What it really means to put clients first

The industry is becoming increasingly complex—due in part to the accelerated growth of products and services, designations and technology—and that’s leading to more investors voicing concerns. Their worries must be addressed early to inspire them to seek, and see the value of, advice.

Take Susan Tinkler, 53, who’s no stranger to the financial industry. She currently works at a long-term care facility in the Kawartha Lakes region of Ontario, but was a teller at a major bank in her early 20s.

She and her husband, Bruce, invest primarily in group RRSPs through Bruce’s past and current employers, and have yet to work with an advisor. Tinkler says they’ve considered investing outside of these plans or, at least, consolidating their RRSPs, but that they’re not sure where to look for advice.

Further, she knows it costs money to get advice and transfer assets. The couple is happy with the growth and performance of their RRSPs to date, so “my fear is if we move the money, there are fees to take it out and to put it in something else. We’ve worked hard for the money,” she says.

It’s her past experience working at the bank that contributes most to her reservations. When Tinkler worked as a teller, she noticed that compensation was often more of a priority than clients’ needs. She recalls advisors being pressured to meet sales targets. “They were put in the position of not really looking out for the best interests of the [clients] they were investing for,” she says.

A March 2018 Financial Consumer Agency of Canada report on Big Six bank practices, spurred by media reports last year alleging questionable sales tactics among front-line staff, found that sales-focused cultures persist today.

Tinkler and her husband aren’t the only people who want advice but aren’t sure where to look.

J.D. Power’s “2018 Canada Retail Banking Advice Study” shows 87% of bank customers want financial help but that only one-third say their banks have delivered.

It’s also important for advisors to put the interests of clients and their families above their own. If someone offered to do that, says Tinkler, “that would mean a lot.”

Retail clients surveyed for the CFA Institute in November and December 2017 agreed. The global survey found the most important attribute for choosing an advisor was whether he or she would act in the client’s best interest, followed by whether the advisor was referred by a trusted contact (see “CFA Institute client statistics,” below).

Industry regulators and SROs are aware of investors’ concerns and challenges — and of recurrent compliance mistakes such as suitability errors and failure to adequately complete KYC documents. That’s led to examining how advisors can better serve clients via enhanced disclosure, better KYC and KYP processes, and a renewed focus on managing conflicts of interest. While CSA’s proposed best interest standard is only supported by two provinces, as of time of print, the still-active proposals point to tougher oversight and heightened communication standards.

Stricter oversight would please investors like Tinkler and her husband, who chose to build their nest egg on their own while raising three children. Now that her children are in their 20s, things need to change, she says. “We’re not getting any younger. We want to think about our futures.”

While industry challenges and regulators’ efforts to formalize best practices garner attention, many advisors are actively trying to put clients’ interests first. Four advisors explain how they do that and why it matters.

What putting investors first means in practice

To hear what the average person seeks in an advisor, we spoke to shoppers at Toronto’s St. Lawrence Market on a sunny March day.

A man and woman in their 20s from Hamilton, Ont., said collaborative planning would be key if they ever decided to work with an advisor. For a planner to look out for them first, he or she would need to “come to me before they do anything,” the woman said. They’d both prefer a non-discretionary advisor-client relationship that offers “more than a statement once per month.”

That matches with how associate investment advisor and CIM Troy Iwanik of HollisWealth in Vancouver works. He says putting clients first means ensuring they’re informed and comfortable with their investments and his services from day one.

“You want to make sure there are really no surprises for the client,” he says.

During meetings, the key is to “find out what’s new in people’s lives. Finding out where they’re at financially and emotionally helps us determine how to position different investments,” he adds, and it also leads to deeper relationships.

Another pair of shoppers, teachers in their 40s from North Toronto, echoed these sentiments. Their advisor is a family friend who “wouldn’t do anything for us that he wouldn’t do for his own family,” they say. Putting them first, the pair adds, means the advisor looks “at our lifestyle, jobs and family, and that he empathizes with us.”

Mark Coutts, financial advisor at Sun Life Financial in Toronto, tries to take this approach.

As a young advisor, Coutts admits he sometimes tried to impress clients with his knowledge before listening to their needs—until one client spoke up. In the midst of his pitch, she stopped him and asked him to treat her like a member of his family. She told him she wanted more than investment insights; she also expected he would be looking out for her best interests. “I never forgot that,” says Coutts.

This showed him that determining clients’ needs must come first. While some clients come in “armed with data and questions,” others rely on the advisor exclusively. “They may not have the time, interest or capacity to be making financial decisions or doing that kind of homework,” he says.

When onboarding, Coutts gauges whether someone is an engaged or hands-off type of investor, which “determines the rules of engagement” and what kinds of investments the client will be comfortable with. For example, he might recommend a fund of funds that’s externally managed for a client who’s less interested in discussing, assessing and selecting funds.

To explain his credentials, requirements, services and fees, he uses a PowerPoint presentation that clients can take home. “We keep the language high-level and cover off the major topics. What that often does is prompt more questions, which helps us evaluate their sophistication levels and previous experience,” and how familiar they are with fees, for example.

This type of approach would be effective for the teachers from North Toronto, who said advisors need to “be upfront about costs.” They expressed concern about “hidden costs,” including MERs, trailer fees and admin costs. Regarding product choice, they don’t want to be sold something their advisor wouldn’t sell to his family or buy himself.

A forthright approach also works for prospects who’ve been burned by bad advice.

