PARTICIPANTS
Mark Brisley
Managing Director and Head of Dynamic Funds
Ellen Bessner
Lawyer at Babin Bessner Spry LLP, Keynote Speaker and author
PRESENTATION
Mark Brisley: Welcome to another edition of On the Money. I’m Mark Brisley, head of Dynamic Funds.
Given the market uncertainty stemming from the COVID-19 pandemic it is interesting to note that a recent survey by Investment Planning Counsel (IPC) found that almost three-quarters of Canadian investors believe they need financial advice to be successful in the future and that appreciation for advisors is on the rise. But what can investors do to better understand the role and responsibilities of a registered financial advisor and how can investors get the very best from their advisors?
Here to help us answer that question is our special guest, Ellen Bessner:, an industry expert who spends a lot of her time thinking about how this relationship between investor and advisor can be improved. She is a lawyer at Babin Bessner: Spry LLP, with 25 years of experience in compliance in financial services industry and a regular contributor to national, business and industry press. Ellen is also a best-selling author of Advisor at Risk, a Roadmap to Protecting Your Business, and the sequel, Communication Risk, How to Bridge the Client-Advisor Gap to Protect and Grow Your Business which explores the communication gap between advisors and their clients and how to improve this relationship.
Mark Brisley: Ellen, you must have concerns about the client-advisor relationship?
Ellen Bessner: Yes, as you know, many relationships succeed or fail based on the quality of communication. If clients and advisors communicate better with each other, they will work better together toward getting the clients’ goals met. For some reason, sometimes the media puts them on opposite sides of the table, but I know that advisors want their clients to be happy: Happy clients, happy advisors.
The key to this is both advisors and clients knowing what their roles are and what they can bring to the table to make for the most successful client-advisor relationships.
Clients need to know what to expect from their advisor (what the advisor can deliver and what they cannot), how to choose an advisor and how to make that relationship most productive for themselves – to set achievable goals and meet those personal financial goals.
If clients communicate to advisors clearly, so their advisors understand what they want, and what they expect, it will help bridge any communication gap or gap in understanding between clients and advisors.
The intention is to help improve relationships between advisors and clients so the clients meet their financial goals and expectations.
People are already so stressed about money, their investments, whether they have enough money to retire or whether they will ever be able to buy their own home or reach their personal financial goals, so they should not have the added worry associated with their relationship with their advisor.
However, advisors need to understand enough about their clients so they can help them.
Mark Brisley: When you say that advisors need to understand enough about their client so they can help them, what is the problem and concern you seem to be raising?
Ellen Bessner: Well, can I use an example to explain how between advisors, any professionals we seek advice from – like lawyers, dentists and doctors – communication is a two-way street.
Mark Brisley: Sure, go ahead, I am intrigued…
Ellen Bessner: If you went to the doctor and complained about skin discoloration, and the conversation went like this…
You tell the doctor: Doctor, I have discoloration on the skin on my arm – can you give me some cream for that please?
Doctor asks you: Does it hurt?
You say: You don’t want to seem like a complainer, so you say “no pain” when in reality you are in pain.
Doctor asks you when it first appeared, you are vague, because it was there for a month and you are embarrassed that you waited so long.
Doctor seems concerned and asks whether there are any other parts of your body that have this discoloration – almost bruise-like and you don’t tell the doctor that the bruise colour is also on your body as you are too embarrassed or in a rush and don’t want to take off your clothes.
Can the doctor diagnose what is wrong with you better or worse with these answers? If the doctor is basing the diagnosis on wrong or incomplete information, the diagnosis will likely be flawed.
This is a true story, people are not forthcoming with their professionals for many reasons. In this case of the doctor, the bruising was from leukemia and it was too late once it was figured out to save the patient.
This also applies for an investment or mutual fund or insurance advisor. Many people are self-conscious, embarrassed to share how little they understand or how little they have saved or even are not sufficiently self-aware to know what their goals are. Whatever people know about themselves, or what they do not know, needs to be shared with their advisors so they can, like a doctor, help you solve your financial concerns and meet your financial goals.
Mark Brisley: So, Ellen, I know we will talk more about transparency with advisors later but assume that all the people listening today are open and transparent with their advisors, what can they expect from their registered advisor?
