This episode, on Prosper:
We hear from Dr. Lisa Kramer, professor at the University of Toronto, about the behavioural biases that can wreak havoc with your clients’ financial plans. Then, Mike Foy of J.D. Power talks about the ongoing trillion-dollar intergenerational wealth transfer. How can you make sure those assets don’t walk out the door? (Listener note: Foy refers to Canadian stats in his interview.) Transcript below.
Hosted and produced by Bruce Sellery
Mixed and edited by Jason Perrier of Phizzy Studios
Editorial direction and visuals by the Advisor’s Edge team
© 2019 Transcontinental Media G.P.
Bruce Sellery: Hello, I’m Bruce Sellery. This is Prosper, the financial advisors’ podcast from Advisor’s Edge. Coming up: anchoring, framing, and herding. Words from the English language, sure, but what do they have to do with being a great financial advisor?
Lisa Kramer: People assume that financial advisors are somehow more immune to these kinds of natural human tendencies then the clients that they advise and evidence is increasingly coming in that academics are doing, and actually people on Wall Street and Bay Street as well, to sort of refute that myth.
Bruce Sellery: University of Toronto Professor Lisa Kramer on how behavioural finance applies to financial advisors. And the massive intergenerational wealth transfer is already underway.
Mike Foy: It’s an enormous amount of wealth that is going to be passing from generation to generation over, you know, a relatively short window of time and I think the reason that they should care is that they are not prepared for this event at all.
Bruce Sellery: Mike Foy from JD Power on how to minimize asset attrition in your practice as the money changes hands. That’s coming up on Prosper.
Stefanie M.: Hi, I’m Stefanie MacDonald, Group Publisher of the Advisor Group at TC Media. You’re listening to all of this valuable practice information in English, but do you prefer that to be en français? Advisor’s Edge has a sister publication called Conseiller that is run by a Montreal-based editorial team and covers issues relevant to Quebec financial advisors. Inside the magazine, you’ll find interviews with Quebec industry leaders, local stories, and business building tools for financial planners. Go to conseiller.ca to learn more and subscribe. That’s C-O-N-S-E-I-L-L-E-R.ca.
Bruce Sellery: Nothing like a Nobel prize to give your field a little press. Richard Thaler won the coveted award for his work in behavioural economics, building on the momentum built by the bestselling book he coauthored called Nudge. More and more investors are learning about how their brains work and how that can affect their financial results. Of course, that learning applies to financial advisors too. Lisa Kramer is a professor of finance at the University of Toronto. She joins us now to talk about how behavioural bias can affect your business. Hello there.
Lisa Kramer: Good morning. Hello.
Bruce Sellery: How do you describe behavioural finance? When you’re at a cocktail party, when someone knows kind of what you do, what’s your short, your cheap and cheerful way to describe what it is?
Lisa Kramer: It’s the way our human nature affects our financial decision making. So most of us have a brain and it turns out our brain plays a role in the way we decide whether to buy a stock or a bond, whether to save for retirement, whether to participate in the stock market. And so, you know, our human nature is really important when it comes to making those life changing decisions.
Bruce Sellery: So much of this has crossed over into our culture, so people are aware of biases in a way that they weren’t even 10 or 20 years ago. I mean, you’ve been in kind of on the ground floor here in your world of finance. How much have things changed?
Lisa Kramer: Things have changed a lot. You know, I notice as a professor when we’re looking to hire new young professors, it used to be that nobody mentioned the expression behavioural finance on their resumes.
Bruce Sellery: Right.
Lisa Kramer: And now virtually everybody does. So it’s really percolated into the field in a major way, just in the last 10 years or so.
Bruce Sellery: Now some of our listeners, those with a very healthy dose of self confidence and great business results in their practice, might be a little skeptical that they could be tripped up by these biases, right? How do you address the skepticism for people like, “I don’t know. I don’t do that.”
Lisa Kramer: Yeah. I mean there are lots of sort of questionnaires out there and little videos that we can sort of pull out in a pinch and show people that they too are prone to these perfectly normal human traits. And so, you know, give me two minutes and I’ll show you that you too are prone to these.
