This episode, on Prosper:
We ask four financial services leaders to review the decade that was while predicting what financial advice could look like in the coming years. Hear from Melissa Shin, editorial director of Advisor’s Edge; Fern Karsh, policy counsel with FAIR Canada; Cary List, president and CEO of FP Canada; and Greg Pollock, president and CEO of Advocis. 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
© 2020 Newcom Media Inc.
Bruce Sellery: Hello, I’m Bruce Sellery. This is Prosper, the financial advisor’s podcast from Advisor’s Edge.
Bruce Sellery: 2020, the start of a new decade. We’re going to focus our entire episode on a look ahead to the next 10 years in the financial advice industry. How advisors will work, how you’ll be paid, what regulatory changes you may see. We cover it all, and from a number of different perspectives. Melissa Shin, editorial director of Advisor’s Edge.
Melissa Shin: Great advisors realize that they’re not just transactional for their clients, they’re helping them with their whole lives.
Bruce Sellery: Cary List of FP Canada.
Cary List: Does the client know what they’re paying? Do they know what they’re paying for? Do they know what they should expect in return? Is there full transparency? Are there conflicts of interest? Is that all out in the open, and does the client actually have a choice as to how to pay for the services that they’re getting?
Bruce Sellery: Greg Pollock from Advocis.
Greg Pollock: At the end of the day, I still think there’s going to be a huge need for that human to human contact, that people are going to want to look at others in the eyes to say, "Can I trust you? Can I really trust you with advice and taking care of my financial future?"
Bruce Sellery: And Fern Karsh of FAIR Canada.
Fern Karsh: My great hope is that Fintechs become a little bit more like financial institutions and financial institutions become a little bit more like Fintech.
Bruce Sellery: The decade ahead. What’s next for the financial advice industry? Coming up on this episode of Prosper.
Greg Dalgetty: For over 20 years, Advisor’s Edge magazine has been bringing you tools, ideas, and strategies to serve your clients and grow your business. We also deliver relevant stories daily on all our platforms; our website, advisor.ca, our daily AM and PM E-newsletters, and the podcast you’re listening to right now. We’ll soon be launching the Weekly Indicator, a fresh new take on our weekly E-newsletter, same great stories, but with more context and ideas. If you haven’t already, make sure you’re subscribed by heading to advisor.ca.
Bruce Sellery: Predicting the future is an impossible task of course, but we’re going to try. Not in terms of specifics, but in terms of some of the big themes that will impact the financial advice industry in the next 10 years. Technology, regulation, demographics, compensation, all hot topics. To kick things off, I’m joined by Melissa Shin, the editorial director of Advisor’s Edge. Hello there.
Melissa Shin: Hi Bruce.
Bruce Sellery: You have covered this industry for a very long time. How would you characterize the state of things today, at the beginning of a new decade?
Melissa Shin: The way I would describe it is that everything has changed and nothing has changed. We actually had the 20th anniversary of Advisor’s Edge a couple of years ago and we looked at the 1998 issue, and a lot of the words in there are very relevant today. It’s quite interesting because a lot of the conversations about regulation, about the rule of the advisor, about trying to find value in financial advice and not just having it be about investments, that is still the same, but technology has really changed how business works. We have seen obviously the rise of the robo-advisor, the rise of ETFs, and certainly a lot of consolidation in the industry as well. A lot of the companies that used to exist 10, 20 years ago, they don’t exist anymore.
Bruce Sellery: What are two or three factors from the past decade that you would say inform your view of where things are headed? Just to get us set for this look ahead, what are some of the big themes that you think are going to be really relevant?
Melissa Shin: As I mentioned, the industry consolidation aspect of it and the way that people pay for advice. Looking at some of the stats for the last 10 years from the Investment Industry Association of Canada, we have seen 100 firms close or resign from 2009 to 2018, and we’ve also seen commission revenue flat since 2009. That’s been really a big shift, and yet fee revenue has risen 350% over that same period.
Bruce Sellery: Wow. Now, the markets have been very, very strong so if it’s a percentage of total assets under management in aggregate, that would make sense that it would be a significant increase.
Melissa Shin: Yes, but I think the way that advisors are having conversations with clients and the way that clients want to pay for advice is changing. Some would argue that it’s not changing quickly enough. Advisors are realizing that there’s a lot of regulation pressure that they have to do a lot to be compliant, and therefore it might be easier to have a fee structure where they can work with their clients and have them pay directly for the advice that they’re being given as opposed to having it bundled in with product.
Melissa Shin: Then, on the flip side of it, there’s a huge understanding now amongst investors about the fact that investing can be expensive. For some people, it’s just they’ve heard that "There are these fees that I have to pay. I don’t really understand how that works," and then others who have really, thanks to a lot of the investor advocates, are starting to understand the fact that they are actually paying for advice and they don’t realize it in some of the products that they’ve been buying, like mutual funds.
Bruce Sellery: At its best, people are aware of all that and then make a choice such that they ensure that they get value for the advice that they’re paying for. I mean, to know that they’re paying for it and then advocate for themselves to ensure they’re getting value for it.