Ellen Bessner: They can expect quite a lot – here is a bit of a list:
Help you articulate what you want to achieve – your personal goals. And if you share your personal information with the advisor, they can help you ascertain whether these goals are achievable or possible, and what is not possible or achievable working with you to set reasonable goals.
For example, you might want to know if you can ever afford to buy a house, or a big trip that you have wanted to take or you might want to retire by a certain age. The advisor can help ascertain what that would cost and when or whether you could afford to make those purchases, go on that trip or retire. It might be that you are a better saver than you thought and can afford it sooner, or that you have not saved enough and the advisor can help you determine how you can better save to meet your goals.
Your advisor can help you set reasonable goals based on history – yours and the markets. Your advisor can help you see what’s possible (and what isn’t), working with you to set reasonable goals.
Help you ascertain your ability to tolerate drops in the market and in your investments; this is sometimes hard for clients to know on their own. They need to have open dialogue with their advisors so they can help a client do two things: i. visualize how you would feel if there was a drop in the market to determine if you could emotionally handle it, and ii. whether you would be able to afford such a drop – how would it impact your ability to maintain your lifestyle. Those are two completely separate questions that only can be determined from open dialogue with your advisor asking the right questions. And from that…
Draw up a plan to get there, and then – this is key:
Steer you through market shifts, helping you stick to your plan in good times and bad. If you have not set your risk right and you don’t have clear goals and a clear investment plan, you run the risk of being overcome by fear and selling when markets fall. But if all is set with your advisor, then your advisor will remind you of all the reasons why you need to stick to your plan and not sell when your investments are at their lowest.
Also what is key, is as your circumstances might change, for better (like getting a nice bonus or raise at work or inheritance) or worse (like losing your job or having an unexpected health or other expense) if you communicate this to your advisor, they can help you shift things to adjust to your new circumstances. That is what I like most about my advisor… when things change, I call her immediately and she helps me shift – again for better or for worse.
Mark Brisley: So now I see why you say clients need to share information with their advisor, let’s drill down on the two-way street and how that works.
Ellen Bessner: Frankly, two-way communication between you and your advisor is key.
The more open you are about your spending habits, finances, career, and personal life, your goals and dreams, and your fears, the better your advisor can help you set and achieve your financial goals, and the more likely you are to achieve success. Your advisor can also push back if there is a feeling that your goals are unreasonable and then help you manage your own expectations and set reasonable and realistic goals.
Keep in mind that it is your advisor’s duty to find out about your financial circumstances so that he or she can really ascertain what you are able to achieve and to help you get there.
That is one of the reasons that there are regulations specifically about this area, called the Know Your Client rule. So if your advisor seems to be pressing you for information, don’t consider this invasive. Instead, know that they are looking out for your interests and also meeting regulatory obligations.
Mark, can I use another analogy?
Mark Brisley: sure go ahead.
Ellen Bessner: Let’s say you want to buy a better house and a great car but you also want to retire in five years. If your advisor knows all your circumstances – assets, liabilities, spending and cost of your present and anticipated future lifestyle, your advisor will be able to review all your information and help you get there or explain the trade-offs you have to make. Without full information, the advice is quite limited to choosing investments for the money you have in your account.
Another reason why two way communication is so key, is about regularity of contact: Regular contact, especially, as you change – whether it be that you become fearful given the economic circumstances, what you read in the paper or your personal circumstances, like you lose your job or on the flip side of the coin, sharing good news like getting a raise or a promotion.
Advisors can help you adjust your investment program to meet changing needs, or help with the discipline of sticking to your investment program.
And sticking to your plan is an important factor for financial success. Studies have shown that people who get professional investment advice achieve greater net worth because they avoid common behavioral investment errors by sticking to their plan.
Mark Brisley: So that is very helpful, now that we know what advisors can do for clients, what are some of the misconceptions that clients might believe advisors can do but that advisors cannot do?
WHAT CAN’T YOUR ADVISOR DO FOR YOU?
I. Time the market.
II. Pick winner stocks every time.
III. Predict the market.
IV. Read your mind.
V. Know when you have changed, unless you tell your advisor.
VI. An advisor can definitely not read minds, although they would like to!
Mark Brisley: Ellen, let’s shift gears for a moment… we read in the paper about fraud by bad advisors – how do people avoid that?
