Advisors need sales friendly disclosure documents

What will help advisors do their jobs better?

According to participants in our 2009 Dollars & Sense roundtable, some good places to start would be simpler, preferably sales-friendly, disclosure documents; some tools to help convey value and prevent clients from rushing to the lowest-cost options; and a well-defined product shelf that doesn’t overwhelm their clients.

“The disclosure is embedded in the prospectus but no one reads it,” says James Taylor, CLU, principal at Financial Health Management, Toronto. “So the reality is we need an executive summary of some sort; a one-pager that explains the parameters associated with the costs.” He adds manufacturers could help by providing a summary to hand out, since compensation disclosure documents aren’t something advisors can hand out on their own letterhead.

Several advisors said they’d like to see uniform, industry wide requirements. And these should work in harmony with disclosures required by the firm, and made by individual advisors with respect to their own operations.

“At the end of the day, it has to be transparent for the client, and it had better have a ton of integrity to it,” says Rob Kelland, CIM, FCSI, Portfolio Manager, Director Wealth Management, ScotiaMcLeod, London, Ont. “It will have to put the client’s interests first; we are in a client-driven business. Until we see that, we aren’t ever going to get it right.”

One of Kelland’s associates, Nicole St. Denis, agreed. “There needs to be transparency in order for clients to be able to trust us,” she says. “They need to know there aren’t any hidden fees, and if they want to find out about the fees they don’t have to go through a 50-page document.”

Better disclosures, she notes, will help put everybody on the same side of the table. “I work for an organization where disclosure statements are constantly updated and monitored,” says Eva Froese, PFP, Investment & Retirement Planner, RBC Wealth Management, Calgary, “and I think we need to take responsibility for making sure we make recommendations only after ensuring the client has understood all the pros and cons, and fees.”

Barbara Foy-Pilchner, VP, Business Development, Invesco Trimark, says her firm is involved “from a manufacturer perspective to make it easy for the industry and clients to understand how these investment vehicles work, and how we compensate advisors.” One of their main objectives, she says, is to be very clear in the communication and help people understand.

The single best reason to improve disclosure quality, notes Bernie Geiss, CFP, CLU, RHU, Cove Financial Planning Ltd., North Vancouver, B.C., is that client have selective memories. They’ll remember what they want to, or associate something they heard on the news, or from a friend, with their own recollections.

“So disclosure in writing is super important and I don’t think there’s enough of it,” he says. “I’ve dealt with my own concerns about whether or not I’m disclosing enough by developing a disclosure document the clients sign when they get it.

“There is some pretty shoddy disclosure out there.”

Conveying Value

Anecdotally, advisors say they’re hearing that investors are looking for low-cost products, to the exclusion of all others. But the results aren’t appearing at the practice level. In the end, though, it’s up to advisors to find ways to convey their value so that the rumours don’t become self-fulfilling prophecies.

“As far as I am concerned, they value what we do,” says Kathleen Peace, CFA, CFP, Bennett March of IPC Investment Corp., Toronto. “With clients who are still in the paying-down-debt stage, we even show them value by giving them a financial snapshot every time they come in; something basic but something they can walk away with.

Froese says her clients certainly want value for money, and won’t pay if they don’t think they’re getting any. “Clients are always surprised about how in-depth I always go with them,” she says. “We talk about the softer issues when it comes to retirement. Clients are always surprised when we bring them up.”

Part of the advisor’s job, says Kelland, is to determine how the client perceives value. The same way some consumers will always buy the least expensive car, no matter what’s out there, some clients will always choose the low-cost investment route – and for those clients, it may in fact be the best route.

“There’s no question about it, the banks and discounters have done a much better job increasing their market share,” he says. “And then there’s the do-it-yourself investor using the Internet actively.

“But, that said, there is more and more need for value-added service.”

Rob Kochel, VP, National Accounts, Invesco Trimark, agrees online trading volumes are up significantly. “It isn’t about advice anymore to a great number of people,” he says. “We have to be very aware that one of the emerging themes coming through these darkest times is that self-reliance for some people is the only way to go. Why did that happen? I think the prices have come down even more and people have become more comfortable with the technology. It’s something we should be aware of.”

Help negotiating the morass is also an important part of the value equation, says St. Denis. “I think clients needed us much more in the bad markets,” she says. “Having someone looking out for your best interests certainly demonstrated value.”