Melissa Shin: Exactly, and great advisors realize that they’re not just transactional for their clients, they’re helping them with their whole lives. They’re helping them with maybe buying a home, estate planning, their taxes, passing on a business. Some people call their advisors when their kids need to find a job and they just want some advice, they want to switch careers and they want some ideas about a business coach or something like that. People might call their advisors for that. They’re really now being seen as concierges for people’s entire lives, not just financial.
Bruce Sellery: The three ways that advisors have been paid historically, commission based as you mentioned, fee based, which is a smaller subset currently but growing, and fee only much, much smaller, also growing. Then there is this, and I’ve just seen this quite recently, is the subscription based model. Tell us a bit about that and whether or not you think that’s going to get traction in the decade ahead.
Melissa Shin: Yeah, so to your point, it’s not very common right now. I don’t actually know if any firms are doing it here in Canada, beyond-
Bruce Sellery: Kind Wealth I think is the one that I’ve heard, Kind Wealth, but it was really the first one.
Melissa Shin: As we know as consumers, it’s a lot easier to just have something come off your credit card like your Netflix subscription or your Amazon Prime and what we’ve even seen with those, is the increase of value that you get. It used to be that Amazon Prime just got you delivery, and now you also get to watch all these movies-
Bruce Sellery: The Marvelous Mrs. Maisel.
Melissa Shin: Yes, exactly, or Fleabag.
Bruce Sellery: Jack Ryan, or Fleabag. I think most importantly, Fleabag.
Melissa Shin: Absolutely. That has really helped people understand that there is value in paying for something. And, to my point earlier, it used to be that people didn’t realize that they were paying for advice. They thought it was free, they thought it just came with the product and in some case, it did or they weren’t getting it. It’s the same thing with media. People were streaming movies and they weren’t necessarily paying for it, but Netflix has changed that and allowed people to just have something come off their account, and then they get it every month.
Melissa Shin: This could be a way to reach those consumers who maybe don’t feel comfortable writing a check to their advisor. There’s often a lot of advisors who say, "I’m not sure that I can work with my clients and have them write a check to me because that’s just not how they want to work." But, having something a little bit more automated, a bit more similar to how they work with other service providers in their life may show that value.
Bruce Sellery: How they are paid, and then where they work. One of the trends that we’ve seen in a number of industries, and really it hasn’t been the last five years, it’s been the last 20 years, is companies really considering their real estate footprint and enabling their employees to work in lots of different places — the mobile worker. Financial advisors outside of rural communities like those who work in urban centres typically trek to an office. Will we see more options for advisors in the decade ahead in terms of working in different places, or at least working differently?
Melissa Shin: Yes, I think so. I think that is in conjunction with the fact that clients are demanding more options from their advisors as well. To your point, there’s been a lot of kitchen table meetings in rural areas because people live far apart, they don’t want to go visit their advisor. Well, even in an urban centre, finding parking is a challenge, people are getting older and they don’t want to drive, the weather’s not always great. Especially if they have a long standing relationship with their advisor, there might not be that need to meet face-to-face.
Melissa Shin: Technology as we know has improved to the point where everybody has a webcam on their computer. You don’t have that legginess when you do a video chat or something like that and grandparents are FaceTiming their grandkids. There’s certainly that baked in technological comfort that clients will now have. We actually feel that advisors can get away eventually without necessarily having a bricks and mortar office. In fact, there’s a Canadian company called LiveCA. It is for chartered accountants, and they actually don’t have a physical office. They will call you, I don’t know, they might come to you but in any case, they don’t have a physical office. That’s something that advisors might be able to get to.
Bruce Sellery: Well, and certainly a big cohort of advisors will retire in the decade ahead. People retire all the time every day, but we’re in this demographic shift that we’ve been talking about in so many parts of the economy. Financial advisory is not immune from that. What do you see in terms of that transformation? Are so many people going to retire that it’s going to be hard to sell your book?
Melissa Shin: It might be, and that’s something that advisors really need to plan for because a lot of them count on their books as their retirement plan.
Bruce Sellery: Their retirement plan, right.
Melissa Shin: That’s going to be how they have enough money.
Bruce Sellery: Their clients consider their house their retirement plan and advisors might say that that’s one huge asset for them.
Melissa Shin: Sure. We’ve seen the demographic effects of the baby boom throughout the years, and this will be another one where the baby boomer advisors are retiring and their clients are also retiring. If their clients are retiring, chances are they are drawing down from their nest egg. So, if your book is a whole bunch of retirees and you’re retiring, you might be in that crunch where your book is going to be worth less and you don’t have anybody to sell it to. There’s also a dearth of advisors entering the industry because it’s a really tough one.
Bruce Sellery: Big data is a buzzy, buzzy phrase in our culture right now and it has been for the last couple of years. It’s huge in retail, and logistics, and agriculture. What do you think it means for financial advice?
