Pressed for time? You’re not alone

Time management is the number-one challenge CFP advisors say they grapple with in their practices. That challenge is permeating the industry, affecting business structures, compensation and everything from service relationships to product development.

This finding underscores a host of others in the recent Credo Consulting survey of industry CFP advisors, entitled Understanding & Supporting the Planning-Oriented Advisor — Making Your Firms’ Tools and Resources Count. The study surveyed 1,457 CFP advisors from six different industry channels. The survey canvassed the following areas: which business models advisors are using; which services they provide; compensation trends and what advisors are charging for their financial plans; the biggest challenges advisors face in their businesses; their attitudes about the competition; how advisors select investment products; what advisors want from their wholesalers and asset managers; how asset manager capabilities influence investment decisions; and the public’s perceptions of the financial planning industry.

Some results are predictable. For example, the study found that planners are slightly more value-oriented than growth-oriented, as 65% of their clients’ assets are invested domestically and almost 86% of client assets are actively managed. The study also suggests that low ETF usage in Canada is a direct result of the active-management approach favoured by planners. But other results, notably the dramatic change in attitudes towards hedge funds and the waning desire to pursue fee-based financial planning opportunities, are surprising, given the amount of focus the issues have garnered in recent years.

Fee-based financial planning, fee-for-service and asset-based compensation models, for example, are often held up as the golden ring or ideal for financial planners. In theory, fee-for-service models make sense since they smooth revenue fluctuations and put dinner on the table for planners regardless of market conditions or client demand for products. More are also starting to suggest this model is what could sustain the industry once clients stop investing and start cashing in their RRSPs to fund their retirements.

Despite this, the Credo survey shows the number of advisors receiving asset-based fees hasn’t changed relative to past surveys. Only 41% of advisors report receiving asset-based fees, saying these make up about 40% of their overall revenue.

“Compensation can be a leading indicator of how people are structuring their businesses. We were a little surprised that asset-based fees haven’t increased as much as we thought,” says Credo Consulting partner, Cynthia Enns. “Advisors that are using asset-based fees are using them more often but we aren’t seeing the pickup. It wasn’t as radical or as shifting as we thought it was going to be.”

Although she says advisors say they want to make the move, several factors, including current market conditions, appear to be affecting their decisions. “In a strong market people are less inclined to look at that model. They still go after the product commissions, using the market momentum to create revenue,” she says. Interestingly, the same set of factors could be moving numbers in other areas of the survey too — the percentage of advisors providing financial plans has decreased since the last survey, conducted in 2004.

Similarly, when it comes to practice development and insurance sales, there is also a potential disconnect between advisor intentions and the reality of the situation. Many advisors in the survey, particularly IDA advisors, say insurance can be a good way to differentiate their businesses and compete with other brokerages. “What we are hearing though is even with the intent to want to get into insurance, there is a reality that the learning curve and the selling process for insurance is quite a different style,” says Enns. “Actually bringing it into action can be rather challenging.”

The difference between intentions and reality, and how things can break down between the two, is perhaps most vividly demonstrated in the findings about advisor attitudes towards hedge funds. When Credo conducted the survey in 2004, hedge funds were at the top of the list of products advisors were interested in exploring for their clients. In just two years, the desire to use hedge funds has dropped to the bottom of the list. “Anticipated usage doesn’t always turn into action when you’ve got outside market elements coming into it and outside disasters in product suppliers.”

In this year’s survey, GICs, term deposits, and individual bonds and securities were also at the bottom of the list of products advisors plan to use in the next two years. At the other end of the spectrum, insurance products, along with separately managed accounts and mutual fund-wrap programs top the list of most popular products that advisors intend to use going forward.

Currently, 37% of those surveyed say they invest an average of 22% of client funds in mutual fund-wrap programs, a 28% increase in advisors using wraps since 2004. Anticipated usage rates are also on the rise, with 74% of current users planning to increase their usage in the next one to two years.

The trend is not surprising to fund company executives like Don Reed. The president and CEO of Franklin Templeton Investments says in just four years, advisors have invested more than $5.5 billion in the company’s Quotential program and another $400 million in the higher-end Tapestry products. From June 2005 to June 2006, the Quotential program asset base grew by 60%. Moreover, he says roughly half of the wrap-program investors are new to the company. “I think the assets in managed investment solutions are sticker, they’re longer term,” he says. “It’s also brought in a lot of new advisors and investors who haven’t necessarily dealt with us before. They’re longer term because when they’re taking a look at the client, the snap-shot says here’s where the client is now, here’s where the client is going and here is the footpath to get them there.”

Filed by Kate McCaffery Advisor.ca, kate.mccaffery@advisor.rogers.com