A Threat to Independence - Financial Advisors must get Back to Basics

With the recent acquisition of DundeeWealth Inc. by the Bank of Nova Scotia, the top 5 banks in Canada now control two thirds of the mutual fund assets under management and about one half of the licensed representatives that distribute mutual funds in Canada.

It won’t be long until the disadvantages of an oligopoly will be upon all product manufacturers, advisors and investors. As you may remember, an oligopoly is a market situation in which control over the supply of a commodity, product or service is held by a small number of producers each of whom is able to influence prices and thus directly affect the position of competitors. As the banks continue to make strategic acquisitions and further their expansion into the insurance sector, it seems that the days of true independence may be numbered.

Independence is both a blessing and a curse

The financial advisory community in Canada is made up of thousands of proprietorships as our industry has had a relative easy access to entry (ie: easy to get licensed and become an advisor). As a result, the large majority of these proprietorships are managed and operated by the financial advisor and in some cases will have an administrative assistant to help with managing client accounts. Many of these proprietorships will begin to or have begun to suffer from the lack of a business and marketing plan. Their practices will begin to see erosion of assets as the major banks continue to flex their brand and marketing muscle and introduce the same products and services that the proprietorships presently offer.

Ease of entry and the lack of business discipline have resulted in a poor reputation for financial advisors. The very term itself, “financial advisor” implies that these individuals are capable of offering financial guidance but not all advisors are able to do so. Some have been motivated by the variable high commission structure that product suppliers are willing to pay.

Existing branch offices of the independent channel are also challenged. Typically, the largest producer will be the branch manager and will house or support several smaller producing advisors. The branch manager producer is usually so busy managing his/her own practice that the junior advisors are left to fend for themselves. These branches offer the junior advisors access to the branch administrator to process new business and perform some compliance. Otherwise, no other operational or marketing support is available.

What Can We Do About This? – Get Back to Basics

Independent financial advisors must make financial planning the main value proposition for their clients. Proper financial planning means using a process that will set advisors apart from their bank competitors by ensuring that they are able to answer the important questions that most clients have in the back of their minds such as:

• Will I have enough money saved for a comfortable retirement?
• Will my family be properly looked after if a sudden critical illness or death should arise?
• Is my estate properly organized to ensure that my beneficiaries will get the most value of my life savings and belongings?
• Am I taking advantage of all tax strategies that a person of my risk tolerance should have?

Just as important as the initial financial plan is the annual review process with each client to ensure they are sticking to the goals and the strategies of the plan. I think you will agree that the bank branches are not performing this critical process.

Consider Working with other Advisors

Do you know of other advisors that are trust worthy and hard-working who can add value to your client value proposition? If you are predominately an investment advisor, would it make sense for you to search out advisors that specialize in estate planning, tax planning and other complimentary services that can be offered to the group of clients?

As expenses continue to grow for advisors, joining forces to add more client services and the opportunity to share in office overhead expenses can be a real win for all parties concerned.

Get the Message Out to your Clients and Prospects

You might be able to build a better mouse trap but the world must be able to learn about it. Put yourself in a prospect’s shoes for a moment and think about how you can educate your prospects and clients on the services you offer and how you differentiate yourself. This could be done without having to spend a lot of money such as developing a newsletter, some marketing literature or brochures.

Work with companies and people that support your independence

You’re not alone. Many of your suppliers in the investment and insurance fields are just as concerned as you are about the threat to independence and want to help you. Think about which companies support your independence and support them as well.

Vince Valenti is the president of Independent Planning Group Inc, an independent mutual fund dealership that is licensed across the country. He is also the president of Brigata Capital Management Inc, a Canadian mutual fund company.