Bruce Sellery: I remember… Like I remember as I was getting it really engaged in the material and thinking, “Oh yeah, I totally do that.” The more you hear about it you think, “Yep. Mm-hmm (Affirmative). I do that too.”
Lisa Kramer: Right? There’s that gorilla video that most people have seen by this point where, you know, a bunch of people are passing a basketball between them and you’re supposed to count how many times the basketball changes hands. And the first time many people see the video, they completely miss the massive man in a gorilla suit walking across, beating his chest, and you ask them at the end, you know, “How many times did the ball change hands?” And they give you their estimate and then you say, “But did you see the gorilla?” And often they’re like, “What gorilla?”
Bruce Sellery: “What?”
Lisa Kramer: But you show them the video the second time and there he is.
Bruce Sellery: What is the behavioural finance theory that that relates to? Is there a specific one?
Lisa Kramer: Yeah, it’s sort of the way our brain takes mental shortcuts. So heuristics, more specifically, you would call it inattention blindness.
Bruce Sellery: Yeah.
Lisa Kramer: So basically something that’s right in front of your face, you can miss because you’re focused on something more important. You know, I told you to count the number of times the ball is passed. So you’re very obedient and your brain devotes all of its resources to carrying out that task.
Bruce Sellery: Yeah. Sorry, the room is on fire and the walls are crumbling, but how many times did the ball pass?
Lisa Kramer: But the number is… It’s 14.
Bruce Sellery: Well I think it’s great that you begin with heuristics because that is one that people talk about in terms of advisors who may not be accurately considering a client’s risk tolerance because of what they see before them. Can you talk about that, the heuristics idea and how it can apply to advisors maybe using risk tolerance as an example?
Lisa Kramer: Sure. I mean, we’re prone to lots of stimulus in our environment. I mean, we’re constantly bombarded with information and our brain just isn’t capable of interpreting all of that information simultaneously. So we very naturally prioritize. This is just the outcome of evolution and it’s who we are.
Bruce Sellery: Yeah. Not bad.
Lisa Kramer: Not a bad thing at all. And frankly, I don’t even like calling these biases mistakes because they’re just natural. They’re just human nature. But in the context of, let’s say, talking to a client, we see she’s a woman and we maybe have a mental shortcut that women tend to be more risk averse than men. We stick her in that bucket and she might not be, you know, appropriately put in that bucket. She might be keen on holding emerging market stocks, but now we’ve completely miscategorized her because of this little shortcut we’re using.
Bruce Sellery: Another one is called anchoring. How does this relate to the work of a financial advisor? What is it and how does it relate?
Lisa Kramer: Anchoring is when we take a numerical quantity that is completely irrelevant to the task at hand and we use it to form judgments and make decisions. So a common one that comes up in finance is the stock price. So an advisor might anchor to the price at which a particular security was purchased for his or her client and make subsequent decisions about whether to buy or sell that security based on the current price relative to that anchor. The anchor is pretty irrelevant for most purposes. Whether or not it makes sense on a risk and return basis to continue holding that security, it’s not tied so much to the original purchase price.
Bruce Sellery: Right. One example would be the tech stocks that have not split. So you think about Amazon, it’s somewhere around $2,000 per share, and so there can be a view that that’s a really, really expensive stock, but if they did a 20 for one split, we wouldn’t have that same thing because we wouldn’t be anchored to that dollar amount. Is that accurate?
Lisa Kramer: Precisely.
Bruce Sellery: Yeah. Familiarity bias is very interesting and one of the things we know statistically is that Canadian investors are way over[weight] Canada when it comes to its share of total assets around the world. Let’s link that into how an advisor’s brain can work and the potential negative for an investor to be overweighted in Canada.