Ellen Bessner: In every profession there are some bad apples but many of the ones you read about in the paper are actually fraudsters who were not registered advisors – these are unregistered people posing as advisors – and are therefore not registered with a government body.
Registered advisors answer to government bodies that have the job of watching them and making sure they have the necessary proficiencies and are acting within the rules and in your interests. If they don’t, they can be penalized publicly. It is important to verify that your advisor is actually registered with a provincial securities commission, the Mutual Fund Dealers Association of Canada (MFDA)*, or the Investment Industry Regulatory Organization of Canada (IIROC)* or one of the provincial regulators. If your advisor sells you insurance, they must be registered with the licensing organization in your province.
Registered advisors are professionals, like lawyers, doctors, dentists, or accountants. In the same way you might seek out a doctor with whom you feel comfortable and can trust, you should also seek out a suitable advisor who will take the time to understand your needs and goals. You and your advisor should sit on the same side of the table, working together as partners to achieve your financial goals.
Mark Brisley: Now the question that might be most important to clients, how choose and what to look for in an advisor?
Ellen Bessner: Let me share with you a few of the most important criteria:
Choose an advisor with the competencies and registration for products and services you need.
Choose an advisor with whom you feel you can share your personal information, history, and concerns.
Choose an advisor with whom you feel comfortable asking questions and who answers your questions clearly and directly. Tell your advisor what you know and don’t know so that they can explain things appropriately. For example, if you do not understand your statements ask your advisor to explain them – make sure you review these and understand them. You may need more than one tutorial, make sure your advisor is patient in this regard.
If you are interviewing to find a new advisor, consider in advance what you want, and do not want, from an advisor. Do you want a financial plan, annual or semi-annual meetings, a diversified portfolio, or certain types of investments? How they will communicate with you and how often.
If you have a life partner, or spouse, consider whether your expectations are different from each other, and ensure the advisor can accommodate what might be differing expectations. Consider whether a joint investment account with your partner/spouse is appropriate if you have completely different risk profiles.
Choose an advisor who can develop milestones for your investments of one, three, five years or more, and is prepared to assess regularly whether these are being achieved.
Mark Brisley: You mentioned a few things to help clients choose their advisors, is there anything else they should ask their prospective advisors or existing advisors, if they don’t already know these things?
Ellen Bessner: Yes:
Have they worked with people like you before, in terms of age, assets, or any particular requirements? Do they have the necessary experience to address your particular issues and goals?
How are they compensated? Ask how they get paid and how it is calculated. Remember that the least expensive option is not necessarily the best value. Consider what they bring to the table.
What are the logistics associated with meetings? If your advisor is far from you, consider how you will be able to arrange meetings, and factor that into your decision. Now with COVID pandemic, do they use video conferencing or phone?
What is their process? Ask what process they will follow to develop and meet your goals. If this is an existing relationship and your advisor has not yet made this clear, ask them to make it clear now.
Mark Brisley: I really wanted to thank you for these insights, and you laid out a very clear path to how both advisor and their client can work together to achieve a harmonious and beneficial relationship. We are really happy that you were able to join us, so thank you!
In the meantime, I encourage all of our listeners to download the PDF of Ellen’s “Investor’s Guide”, which she has kindly made available and will post on our website for a limited period so be sure to look for it or ask your Dynamic Sales rep to email it to you.
This has been another edition of On The Money. Thank you so much for joining us.
Speaker: This audio has been prepared by 1832 Asset management LP and is provided for information purposes only. Views expressed regarding a particular investment, economy, industry, or market sector should not be considered an indication of trading intent of any of the mutual funds managed by 1832 Asset Management LP.
These views are not to be relied upon as investment advice, nor should they be considered a recommendation to buy or sell. These views are subject to change at any time based upon markets and other conditions and we disclaim any responsibility to update such views. To the extent this audio contains information or data obtained from third-party sources, it is believed to be accurate and reliable as of the date of publication, but 1832 Asset Management LP does not guarantee its accuracy or reliability.
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*Now renamed to Canadian Investment Regulatory Organization (CIRO)