Melissa Shin: In the near term, I think it means better financial advice because the advisor will know a lot more about their clients. For example, my financial advisor has said, "Please tell me what you spend money on, or you could export your credit card data into this CSV file and upload it to our system and we will analyze it for you."
Bruce Sellery: Really?
Melissa Shin: Yeah, it’s a little creepy. I chose not to do that. But, a lot of banks now, their interface allows for classifying your expenses and we all know through diet and exercise, people self-reporting, they don’t do a great job of that. We’re just not very good at tracking ourselves. So, the data will allow for that to happen and financial advisors get a much better sense of what their clients are doing and it’s more about what I do, not what I say.
Bruce Sellery: One of the things that people are doing more is investing in socially responsible funds. They have been around for decades. I’ve been covering this industry literally since 1998 and there have been products for that period of time, but it really seems only recently that it has crossed over into the mass market. What’s your prediction for the decade ahead? Is now the time in which whatever you call them, climate change, socially responsible, impact investing, all those ideas, will cross over into the mainstream?
Melissa Shin: I’d argue in some cases that it has. We all followed Greta, she came across the ocean. So, there is this understanding of the importance of environmental and social issues. Unfortunately, we’ve not seen that translate as well into assets under management.
Bruce Sellery: Yeah, it’s not a huge part of the share.
Melissa Shin: No, and part of the reason for that is the fact that everybody defines responsible investing differently and they even use different terms for it. It’s hard to create a product that everybody can get behind because if I don’t like tobacco and oil but you feel that all companies should be run by women, then we might not have an overlapping agreement.
Bruce Sellery: There’s only three companies left in the universe.
Melissa Shin: Yeah, that’s the challenge. Now, one thing that has been proposed to the federal government is increased RRSP room for people who choose to invest in these low carbon investments. That’s the proposal, the government-
Bruce Sellery: An interesting one with limits because so few Canadians actually max out their RRSPs to begin with.
Melissa Shin: That’s true, and so it would, at first, benefit rich people. But in any case, it would certainly change the definition out there. Well, it would create a definition out there that a lot of the product manufacturers would then most likely start to shift toward. Back in 2005, they lifted the foreign investment cap on RRSPs. This could have a similar effect of creating a wave of investment toward something else. Now, it’s interesting about that because I just saw someone posted some data saying that despite that change now almost 15 years ago, we have actually not seen that much increase in foreign content in RRSPs. So, who knows.
Bruce Sellery: Canadians still love to keep their money at home, and maybe that’s habit, I don’t know. I don’t know if it’s patriotism, but it’s not the smartest thing to do. I want to ask you about the market segmentation because there has been such a push, really in the last, I don’t know, two or three years on the high net worth client. Even organizations that haven’t historically targeted that segment have gone hard on that segment. So, there’s tons of competition for high net worth, a lot of competition on the robo front, which is the younger investor and the smaller account sizes. It seems like no one wants the middle, that mass consumer who’s got, I don’t know, like a $100 grand, not 500 grand and not 10 grand. Are they going to be left in the dust, or will there be a firm or firms who decide that’s a segment worth fighting for?
Melissa Shin: Well, wherever there is risk there’s also opportunity. I think that the challenge is that, you’re right, the large firms don’t necessarily find it profitable to go after that group of people. And for the robos, that can do an excellent job with people with low assets, maybe the people in that realm are better served with more information than just a robo can give. I think what we might see is that some of the robos will up their game and provide more support in areas like tax and estate planning, or budgeting, or areas that those people with the $250,000 in assets need help with, but don’t have enough money to attract the attention of someone who serves high net worth clients. We also may see more salaried advisors come into play, so people who don’t necessarily need to have rich clients in order to make a living. Then that way, those folks will be able to be served.
Bruce Sellery: When you say salaried advisors, is that currently what we would see at a bank when you go to a bank branch?
Melissa Shin: It’s starting to be more prominent, so yes. It depends on what floor you enter at the bank. You come in on the first floor, yes, you’re going to see people who make a salary and might get a bonus. If you go upstairs, you’re going to work with someone who’s more being paid fee based as a percentage of the assets that you have, et cetera. We may see more of those salaried advisors come into play. Traditionally, that’s not been maybe the most exciting for a budding financial advisor because there’s definitely a lot more upside if you are being paid as a percentage of assets.
Melissa Shin: However, as I mentioned earlier, there is this challenge in terms of recruitment. It’s very risky to have to “eat what you kill” as they call it. And if you find it challenging to find clients or you don’t really want to be a sales person, which is certainly where we’re trying to move the business away from, you just want to serve clients, maybe the clients can come to you. The trade-off is that you’re not going to maybe make as much money, but you’ll probably still make a pretty good living.
Bruce Sellery: I want to come back to the regulatory conversation because you have talked endlessly, I have talked endlessly about CRM2. That’s now a while in the past. Is there a CRM3, four, five, six, seven? What’s the roadmap, broadly speaking, on things to watch out for from a regulatory perspective?