“I do run into a lot of people who come in with a misconception. They think it’s all about rates of return,” says Coutts, who’s MFDA-registered. Instead, he tells them financial planning “is not just about the products you recommend” but about long-term, holistic solutions. He explains he offers non-discretionary planning and “garden-variety mutual funds,” and that he has “a written financial plan for every eligible client.”

An advisor who looks at the big picture is what 53-year-old Tinkler and her husband are seeking. They should “not only look at our investments but also our debt,” she says. The couple also wants tips on combining their RRSP investments and investing them differently, with a focus on retirement planning, fees and taxes.

Keeping clients comfortable

Something as seemingly mundane as the location of your first meeting can set the tone of the entire client relationship.

Natalie Jamison, wealth advisor and associate director of wealth management at Scotia Wealth Management in Oakville, Ont., specializes in holistic planning for women and wealthy families. She draws on her hotel management degree when serving clients, and says it’s important to meet where clients are most comfortable.

“We have the best and most in-depth conversations with clients when they’re in a location they’re comfortable in, and most don’t feel that way in an open atmosphere where other people could eavesdrop,” she says. If her office is preferred, she puts out fresh flowers and serves food that takes into account clients’ dietary restrictions.

Jamison also puts clients first by not discussing products during initial meetings; she instead asks about their families, lives and priorities.

Prioritizing clients’ needs also means taking as much time as they need while onboarding. Brian Swales, who runs a discretionary practice for endowments, foundations and retail clients, adapts the process to clients’ needs. Retail investors typically appreciate two to three meetings before they sign on as clients, along with email, phone and video calls if needed. After that, Swales keeps in contact two to three times per year through in-person or Skype meetings.

Some clients might want more. For one senior from Roslin, Ont., regular access is what sets her advisor apart. “I see her once every three weeks to talk about my portfolio. She’s wonderful,” she told us.

However often you meet clients, it’s the conversation that matters. “Whether you’re getting to know a prospect or educating a client, encourage them to ask questions,” says Swales, senior vice-president and investment counsellor of Private Wealth at Fiera Capital in Toronto. “There shouldn’t be a sense of urgency.”

Iwanik avoids jargon and shares client-friendly resources and books as he gets to know clients’ preferences and priorities. Initial conversations are based on “what’s important to them and where they’re having difficulty understanding what you do,” he says.

Over the longer term, prioritizing clients’ needs means focusing on their comfort level with you, the market and their portfolios. It also requires close listening and, to help you keep track of clients’ preferences, keeping copious notes in your client relationship software, says Iwanik.

“You can then reference those during quarterly or annual reviews,” he suggests, especially when a client’s life changes dramatically. It helps to also keep tabs on whether clients work with other experts, including accountants, lawyers and mortgage brokers, throughout the years.

Knowing your product

Monitoring product suitability, which is often at the core of conflicts of interest, requires vigilance.

When reviewing clients’ accounts, Iwanik assesses whether someone has, or will soon have, enough assets to go fee-based, given “that’s more transparent.” If that’s the case, he’ll explain the benefits and fees through detailed cost calculations—he also uses those and Fund Facts documents to explain product recommendations, particularly to illustrate why what’s cheapest isn’t always best.

If someone wants, but doesn’t qualify for, a fee-based account based on their asset level, he may have to explain that it will be “more expensive over the long term even though it’s more transparent than a trailer-based account,” he adds.

If clients aren’t interested in these details, he says advisors still shouldn’t cut corners. Make sure clients “understand the value of the services they’re getting in total,” says Iwanik. It helps to put the conversation into context by relating it to their long-term goals and needs, and to use simple (but accurate) numbers to show how their returns are impacted by the fees they pay to fund companies, your firm and you.

If a client disagrees with a product recommendation, Swales creates models to illustrate what would happen if a client invested in option A, option B or in a combination. He also provides disclosures around risk-return characteristics in the context of the broader portfolio. “Clients generally will defer to our recommendation because we’ve made a strong case,” he says, adding that they follow the same process for proprietary and third-party products.

This approach may satisfy some clients like Tinkler. “If an advisor presented two or three product options,” then she and her husband could discuss what’s best, she says. For the advisor, that would mean “the whole onus isn’t on them. In the end, we’d know it’s our money and we made the decisions.”

To highlight their confidence in a product or recommendation, some advisors practice co-investing. But Jamison, who doesn’t co-invest because she says a client’s preferences and tolerances could be different than hers, suggests complete transparency matters more to clients. “I always say to prospects and clients that I ask for a lot of information about them and they can ask the same in return. If they want to know what kind of car I drive and or how I invest my children’s RESP, I’ll answer that.”

If you’re open with clients and explain how your recommendations are tailored to “their own risk tolerances, needs and objectives,” then you won’t have to worry about conflicts of interest, she adds.

Even as advisors’ regulatory requirements shift, transparency, open communication and careful analysis will remain at the core of the planning process. That’s why many of today’s consultations and rule changes relate to disclosure, fees, suitability and overall sales practices, and why it’s important to consider what clients think is in their best interest when explaining what you do.

Changes around a best interest standard aren’t imminent. Even when (or if) regulators land upon a standard, its full implementation would still be years away.

Nonetheless, any changes shouldn’t “represent a sea change in what we do,” says Coutts. “If you’re acting in your clients’ best interest, it’s going to come back and pay dividends. There’s no room for cutting corners or doing anything less.”

CFA Institute client statistics

Investors prioritize finding an advisor they can trust over one who outperforms, says a recent global survey by the CFA Institute, called “The Next Generation of Trust.”

Katie Keir is Content Editor of Advisor’s Edge.