Most investors ignore independent advisors

A recent survey suggests the market share of client assets managed by independent advisors is just a drop in the bucket compared to those managed by the banks. Decima Research found only 12% of 691 investors surveyed would opt for an independent advisor’s services. Two-thirds say they have some assets with a bank advisor and 36% say they deal with the banks exclusively.

Some independent advisors believe the numbers represent a consolidation of the moderate to lower net worth retail marketplace. “Bank employees are much better trained then they were 10 years ago, both in sales techniques and actual financial planning knowledge,” says David Christianson, an independent advisor from Wellington West Total Wealth Management in Winnipeg.

Christianson stresses that these improvements have allowed the banks to attract a great number of lower-net-worth clients, particularly at the branch level. Bank-only clients may also be symptomatic of an increase in investing by less sophisticated investors, he adds.

For example, “lots of consumers make their RRSP contributions at the last minute, without advice, through their local branch,” Christianson says.

Another independent advisor, Bruce Cumming, has a different view. He says due to a focus on quality over quantity, the independent channel is designed to represent fewer, albeit wealthier clients.

“The independent advisor is going to work with the more well-to do individual,” explains Cumming, who runs his own advisory firm in Oakville, Ont. “We’re not going to work with, generally speaking, smaller account sizes. We’ll politely turn those individuals away and they can be served excellently by the banks.”

Initially some of these low-net-worth investors are younger; Decima found that two thirds of investors between the ages of 18 to 24 deal with banks exclusively. It was a figure that Decima’s executive vice-president Bob Murphy underlined as key indicator of the banks’ successful business strategy, particularly at the branch-level.

“Younger people typically have limited funds to invest and lower levels of investment experience. The banks have successfully combined branded advertising and marketing campaigns with the ubiquity of retail branches offering the right mix of products and service to help younger people,” he says.

While this tactic of getting clients young and keeping them may seem like the banks are trying to stamp out the future independent channel clients, Cumming says the opposite is true – the bank’s ability to help young clients get started out has effectively been a boon to his business.

As these people accumulate wealth and become more sophisticated, Cumming says they make the transition over to the independent channel, which can offer higher quality wealth management and financial planning advice.

“When I look at the new accounts that I’m collecting, I’m taking money from the banks more than I’m taking from another advisor,” Cumming says.

Merlin Chouinard, president of the Independent Financial Brokers of Canada, believes that independents have been successful in serving higher end clients effectively, but he does think they can do more to take back market share from the banks.

“I believe that independent financial representatives have to do a better job of the overall education of the client as to the vast number of products and services that we offer,” he says.

To do this, he adds, independents need to highlight the fact that their practices are focused on serving the client and not a large organization that has a direct interest in trying to get a client to purchase as many of their products and services as possible.

Chouinard also thinks independents need to fight the perception that a client’s money is not as safe with them as it would be with a bank. He believes this view is completely unfounded, but hasn’t been effectively addressed with investors.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(04/09/07)

Mark Noble