Melissa Shin: CRM2 is not been necessarily the game changer that everybody thought it would be in the sense that, yes there have certainly been some rude awakenings for some clients, but at the same time, everybody is just overwhelmed with the amount of disclosure documents they have to read. I don’t read an end user license agreement when I buy software.
Bruce Sellery: What! Come on.
Melissa Shin: Sorry.
Bruce Sellery: I don’t either. You and I are following this all the time and we don’t read it.
Melissa Shin: Exactly, so is the answer more disclosure or is the answer a more systemic change in the industry from a regulation perspective? I say this and thinking about the next 10 years, well, it was 1995 when a report came out suggesting that we look at embedded commissions and maybe get rid of them and we’re not there yet. In any case, we could be having this same conversation in 2029.
Bruce Sellery: Yeah, it’s an exciting future. I feel excited. Do you feel excited?
Melissa Shin: I do. You know what, there’s this great need for financial literacy and financial advice and as we know, Canadians are going to be retiring. They are retiring in large numbers and because of the way demographics work, we don’t have that commensurate large number of people entering the workforce. So, we need to figure out what’s next. The markets maybe aren’t going to return as amazingly as they have in the last 10 years, so people need help and there’s debt and everything like that. So, there’s a huge opportunity for people who understand what clients need and can help them. I just hope that the regulatory and the firm infrastructure does allow them to do that.
Bruce Sellery: I hope so too. Melissa, thank you very much.
Melissa Shin: Thanks so much Bruce.
Bruce Sellery: Melissa Shin, editorial director with Advisor’s Edge and Investment Executive, and that’s her two cents on the decade ahead in the financial advice industry.
Bruce Sellery: We’re going to take a brief break and when we return, FAIR Canada is calling for the reform of the client-advisor relationship. What does that mean, and how might it affect you? We’ll talk to Fern Karsh.
Fern Karsh: We’ve been pushing for a move closer towards a fiduciary standard or a best interest standard as one example to help align interest.
Bruce Sellery: And later, Cary List of FP Canada and Greg Pollock from Advocis will be our guests. Don’t forget to check out our website, advisor.ca. We cover industry news, tax issues, investments, insurance, and practice management. You can also sign up for our daily E-newsletter and subscribe to our print magazine. We’ll be right back.
Greg Dalgetty: 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 no financial advisors if there are no clients. Of course, they are at the heart of what you do. Your clients, the individual investors, make the choice to place their precious nest egg in your hands, first to grow it and later to preserve it, to support their retirement and maybe provide a legacy for future generations. Our next guest believes that advisors can do better for their clients, and her organization is actively pushing for reforms. Fern Karsh is with FAIR Canada. Hello there.
Fern Karsh: Thank you for having me Bruce.
Bruce Sellery: A lot of listeners may not know what FAIR Canada is. Tell us what it is and what it’s trying to do.
Fern Karsh: FAIR Canada is a not for profit charitable organization founded 10 years ago around the time of the financial crisis. Its objective is to represent the voice of the retail investor and the individual shareholder and advance their interests and rights through public policy advocacy.
Bruce Sellery: This series is focused on the financial advice industry. You’re an advocate for individual investors served by that industry. How do you see FAIR Canada’s role, and what’s the dance with the industry itself? Is there a dance? I’m assuming there’s a dance. Maybe not a cha-cha, but certainly a waltz.
Fern Karsh: Well, I think that the dance that goes on or that will go on with the financial services industry should look a lot like the dance that goes on between the regulators and the financial services industry as well. I think that we live in a cooperative, collaborative time where I think to accomplish objectives and certainly to accomplish public policy and political objectives, one needs to work together with all stakeholders including governmental, non-governmental regulators, industry members, and our retail investor and individual shareholder constituents.
Bruce Sellery: One of your strategic priorities is to call for, I’m taking this quote from your site, call for reform of the client-advisor relationship and to push for better alignment of that relationship. What does that mean in practice?
Fern Karsh: That can mean a lot of different things. I think it’s got to be put into context. Over quite a few years, we’ve been pushing for a move closer towards a fiduciary standard or a best interest standard as one example to help align interests. I think that would be a major example of aligning interests, and what’s happened over a number of years now. That’s an initiative that’s been going on for essentially the long term, is a best interest duty eventually morphed into a more harmonized approach.
Fern Karsh: It was something that the OSC was at one point willing to go alone with as a public policy move and then in the interests of national harmonization stepped a bit back from that, but went forward with client-focused reforms, which intended to achieve basically the same objective or similar objective with more targeted tools. Tools like suitability, conflicts, et cetera.
Bruce Sellery: Technology is an enormous theme everywhere we look, everywhere we turn and for the financial advice industry, robo-advisors are certainly the example that we talk a lot about. As you look ahead to the decade in front of us, where is technology going to play, and does it help or hinder your mission?
Fern Karsh: To your first question with respect to where technology is going to play, certainly the robo-advisors are and I would expect them to be a continually growing segment. They’re around 5.5 billion now, which is a small fraction of the 1.6 trillion or so traditional mutual fund industry.
Bruce Sellery: Trillion.