Lisa Kramer: Sure. I mean, familiarity bias really is rooted in us feeling more comfortable with things that are in our sort of sphere, things that we’ve encountered before, and certainly investors are prone to this, but as you point out, advisors can be as well. Advisors just know more about Canadian stocks, let’s say. And so they might be more inclined to steer clients towards those types of assets. You know, it’s really important from a diversification point of view to try to break out of that and make sure people are exposed to a broader international market. You know, even industry, sometimes clients work in a particular industry and hold stocks in that industry because they’re just more familiar and comfortable. That’s terrible from a financial risk point of view. We need to make sure our advisors and their clients aren’t prone to this sort of tendency.
Bruce Sellery: Is there, and I know this is a bit outside of traditional finance, but on the familiarity bias, is there a way that that can affect a financial advisor’s ability to grow their book? So they’re used to a very traditional, you know, white suburban client with about $300,000 in assets under management and they may have a harder time wrapping their mind around someone who doesn’t fit that picture.
Lisa Kramer: Well, that’s a really great point. I mean, Canada is such a multicultural country and, you know, lots of people are saving for retirement regardless of the color of their skin or their religious beliefs or what neighborhood they live in. And so it can be a great opportunity for an advisor to break out of their traditional comfort zone.
Bruce Sellery: Framing. How does framing work when it comes to financial advisors?
Lisa Kramer: I think the best example of framing is the gain versus loss frame. So you know, we think about things as having gone up in value since we bought them or having gone down in value since we bought them. Again relative to a reference point, in this case the purchase price. And when we think about things in a gain sense versus in a loss sense, it affects our decision making in surprising ways. So for example, when we’re thinking about things that have gone down in value, we tend to be more inclined to take risks. So something’s gone down. We kind of want to make up for those losses. Losses kind of hurt us double the amount that gains feel good.
Bruce Sellery: Which is loss aversion. That’s the other phrase. Loss aversion.
Lisa Kramer: Yeah. It’s a piece of sort of a larger picture called prospect theory. And so framing really helps us understand that behaviour. You know when we’re in the gain domain, we tend to be risk averse, most of us, but as soon as we’re shifting to that loss domain risk seeking comes into play.
Bruce Sellery: We have a significant market correction in the not too distant past, 2008 and all that unfolded there. I mean I remember just watching the daily market returns and being horrified for investors who were losing big on paper but weren’t necessarily losing a penny in practice because they didn’t sell their stocks. Who knows when a market correction will come, but give us a bit of a flavour for how framing could be a disservice to financial advisors in a period of significant market decline, both for themselves and the choices that they make, but also for how they engage with their clients in those times.
Lisa Kramer: That’s a hard question.
Bruce Sellery: It is a hard question. It is a hard question because I think the loss aversion, it really can affect a financial advisor at two levels. One is, “Oh my gosh, I feel terrible that my client’s portfolio is declining.” And second, “How do I help my client navigate that in their own heart and head as they experience those declines.”
Lisa Kramer: Hey, have you ever thought of starting a podcast to help advisors make decisions like this?
Bruce Sellery: That’s a great idea. What about on the flip side? On the gain front, where do our brains shortcut in a disadvantageous way on the gains?
Lisa Kramer: We’re sort of more comfortable in the gain domain, so I think of that more as our sort of baseline. That’s where we’re really… We’re able to describe decision making in that sort of context much more comfortably. We’re much more prone to become emotional in the loss domain and, you know, a lot of my research focuses on that. I look at how depression plays a role in the way we make decisions and emotions in general. They can really wreak havoc on our choices.
Bruce Sellery: Herding behaviour is another one. Now I covered the dot-com boom and bust. We certainly saw herding to the upside. We have seen that perhaps to a lesser extent with bitcoin and cannabis and a lot of advisors will quite proudly say that they didn’t go into those areas, that they stuck to their knitting. But how can herding behaviour affect a financial advisor’s work?
Lisa Kramer: You know, it’s often the case that people assume that financial advisors are somehow more immune to these kinds of natural human tendencies than the clients that they advise. And evidence is increasingly coming in through kind of research projects that academics are doing, and actually people on Wall Street and Bay Street as well, to sort of refute that myth. And so, you know, in the context of herding, we have evidence that portfolio managers are just as prone to herding behaviour as their clients. And so it’s tougher to identify because we don’t often see into the books, but when we look at mutual fund managers, for example, we do get often a semi-annual snapshot of their holdings. And what we see when we try to match the performance of their portfolio with what they claim to have been holding for the last six months is a bit of a mismatch.
