Future looks bright for advisors willing to change, says IPC exec

(March 21, 2003) Advisors have been too busy making a living to notice their business has changed in the last 10 years, financial advisors heard yesterday at the 83rd Annual Ontario Sales Congress of the Peel Institute of Applied Finance in Toronto.

“When I first started, I could have run my business out of my parents’ basement, with a Commodore 64,” laughed Chris Reynolds, president and co-founder of Investment Planning Counsel of Canada. Not true of the advisor business today, he said. To position themselves for change, advisors need to understand industry trends.

Reynolds predicted that only two types of advisors will prosper and remain in the business in the future: the niche player and the “megazoid.” He was quick to define niche player, as many advisors call themselves that without truly understand the term.

“I ask advisors if they have a niche market and everybody says, yes,” he explained. “Then I ask them the niche and they say, ‘retired persons”… 30% of the population is retired, what kind of niche is that?” Rather, Reynolds continued, a niche player is someone who has a market that nobody else wants or understands. “It might be too complex, education is high so others leave you alone to run your niche market.”

The “megazoid” is an advisor with a multitude of resources behind him or her to stand up against tough competition. “Advisors have and will see increased competition for clients from the banks and other large financial competitors,” he said. Ten years ago, the banks didn’t see independent advisors as a threat to their business, but now they have seen the light and offer wealth management services, he added.

“Banks were slow to react but now see the independent financial planners as a threat,” Reynolds said. “But they have the financial resources and they are patient. They also don’t need to look for new clients, they only have to do a better job with the client they have.” Today, he noted, every bank has a CFP in every branch that works on commission to solicit clients. The banks are also able to offer a full free financial plan as clients come on board.

Consolidation has also affected the industry. In fact, Reynolds’ company, IPC, recently merged with Dundee Wealth Management. “Larger companies can provide consumers with more value for less cost,” Reynolds added. “Bigger is the only way to survive.” Reynolds predicted that in the next five years there will only be 10 insurance companies in Canada, adding that even that might be a generous estimate.

Bigger also applies to financial advisors. “Those advisors with less than $10 million in assets won’t survive the next five years,” he said. Consolidation on the dealership side and the advisor side means more advisors will leave the business.

“Ten years ago, this business was a cottage industry,” Reynolds said. “Small advisors and ‘work at homes’ will be forced to make heavy investments in their businesses to be competitive or be forced to sell to better capitalized advisors.”

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There is also very little competition at the high end of the spectrum. Affluent clients expect top service from the advisors, yet Reynolds noted that only 16% of financial planners prepare an investment policy statement for clients. Six per cent prepare written comprehensive financial plans and 7% prepare a letter of engagement with clients. “Most financial planners will continue to work the way they did five years ago,” Reynolds added. “To remain in the business you have to change.”

Education, licence upgrades and differentiating themselves from others, are just some of the things advisors can do to keep up with change, Reynolds said. “Differentiation doesn’t come from product,” he added, noting that clients will expect that their advisors offer both proprietary and non-proprietary products. Branding will become more important, as well as systems and technology.

“What has worked in the past will not work in the future,” Reynolds said. In fact, he added, avoiding the “This is the way it was always done” syndrome will go a long way to help advisors prosper in the future.

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What changes have you noticed in your industry over the past decade? Do you agree with Reynolds’ predictions and insights? Share your thoughts in the “Free for All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Jennifer McLaughlin, Advisor’s Edge, jmclaughlin@rmpublishing.com

(03/21/03)

Jennifer McLaughlin