Fern Karsh: 1.5 trillion, yeah, for the mutual fund industry. Although of course, robos do, to a very small degree, also sometimes offer mutual funds in their portfolios, although they’re mostly ETF based. But, that’s a growing segment and that’s anticipated to be growing at a rate of about 30% a year and I think it links up really well with a lot of catalysts we’re generally seeing. In terms of demographic shifts, I would see robos as continuing to appeal to younger generations, like the digital native millennials and gen Zs who are comfortable doing everything online.
Fern Karsh: And, the robos, they’re getting savvier and they’re getting more mature. Maturity-wise, it’s been about five years now so there’s actual returns and history to see. There’s a way to actually evaluate their model portfolios. I think that would be indicative of further growth coming in that sector and at a faster pace, because it’s strengthening. There’s more competition, there’s more companies out there, they’re well financed and savvy. You’ve got the likes of PowerCore, Pushing Wealth, Simple Forward. They are also really competitive on fees, and I think that that’s an easy sell to the general public. I think the average person investor understands the concept of lower fees and the impact that that would have.
Bruce Sellery: What is after transparency. I ask because there’s so much in the last couple of years about, well, we need to let people know what they’re paying and how things work. There’s the know your client and all this communication, and yet it feels insufficient because I receive those proxy notices, I’m a personal finance guy. I don’t read them, I barely open them. As you think about how you advocate for that individual investor, what’s next after that? If we’ve achieved a certain degree of transparency, what’s next?
Fern Karsh: What’s next after that is, investors ultimately need to, to some degree, take some charge of their own finances and documents. So with increased transparency, I’d say that there’s also some obligation intended to be on investors to read and consume their CRM documents.
Bruce Sellery: You looked me right in the eye when you said that. I need to read and consume my documents. All right, fair, fair, fair.
Fern Karsh: That’s probably not best way to put that. But from a legal perspective, I think the reality is, I am also a lawyer and from a legal perspective I could see there being … Investors actually have a tougher time going after advisors in a world of greater transparency and easier to consume documents, and I think that the case law would be reflective of that too.
Bruce Sellery: How does FAIR navigate the federal, provincial, multi-regulator environment? It’s very, very complicated when you look at all facets of financial advice. How do you see FAIR’s role in the next decade trying to influence in a way that makes a difference for your primary stakeholder, the individual investor?
Fern Karsh: Well, FAIR has always and we’ll need to continue to advocate with respect to rules and policies and practices of all of these regulatory and stakeholder groups, so your securities regulators and various SROs. We have a unique opportunity right now. Both FAIR Canada does and Ontario more generally with respect to this review that’s going to be going on of the overall, the Securities Act and the overall securities regulatory framework. So, this question of the fragmentation amongst securities regulators and SROs, and the potential move to a federal regulator, the CMRA, is something that I would expect FAIR to also be planning on and wanting to have a public policy influence with respect to.
Bruce Sellery: I’m going to leave with one last question, and it is this. What is your hope for the decade ahead? As you think about the individual investors that you are advocating for, what is your great hope for where this will head in the next 10 years?
Fern Karsh: My great hope is that Fintechs become a little bit more like financial institutions and financial institutions become a little bit more like Fintechs. I think that on the former, I think that there is a great role to play in the interest of retail investors and individual shareholders. With respect to robo-advisors and automation in terms of democratizing access to investing and investing advice for those that might not otherwise meet criteria or otherwise, in any event, not access traditional advisors.
Fern Karsh: But, I also think that people expect and need slightly more full service advice in terms of all their financial planning, tax, et cetera. I think whether that’s partnerships or internalizing other services, tools, et cetera. And I think on the other hand, traditional financial institutions becoming more efficient and embracing technology and embracing automation, embracing automation and financial planning and other tools that again, democratize access to proper advice on both sides. That would be one of my big hopes.
Bruce Sellery: Fern, thank you very much.
Fern Karsh: Thank you.
Bruce Sellery: Fern Karsh, policy counsel for FAIR Canada.
Bruce Sellery: Proving the value of your financial advice is more difficult than it was before, if only because there are other lower cost options out there for investors. One of the ways to drive home the benefits of working with a real, trained, experienced human is to increase the standards of the profession, and that is the mission of FP Canada. Its president and CEO, Cary List, joins us now, hello there.
Cary List: Thank you Bruce.
Bruce Sellery: In two sentences, no more, what is FP Canada?
Cary List: FP Canada is an organization that is dedicated to championing better financial health for all Canadians, and we do that through our certification programs and through education. CFP certification, QAFP certification, and financial education for prospective financial planners.
Bruce Sellery: One of the biggest things you talk about is the notion of titles and how we talk about financial advisors and financial planners in this country. Why is that so important in your view?
Cary List: It’s critical because right now the onus of responsibility for figuring everything out is on the consumer, on the prospective client. Consumers don’t understand the difference between what a financial advisor is, what a financial planner is, what an investment advisor is, what a portfolio manager is. And there are no rules, regulations, laws that dictate who can call themselves what, and there’s no real clear definition of what those things are.