Bruce Sellery: Really?
Lisa Kramer: So sometimes they will kind of clean up their books just before reporting to make their portfolios look a lot more like their competitors and peers. And this is kind of part and parcel of herding. People don’t like to look like they’re different from the rest of the crowd. And so that’s one way in which herding can affect professionals in finance.
Bruce Sellery: Confirmation bias, so over weighting information that confirms prior beliefs. Can you give us an example of where that applies here?
Lisa Kramer: Yeah. Well just in general, I mean most of us go to the same news sources over and over, in part because they confirm our prior beliefs. They help reassure us that we’re correct, you know, the way we look at the world makes sense. It’s much harder to collect information from a news source that maybe promotes a slightly different political point of view or in the context of finance, just challenges maybe the valuations we have in mind, but it can be really important to do so. You know, you don’t always want to just be told you’re right.
Bruce Sellery: Yeah.
Lisa Kramer: It’s really important to be told when you might be wrong so you question these sort of fundamental beliefs and maybe avoid doing something inappropriate.
Bruce Sellery: What would you say to financial advisors about how they consume news? Would you say don’t consume it, stick to the fundamental analysis? Or consume it, but don’t watch the same channel all the time?
Lisa Kramer: The latter. I would definitely say diversify your news channels, you know, collect information from a variety of sources. And by all means, do your own analysis and make sure that you understand your numbers, but you know, go out there and follow people who have just different points of view from yourself.
Bruce Sellery: What should advisors do with this insight about behavioural finance? There’s got to be more actions they can take than just Post-It notes saying, “Don’t herd today. Watch your anchoring.”
Lisa Kramer: Right. In fact, you know, the evidence suggests that for many of these biases, simple awareness is not sufficient. It’s not enough just to have that post-it note on your computer monitor. You know, beyond that it gets more tricky. You know, the field is relatively young in coming up with solutions. But I would say in general, one approach would be to have checklists. So not just, “Hey, don’t be prone to anchoring,” but you know, set up a checklist so that when you’re making a decision that you know is prone to being affected by anchors, do things slightly out of… You know, approaches that aren’t impulsive. So maybe have some steps that you follow to just kind of double check your thinking. Slow things down, maybe not be so automated, you know? That’s one possible approach.
Bruce Sellery: Lisa, thank you very much for your time.
Lisa Kramer: My pleasure.
Bruce Sellery: Behavioural finance for financial advisors, our guest, Lisa Kramer, professor of finance at the University of Toronto. Coming up on Prosper, $1 trillion. That is the estimate on the value of assets that will transfer between generations in the next five years.
Mike Foy: The advisors are losing those assets after that wealth transfer event occurs. The time to be having this conversation is before and not after that wealth transfer event occurs.
Bruce Sellery: Mike Foy from JD Power will be here to talk about how you can hold onto your share. And prosperous practice, a quick tip on building your business.
Darren Coleman: My tip is about identifying target markets. When we decide we want to find left-handed plumbers in Milton, Ontario… Instead of that, what we’ve learned works much better is to focus on people that share a unique problem.
Bruce Sellery: Do you have some topics you’d like us to cover or any feedback you’d like to deliver? Our email address is email@example.com. Our handles on social media are @advisorca on Twitter, Advisor’s Edge Magazine on Facebook, and advisor.ca on Linkedin. We’ll be right back.
Speaker 6: And now a word from our partner, Frontier College. Frontier College is Canada’s original literacy organization. Frontier College believes that literacy is more than just the ability to read and write. It’s the ability to engage fully in activities and opportunities at home, at work, and in the community. Frontier College is able to run free programs for children, teens, and adults thanks to the generosity of great people in companies. For example, every year, law firms, investment firms, financial institutions, and blue chip corporations compete in the annual Scrabble Corporate Challenge for the coveted TMX Cup to raise funds for Frontier College. To volunteer or donate to Frontier College, go to www.frontiercollege.ca/get-involved. That’s www.frontiercollege.ca/get-involved.