Foy-Pilchner adds the value proposition becomes easier to convey when an advisor is offering holistic financial planning. That exercise makes the client less cost conscious and more comfortable with entrusting his or her financial situation to the advisor.

Geiss concurs, adding that value is the driving feature. But when talking about something as abstract as financial planning, the advisor needs to break the offering down. “So there are two things: One, the value that you try to create, and second, how to get the client to acknowledge that value,” he says. “If it isn’t as obvious, it’s very easy for the client to become jaded, and they might not realize how good a service they’re getting until they leave.”

Further, he says, price isn’t the issue. He thought it was when he first moved to a structure of charging a fee for services in 1991. But, after reviewing client reactions to his business model, he’s realized only one client was ever disgruntled by the cost. “I think disclosure is the way to actually create value,” he says. “The cost sensitivity is only there when the value is not perceived.”

Cynthia Kett, CA, CGA, RFP, CFP, Stewart & Kett Financial Advisors Inc., Toronto, notes clients coming to her offices always say they have an accountant, an investment advisor and an insurance person, but don’t have anyone who pulls it all together. It’s the ability to do the latter that lies at the heart of how her firm conveys value to clients.

“We work with their existing advisors to coordinate the plan; we fill in the gaps that other people don’t,” she says. “The types of clients we have are used to paying advisors for advice, so it makes it a little bit easier for us.

“Our clients aren’t always looking for the lowest cost options. They’re looking for someone who can do the different types of things they need done and do them well – If we can do that, they don’t mind paying the fees.”

Taylor says cost sensitivity has been in play over the short term. It’s a path of least resistance for recession-minded investors. What they likely don’t realize, though, is that they wouldn’t have done any better, or might even have done worse depending on how indexed they might have been, by taking over their investing.

Therefore, it’s the advisor’s job to translate the information and tell clients what it really means. “I’m not going to discount what we are actually compensated as a result of you going to an ETF, or whatever the case may be,” says Taylor. “It’s about continuity, and that’s one of the things missing here. Value is much more important in the long run. There’s certainly value in how you deliver the information, and in being available for your clients when the questions need to be asked.”

A Simpler Shelf

Doug Gleed, VP & Regional Sales Manager, Invesco Trimark believes that when it comes to products, less definitely is more. “Advisors are going to deal with fewer manufacturers on a more regular basis. It’s a common feedback trend,” he says. “They want choice but don’t want as many products in the service class.”

Likewise, on the service side he says feedback points to advisors wanting intermediaries or manufacturers to help offer training or other assistance.

Peace agrees less is more, both for advisors and clients.

“I think it’s sometimes a big scary convoluted world for clients with regards to all the products out there,” she says. “What would be really great is to have an unbiased apples-to-apples comparison of all the products out there, which is probably impossible. It doesn’t mean the due-diligence time we spend is wasted, but when we do it, I always feel like we’re reinventing the wheel.”

Owing to the fact that a dozen practices are out there conducting nearly identical due diligence routines, it would be great to have some sort of central, unbiased body to conduct these comparisons. An added bonus would be to have that entity consumer-rated.

“A lot of us are business owners first. But a lot of us don’t start out as business owners; many start out as associates or advisors,” she says. “When those advisors suddenly realize they’re business owners, they’re challenged with the need to manage conflict, manage people, set up HR departments, manage business plans, and construct budgets. Some training with regards to these issues would be helpful,” says Peace.

Froese says choices are important, since each client is so different. She adds her firm is open to letting her sell investment options created by third-party providers.

“The one thing that will make it easier for me is to be able to sell and discuss insurance more openly,” she says. “I’m limited because of the Bank Act.”

Geiss adds there are other regulatory hurdles. “There is a need and value to increase collaboration between professionals,” he says. “The challenge is not necessarily working with other advisors but that those advisors have this huge hurdle to get over with their regulators, to get these departments to allow collaboration among professionals and to do it in a truly above board and professional basis.”

At times, he finds work he ends up doing for a client of another advisor takes place in a very grey area of whereby Geiss has no basis to work with him within his structure due to regulatory issues.

“I think there’s need to greater collaboration between professionals. I think it requires effort on the part of investment advisors to make that happen within their own firms,” he says. “And I think it will be of tremendous value to clients to clear up some of the negative perception.”