Bruce Sellery: How do you think that is going to play out in the decade ahead? I think there’s a certain amount of will and momentum in the marketplace. Certainly people like me would advocate for that kind of clarity for the health of the consumer. How do you think it’s going to play out?
Cary List: FP Canada has been really advocating for restrictions in law as to who can call themselves what, and for clearer definitions so consumers actually can make informed choices about whom they go to for what types of advice. We’ve been advocating for this for the better part of 10 years. We’ve seen some really significant movement in the last several months. Ontario actually passed legislation in its budget bill 2019, and it’s now through a regulatory body to actually set the rules and regulations around that legislation.
Cary List: That’s happening in Ontario and I think that’s spurring on other provinces. It’s provincial in nature so unfortunately, we have to go province by province, especially when you’ve got a big … It’s a big country. But, we’ve seen legislation tabled in Saskatchewan and other provinces taking great interest. So I think, Bruce, if we’re looking at the next decade, I’m very hopeful that in fact, we’re going to see legislation harmonized across the country and every province that restricts who can call themselves a financial planner or a financial advisor or an investment advisor. And, helps define for the clients or prospective clients what those people are capable of doing and the services they offer so that consumers can make informed choices.
Bruce Sellery: Do you think that will increase the number of people who follow your designation path? I mean, it’s a higher hurdle, right?
Cary List: It is a higher hurdle. We’re already seeing it and it’s very interesting in preparation for upcoming legislation partly. Also, because we see that the financial services industry is recognizing it has to up its game. We’re seeing a very dramatic increase in the number of students who are pursuing CFP certification, Certified Financial Planner certification, and we see that only growing. I think what we’re going to find is, people are either going to leave the industry if they were just selling product, or they’re going to step up to a professional standard.
Bruce Sellery: Technology is enormous, it’s a huge theme. I was looking at the date of when the first robo announced its launch in the U.S. It was around 2008 or so, so a shorter life here in Canada but becoming a force. Robo started as this challenger, like it was going to change the game and now some advisors are using that technology so that they can focus more on client service and more on financial planning. From where you sit, how do you think that theme’s going to play out in the next 10 years?
Cary List: This is one of the most fascinating developments in financial services, and I think in every profession worldwide. But you mentioned the first a robo firm in what? 2008 I think you said. I think initially, it was really seen as a threat. Disruption immediately is, this is a threat to our very existence. I think what happened, first thing that happened is all of these robo firms that thought they were going to put professional advisors or financial planners out of business realized that they couldn’t go direct to consumers. They hadn’t earned the trust. Consumers didn’t necessarily know what they were getting from technology. They weren’t comfortable investing or getting advice from a computer.
Cary List: So there was over the last I’d say four years in particular, there’s been a huge shift where these technology, we call them Fintech firms, whether it’s robo platforms or not, they’ve been looking at partnering with organizations like ours, with planners like CFP professionals and say, "Can we provide the backbone? Can we provide some of the services like selecting appropriate portfolios, helping rebalance portfolios, asset allocation? Can we do that for you? Take some of the heavy lifting off of your plate?” Those are the things technology can actually do better, and then leave the professional advice, which is really financial planning, helping CFPs for example or financial planners and others, helping bring clarity and simplicity to really complex matters.
Bruce Sellery: Yeah, and humanity.
Cary List: And humanity. That is what is left really for most professions, is that humanity and very interesting I think what we’re seeing, is a real 360. The advent of technology is actually driving more demand for the human connection because people are feeling they’ve lost it.
Bruce Sellery: Right, interesting. Now, one of the other dynamics for folks with a CFP is, which fee structure is going to work for them? Back in the day it was commissioned based, now it’s commission based, fee based, fee only, subscription, money coaches. There’s many, many different ones. What’s the position of FP Canada on all of this, or do you try and remain agnostic and let it all sort itself out in the wash?
Cary List: Well, agnostic to a certain extent. It’s really important. Fee structure is only important I think from the perspective of, does the client know what they’re paying? Do they know what they’re paying for? Do they know what they should expect in return? Is there full transparency? Are there conflicts of interest? Is that all out in the open, and does the client actually have a choice as to how to pay for the services that they’re getting? The rest doesn’t really matter. If it’s fee, write a check, assets under administration, various other forms.
Cary List: As long as the client has choice, they know what they’re paying for, they know what they’re getting in return, they know that their planner in this case or advisor is not conflicted. And that if they are conflicted, they’re disclosing it, they’ve agreed to accept that and that the advisor is always working in their client’s best interest and is going to be held accountable for it.
Bruce Sellery: Do you think that the current trends are going to continue?
Cary List: I think they will.
Bruce Sellery: So i.e, more fee based, less commission based-
Cary List: Bruce, we’re already seeing that and we’re seeing a normalization out there, the old DSC, deferred sales charge. The norm back in the day, you may remember it was like 8%, 9% deferred sales charge. The vast majority of advisors out there are working without deferred sales charges, and transparency has become a requirement now. So yeah, I think we’re going to see that trend continue.
