centres of influence, other professionals with whom we deal, lawyers, accountants, investment advisors who have a very similar client-base,” Kett says. “The clients that come in to us already know what we’re about, they know they’re going to be paying fees, they’re sort of pre-qualified.”

Morton finds himself in an envious position when it comes to building his book. “After 30 years, I don’t do a lot of prospecting, it’s primarily referrals,” he says. “I don’t button-hole my clients when they come in for an appointment, but I seem to have a steady stream.”

After culling his book of distrustful clients, Newton has a strong relationship with those he kept. “I think the real reward is the 75% of my clients that love me,” says Newton. “I’m still working on the other 25%.”

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For details on the last Advisor Forum of 2003 in Halifax, please visit the Advisor Forum Web site by clicking here.

Filed by Steven Lamb, Advisor.ca, slamb@advisor.ca

(11/21/03)

Steven Lamb