Bruce Sellery: There are two equally staggering statistics that when put together expose a massive risk and a massive opportunity for financial advisors across this country. First, according to Strategic Insight, $1 trillion in assets will be transferred from one generation to the next by 2026. And second something like 49% of clients leave their parents’ financial advisor once the money is inherited. How can you position your practice to be an asset gatherer? Mike Foy is the senior director of the wealth management practice at JD Power and Associates. He joins us now from Princeton, New Jersey. Hello there.
Mike Foy: Hi, Bruce.
Bruce Sellery: These numbers seem staggering to me. Can you put some context around them for financial advisors? Why should they care?
Mike Foy: Sure. Well, you know, clearly it’s an enormous amount of wealth that is going to be passing from generation to generation over, you know, a relatively short window of time. And I think the reason that they should care is that, generally speaking, they are not prepared for this event at all. I mean, you cited this statistic about likelihood of switching after an inheritance. Our research actually has some similar data. When we ask full service investors today who have inherited wealth whether they’re working with the same advisor as the person they inherited wealth from, just about a quarter of them, 27% said that they still work with that advisor.
Bruce Sellery: Wow.
Mike Foy: When we look forward in terms of the preparation that investors have for their own wealth transfer, even among boomers, only about 56% of them even have named a next generation beneficiary. And of that group of 56%, just 28% say that their advisor has actually engaged in a conversation with them about the needs of that next generation beneficiary.
Bruce Sellery: What do you know about why they are leaving? It can’t just be the, I don’t know, the magazines in the lobby and the cologne of the advisor or whatever.
Mike Foy: Right. So, you know, I think it’s a difficult conversation to have. It’s a conversation that obviously involves mortality. Advisors… You know, clients are often not, you know, comfortable initiating that conversation themselves. But we do see strong evidence to suggest that when that conversation is not happening, then the advisors in firms are losing those assets after that wealth transfer event occurs. So clearly the time to be having this conversations is before and not after that wealth transfer event occurs.
Bruce Sellery: Do we know why they’re leaving though? Like they leave, but what is it that has them leave?
Mike Foy: So, you know, I think there’s a number of reasons. I mean, when we look at millennials and why they say they are considering leaving an advisor, it’s a range of issues. It’s, you know, service levels. It’s, you know, high costs. But I think, generally speaking, you know, oftentimes, millennials before an inheritance event may not necessarily have a large portfolio already. They’re not getting, in some cases, a lot of attention from their advisor and so I think there are a variety of reasons that people leave their advisor. Service levels are, you know, critical among those. But I think again, that in terms of advisors retaining assets through an intergenerational wealth transfer event, it’s too late to try to establish a relationship with somebody after that happens. It’s really something that has to start well before.
Bruce Sellery: You do a lot of work on investment styles, three in particular you’ve flagged: validator, collaborator, and delegator. Can you describe each of those in one sentence?
Mike Foy: Sure. Yes. So the the validator is somebody who is largely involved in wanting to make their own decisions about investments and views an advisor as more of a sounding board for those decisions. A collaborator is someone who wants to make decisions in partnership or collaboration with the advisor. And then a delegator is somebody who really is looking to give the advisor the latitude to make decisions on their behalf. So they really… It represents a range of how involved a particular investor wants to be in the process of making decisions about investments.
Bruce Sellery: And are you finding that more millennials fit into the validator definition?
Mike Foy: We are. So yeah, I mean, if we look overall at investors who are working with an advisor in their primary account, about 27% of those folks overall described themselves as validators. That number is over 40% when we look specifically at millennials. So it’s something that is more prevalent among millennials for sure. I think one of the questions that we often get from clients and folks that we talk to in the industry is, you know, are millennials the way they are just for now and over time they’re going to evolve to look more like boomers? Or is this more of a kind of a permanent change?