Bruce Sellery: We talk so much about the environment here in Canada. What are the countries that you look to that could be a precursor for where Canada will go in the next decade? Is it the U.S., is it Australia, is it the U.K. and if it’s those three, what are some of the things that you watch that says, we need to be aware of this?
Cary List: It’s an interesting question. I think we have actually taken the lead around titling and title restriction. We haven’t seen an effective job being done in any of those three territories that you talked about. But I think when it comes to regulation, when it comes to what the U.S. calls fiduciary, we call best interest standard, I think the U.S. really is the country that we should look to. They’re the closest, most similar to ours in terms of their financial services system. Australia is a bit of a different animal and I don’t think we’re going to see what’s been happening in Australia coming to Canada, nor the U.K.
Bruce Sellery: I want to ask you one last question and it is this, what is your hope for the decade ahead? Clearly you’re invested, this is your life’s work. What is it that you hope for, your organization and for the tens of thousands of people who work in this industry focused on delivering value for Canadians?
Cary List: I think it’s two fold. I think one from the side of the advisory community, we really hope that all people who call themselves, hold themselves out to be professionals actually focus on the human side that you’ve talked about. Focus on the holistic side. Use technology to help them be better professionals. And of course we’d like to see them all get CFP certification, but I want to say just Bruce from the consumer side, we want to see consumers, clients, we want to see help to get them to understand what they really need and focus on the right type of advice because there’s just too much confusion out there in the marketplace.
Bruce Sellery: Here’s to that. Cary, thank you very much.
Cary List: Thank you, Bruce.
Bruce Sellery: Cary List, President and CEO of FP Canada.
Bruce Sellery: FP Canada plays a big role in the financial advice industry, and so too does Advocis. Coming up next, we’ll talk to its president and CEO, Greg Pollock.
Greg Pollock: I really think that the public in general will continue to see the benefit and the value of financial advice and financial planning, and that it will serve their needs in the long term and it’s going to help build their wealth over time.
Bruce Sellery: I’m Bruce Sellery. This is Prosper, the financial advisor’s podcast. Our focus today is on the decade ahead. What’s next in the financial advice industry? Stay with us, we’ll be right back.
Greg Dalgetty: Cecorner.ca is Canada’s fastest growing online source for financial CE lessons. Available nationally, it’s the easiest way to earn and manage your CE credits. Visit cecorner.ca today, and join thousands of financial professionals on Canada’s fastest growing source for accredited CE.
Bruce Sellery: Regulation of the financial advice industry is complicated to say the least. What is on the docket in the decade ahead? Greg Pollock is the president and CEO of Advocis and he joins us now, hello there.
Greg Pollock: Well thanks Bruce, thanks.
Bruce Sellery: What is Advocis? Who do you represent?
Greg Pollock: We represent financial advisors across the country. Individuals with backgrounds in insurance and investments, involved in financial planning, involved in tax planning, estate planning. Individuals helping Canadians with their every day challenges when it comes to financial needs.
Bruce Sellery: What would you say is different about how you see the world at Advocis given your heritage on the life insurance side?
Greg Pollock: Well, it really is holistic in the way we approach financial advice. I think a lot of people believe these are segmented, that you go to a specialist involved in insurance, you go to a specialist involved in funds or in investments and so forth. In fact, it’s much more holistic. Whereas there may have been a bit of a focus, a bit of specialty in the past, today it is much more holistic. There are still some specialists out there, but holistic is the direction.
Bruce Sellery: Now, technology has been a big theme, we’re talking about it a lot in this series. When you think about tech and Fintech specifically, what do you predict in the decade ahead on that front?
Greg Pollock: You know, I do think it is another tool that people can use to grow their business, to make their businesses more accessible, to assist investors in terms of making accessibility better if you want. But at the end of the day, I still think there’s going to be a huge need for that human to human contact. That people are going to want to look at others in the eyes to say, "Can I trust you? Can I really trust you with advice and taking care of my financial future?"
Bruce Sellery: As in so many parts of our economy, there is a new generation coming in and a generation retiring. That happens everywhere, it happens for financial advisors. Where will the next generation be found, how hard is that search for talent, and how do you retain individuals in this industry?
Greg Pollock: I think a big part of this is the post-secondary institutions themselves. I really think we need to focus education programs at the college level and at the university level as well on the whole provision of financial advice. It really is a profession. It’s not just something where someone’s going to come up with a product and try to promote a product or sell a product to you. We really do need to look at the entire landscape of one’s financial needs and work with them really from cradle to grave at the end of the day.
Bruce Sellery: What about the work environment and the way the job is done would need to change for this new generation to be attracted to it? I ask because in many markets in this country, it’s foosballs, and lots of vacation and a very strict nine to five, whatever it is. There’s lots of things that a millennial and even the generation that follows them, they have as an expectation that may not fit with the way financial advice is currently structured.
