Advisor Evolution

Not buying or selling stocks, creating a financial plan or determining risk tolerance–all of which are important, of course–but being able to read clients’ emotions and keep them from making irrational decisions when their stomachs are churning is crucial. It can be the difference between setting the groundwork for a perfect retirement and one that never gets off the ground.

Charlie Spiring, CEO of Wellington West Capital, says advisors need to double as behavioural psychologists to keep clients from harming themselves financially at both ends of market cycles. “At the top, they all want to buy and at the bottom they all want to sell. It’s completely counter intuitive. We’re the only business in the world where we mark prices up and people want to buy and we mark them down and people want to sell. It’s the exact opposite of the retail world,” he says.

Sandy Riley, chairman of Richardson Partners Financial, agrees. He says every investor has an irrational voice inside them that’s based on emotion. When markets go up, too many people think they’re the second coming of Warren Buffett, he says.

“They mistake the rising tide for their capacity to manage their own money. When the tide goes out, a lot of people are left saying, ‘why didn’t I listen to somebody?’” he says.

The more unpredictable the markets, the more people want to delegate their financial affairs to professionals, Riley says. But unlike a generation or two ago, advisors are no longer one-trick ponies.

Prior to the “reregulation” of financial services in the 1970s and ’80s, Riley says the industry was driven along product lines. If you wanted a loan, you went to a bank, if you wanted your estate managed, you went to a trust company.

“The people who serviced the clients’ interests were fundamentally product pushers. They had one piece of the client’s total picture,” he says. That meant it wasn’t uncommon for a single client to have a couple of stockbrokers, two insurance people, a banker, an accountant and a mutual fund salesperson.

After the regulatory changes were made, the smart advisors started to learn how to handle a much broader range of products and services, Riley says.

“They had to change the way they sold the product. If they couldn’t do it, they ran the risk of somebody else who had a relationship with the client taking the piece they had,” Riley says. But it was easier said than done. For example, in the old days, a life insurance salesperson would sell the fear of death by pitching, “if you die, you need to make sure your family is looked after.” An investment salesperson, meanwhile, would sell the hope of life, saying, “you’re going to live a long time. You need money invested and managed.”

“It was difficult for these guys to do both. How do you pitch someone on the thought they might die and turn around and say, by the way, you’re going to live a long time?” Riley says. “People learned if you want to be really successful, you can’t base it on selling a product. You’ve got to be much more clinical, disciplined and holistic than in the past. That’s where the concept of wealth planning came in. It allows advisors to talk about a much broader range of solutions to problems a client is facing. The real win for clients isn’t in what products they have, it’s in how they’re organized.”

Advisors have evolved to the point where your father’s “stock-jockey” broker has gone the way of the dinosaur, Spiring says, and been replaced by a well-rounded advisor.

“In the old days, people wanted the stock du jour. Now they want to know whether their asset allocation is appropriate,” he says.

It has all lead to increased delegation of financial affairs, with some firms offering “personal CFO (chief financial officer) services,” which cover everything including making sure your pets are walked and grass is cut while you’re on holiday. Leigh Cunningham, an investment advisor at RBC Dominion Securities in Winnipeg, says today’s advisors need to be well versed in financial planning, insurance needs, estate planning, wills and healthcare directives.

“We’re general practitioners with specialization in investments,” she says.

As an example of how advisors need to multi-task in the 21st century, Cunningham tells the tale of two brothers who spent $25,000 to buy several parcels of land just off the Red River 70 years ago. When the second of the brothers died recently, their investment had appreciated in value to more than $3 million. But because they didn’t have any insurance, the land had to be sold to pay the capital gains tax on the property.

“If a broader approach to their financial health and wellbeing had been taken, an insurance policy could have been bought and that would have solved everything. It would have been cheaper in the long run than having to sell the land to pay the tax man,” she says.