Mike Foy: I think it’s a question that’s hard to definitively answer, but I think certain things like their kind of engagement with technology, which I think allows them, you know, to more easily access information to help them make decisions, that’s not going away. And so we think that while as their needs become more complex, they will likely become more dependent on the expertise of advisors to help. They’re not going to become delegators over time. There’s likely to be a greater desire to be actively part of the decision making process versus among older demographic groups.
Bruce Sellery: It would seem like the validator is a flight risk compared to the delegator in which you just need to, you know, win trust or whatever. What can financial advisors do for validators in order to have them feel comfortable in the practice? Can they… You know, is it about ramping up ancillary services like estate planning or retirement planning? Is it shifting them to the low fee environment as quick as they can? What can they do?
Mike Foy: Yeah, I know. I do think there is more of a flight risk clearly. But you know, I think that things that advisors can do, first of all, is just try to understand how your clients want to work with you. And for some people maybe, you know, validators not a great fit for them, but for those who do work with validators, or who have validators that they’re working with now, I think clearly providing value in terms of things like those, you know, planning services. I think certainly when we look at millennials in particular, but investors in general, even if they may be validators, they do tend to be very focused on goals and on trying to have support in the process of setting goals, of understanding, of having a strategy in place to meet those goals and also to be able to kind of track progress towards achieving those goals.
Mike Foy: And I think advisors play a critical role really throughout that process. And you know, I think the goals… You know, a lot of times advisors will have conversations about goals that are exclusively focused on retirement, which is obviously very important to everyone, but for younger investors for whom retirement is, you know, decades away that needs to be balanced against other financial goals they may have. Whether that’s, you know, a major purchase of a home or another goal or goals that are sort of, you know, more short term. Having all of those as part of the conversation is important.
Bruce Sellery: How does the advisor bring the children who aren’t actually just children anymore into their practice early? Do they need to be watching different shows on Netflix so they can at least talk about it?
Mike Foy: You know, I mean certainly being able to relate to different generations is important. I think there are a number of ways, right? So having some kind of a… Hosting an event that is multi generational which is designed to help drive financial literacy or understanding among the next generation is one way. But I think just inviting the client to bring the children into a discussion. Again, it’s not a topic that’s easy for most people to talk about. So in some cases it may be something where clients actually are relieved by the advisor kind of taking the initiative to make this conversation happen. They can be kind of a bridge builder in a way to help facilitate a dialogue that may not be happening between the older and younger generations in terms of addressing some of these issues.
Bruce Sellery: How has the rise of the robo-advisor altered the dynamic here? And even before the DIY approach… I mean, millennials have more choices than they would have in the generation prior to that.
Mike Foy: Yeah, I think that definitely… You know, we definitely see evidence that millennials, even millennials who are already working with an advisor, are much more interested in and open to other service models, other channels. So, you know, certainly robo advice, self-directed investment platforms. They tend to, I think, be much more open to the idea of switching. And so obviously that is a risk, but I think it’s also an opportunity for firms to be able to provide that level of flexibility. You know, again, technology’s something that can also help advisors, right? And you know, using emerging technology channels to facilitate conversation and dialogue with their clients is an important part of being relevant to the next generation as well.
Bruce Sellery: One of the things you’ve also got data on is how often millennials spread assets around amongst different firms. So as the wealth transfer unfolds, it isn’t even necessarily that you lose all the assets. You might only lose some of them. Why is that? Can we blame Instagram?
Mike Foy: Yeah. So I mean, I think they… You know, clearly they’re aware of more different options. They are just… You know, technology I think makes it much easier both to discover other alternatives and also it lowers switching costs, right? So I think they’re just used to, as consumers, being aware of different options of changing and switching. So I think, you know, trying new technologies is something that they’re much more inclined to as a group overall. And so you do see, you know, high percentages of folks that are interested in robo advice, who have tried robo advice.
Mike Foy: And so I think that, again, the key from an advisor perspective is really kind of providing that holistic guidance of developing a trusted relationship and creating a relationship where they are aware of the client’s whole financial picture, even if some component of that is not being kind of managed in house. We do see over time there is a a perceived benefit to consolidation and so I think having that relationship, that trust based relationship, is over time going to result in clients trusting an advisor with more of their assets.