Greg Pollock: You know, I do think when you look at folks in their twenties and thirties, they might be looking for a little bit more flexibility and uniqueness in terms of some of the evolving positions, jobs out there in the marketplace. But at the end of the day, there is going to have to be a certain amount of rigor that one is going to have to apply if they’re going to be a financial advisor and you’re going to have to work around your client’s needs. But having said that, I still think there’s flexibility. It’s not necessarily a 24/7 job. You can segment it out so that you still have time to yourself, time for your family, but you do need to take care of your clients.
Bruce Sellery: What are some of the big regulatory themes that you predict over the course of the decade to come?
Greg Pollock: No doubt that there’s going to be a call for higher standards when it comes to the provision of financial advice. I think there will be fewer rules. It will be more principles based. Some people will say, "Well, then am I going to be protected?" Well in fact, I think you’re going to be protected more because when there’s principles, you can really challenge whether someone has acted in your best interest or not. That’s a really difficult thing to define and there’ll be lots of arguments I’m sure about those kinds of things as we move forward, but that will protect investors at the end of the day. They should expect top quality service, they will get top quality service and those who can’t provide that, they’re not going to be in the business.
Bruce Sellery: I have been covering this world broadly for a couple of decades now and for many, many years the big news seemed to be about product. We’ve got this new thing, we’ve got this new thing, and certainly there’s still a rollout of products every day, every week. Do you think the trend towards a reduced focus on product and an increased focus on planning will continue? Is that a sustainable path?
Greg Pollock: I do. I do think that it’s about the longterm financial interests of these clients. It’s not about just investing in a particular product today to get a great return over the next 12 months, 24, 36 months, et cetera. It’s about looking at one’s longterm needs, longterm financial challenges and putting the right pieces in place at the right time to get the kinds of outcomes that they need in order to be successful.
Bruce Sellery: How do you think about exchange traded funds these days? The product’s been around for forever, but it’s market share has really grown substantially in the last five or 10 years.
Greg Pollock: I think it’s one of the good options out there Bruce, but there’s lots of options out there. I mean, it’s one option and it’s a product. Again, let’s be clear, I’m talking about debt management, I’m talking about savings, I’m talking about appropriate insurance. And maybe that’s not even just on the life and health side. I mean, that’s appropriate insurance in terms of insuring one’s house, or one’s vehicle, or whatever the case may be. There’s a lot that goes into looking at one’s financial interest.
Bruce Sellery: One of the challenges when you think holistically and, by the way, that is everything I espouse in my books and all my shows and all that stuff. But when it comes to financial advisors, one of the challenges appears to be, is they don’t get compensated in a very linear way on that. You get compensated typically on assets under management or you’ve sold a particular term policy or whatever. How do you ensure that the great financial advisors out there will think holistically, even though they’re not paid to calculate whether my mom can afford a new kitchen?
Greg Pollock: Well, look, I think what’s going to happen there is if advisors are not being appropriately compensated for advice only, let’s just call it that, then there’s going to have to be different compensation models put in place. Certainly people are not going to work for free. They’re going to demand an income and a good income in terms of the kind of advice they’re providing. But, if from time to time as I see it today people are purchasing products or you have an AUM, assets under management kind of structure, then people are being compensated on a regular basis and that should meet their needs. They should be able to provide all those other kinds of advice where perhaps they don’t actually collect any direct income or direct fees.
Bruce Sellery: We are 10 years into a bull market. It’s been a stunning, a stunning run and gone on longer than a lot of people would’ve predicted. Do you think the industry, the financial advice industry is prepared for a market decline?
Greg Pollock: That’s a great question and I think everyone always thinks it’s going to continue to run and be positive and so forth. It’s a concern. I will say it’s a concern. Having said that, a year ago I would’ve said that we were looking at a pretty challenging 2020. I thought 2019 would be good and it’s proven to be good. Now today, 2020 is not looking quite as scary as it was a year and a half ago. But something is going to happen. There will be a correction sometime in the next couple of years and advisors should be counseling and cautioning their clients about that.
Bruce Sellery: Be prepared. It’s a fine line to walk. Hooray for everything, the future is bright and hey, there’s going to be a pullback at some point. One last question, what is your hope for the decade ahead? As you about the industry that you have devoted so much of your time and energy to for a long time, what is your hope for the industry in the decade-
Greg Pollock: I really think that the public in general will continue to see the benefit and the value of financial advice and financial planning, and that it will serve their needs in the longterm and it’s going to help build their wealth over time.
Bruce Sellery: Greg, thank you very much.
Greg Pollock: Okay Bruce, thanks so much.
Bruce Sellery: Greg Pollock, President and CEO of Advocis.
Bruce Sellery: That’s it for this episode of Prosper, the financial advisor’s podcast from Advisor’s Edge. We’d love to hear your comments, questions, and topic ideas. Here are some ways you can reach us. Our email is firstname.lastname@example.org, Twitter is @advisor.ca, Facebook, Advisor’s Edge Magazine, and LinkedIn is advisor.ca. Please take a second to subscribe to the podcast, and then rate and review us. You know how algorithms work and these little steps will help us out. Thanks for listening, now go out and prosper.