Bruce Sellery: Really interesting stuff. Mike, I appreciate your time today. Thank you.
Mike Foy: Yeah. Thank you, Bruce.
Bruce Sellery: Mike Foy, senior director, wealth management practice, JD Power and Associates. We were talking about this massive wealth transfer that is to come, how you can position your practice to make the most of it.
Bruce Sellery: Becoming a better financial advisor is a lifelong pursuit. On each episode of this podcast, we’ll bring you a quick tip from the trenches. We call it Prosperous Practice.
Darren Coleman: My name is Darren Coleman. I’m the senior vice president and portfolio manager and certified financial planner with Raymond James in Toronto. I focus on complicated financial planning situations and specifically on cross border wealth management. We work with people who have money and family on both sides of the Canada-U.S. Border. My tip is about identifying target markets and how it works. Well, we were all traditionally taught, I think, that target markets, the ones we want to look for, are people or groups that we can identify that all share some commonalities and it’s a big enough group that we could maybe build a business out of it, but not so big that it will attract other competitors. So we may want to look at occupation or age or location or something that we can identify. For example, we may decide we want to find left-handed plumbers in Milton, Ontario, whose wife’s name are Shirley and the drive pink pickup trucks. Or they all belong to the same racquetball group. Or somehow there’s a group of people we can target.
Darren Coleman: Instead of that what we’ve learned works much better is to focus on people that share a unique problem and then we can look to find solutions to that problem that we can offer that are very valuable. So in my case, we focused on people who had money or family on both sides of the border because that leads to a large number of complications that are very difficult for them to solve because they find themselves caught between the cracks of two very different legal tax compliance and investment regimes.
Darren Coleman: And if they find themselves caught in the web of compliance that puts them between those two systems, it’s very, very complicated to get out of. And so once we identified people that had that problem, they can look like anything. They can be actors, they can be athletes, they can be business owners, they can be executives, they can be families. It’s almost impossible to identify them from a distance by what they look like or what they do. Instead we found people that just had that problem. And then we began looking at, “Well what solutions can we provide to that audience?” And once we thought about finding people with that unique problem, we started to say, “Well why don’t we find other people who already work with people who have that problem?” And we found that looking at target markets from that perspective of looking for people that have a very specific problem and we can provide a solution was much more effective than trying to find them from any other way in the external factor.
Darren Coleman: Because when you look for people that all kind of look the same, whether they’re of the same occupation or same location, they may look the same for a distance, but it doesn’t mean they share the same problem. And even if they do look the same, well what are you going to do to help them? Like who cares? It’s not a valuable thing just to say, “Well I work with chiropractors” or “I work with dentists” or “I work with teachers.” So what? Instead of that look for, “Well what are problems that they may have or they may share and what can you do to solve them?? Because it’s also then more empowering when you provide someone with a solution to a problem they have, but they don’t seem to be able to find a solution elsewhere. So we learned that that’s what worked. What didn’t work was trying to find them based on the more traditional factors of you know, age, occupation, or what have you.
Darren Coleman: So when we looked at solving problems that were unique and special, the impact has been dramatic. Our practice is one of the largest in Canada. And our cross border practice, which grew out of our focus on complicated financial planning problems, because we just kept finding the cross border issues were problems that we just kept tripping over and no one seemed to have a solution for them. So we said, “Well why don’t we find a way to solve those problems and then become experts at solving it.” So not only has that business grown dramatically within our practice, it’s also an area where we continue to have leadership because by becoming a specialist on focusing on fixing that problem, we get better and better and better at it. And our lead, competitively, keeps getting wider.
Bruce Sellery: You’ve been listening to Prosper, the financial advisors’ podcast from Advisor’s Edge. Take a second to check out our website, advisor.ca. You’ll find articles on industry news, tax issues, investments, insurance, and practice management. And you can sign up for our daily e-newsletter and subscribe to our print magazine. Don’t forget to subscribe to the podcast, so the next episode will be delivered automatically to your device. And maybe while you’re there, give us a review. Thanks for listening. Now go out and prosper.