The TD news doesn’t surprise me, and it shouldn’t surprise you either.
When CBC recently dropped the bombshell that employees were being pressured to sell unnecessary products to customers, all I could do is roll my eyes. It wasn’t news to me – that pressure has been a feature of the financial and banking industry for as long as I’ve been a part of it.
My journey in financial services
When I joined the financial services industry 25 years ago, I was full of energy and idealism. In my first five years, in the credit union environment, I soon discovered that I loved helping people with their finances.
But my entrepreneurial spirit urged me to spread my wings. When I heard that being an investment advisor provided the opportunity to be of service, plus tremendous potential if I was willing to put in the work, it seemed like the perfect combination. Continued learning, a greater challenge, and unlimited impact. Sign me up!
Next step? I applied to a bank-owned brokerage firm where my parents were clients.
I interviewed well. The firm was impressed with my professional accomplishments over the past five years, rising from teller to multi-branch manager at the tender age of 28. They liked the idea that I had a business degree in marketing. They asked me to do a raft of intelligence and psychographic tests, which I completed in record time.
Next, the second interview. Where I got the bad news. I would not be welcomed into their rookie investment advisor program.
The reason? The psychographic test suggested I was not “sales driven.”
I found another firm that hired me, but ultimately discovered that viewing potential clients as people to be sold to, rather than advised, was deeply embedded in the culture and structure of the industry. True, clients would be given advice. But in the end, earning a living required that I sell stuff. The stuff they wanted me to.
Going on my own
So, in 2000, I went independent. No more conflicts of interest, and sales targets. And I started a fee-only financial planning firm at a time when Canadians didn't understand the value of paying for independent, objective, holistic financial planning advice. Almost nobody was doing it. It was a time when friends and colleagues frequently asked me “Why should I pay for financial advice when I can get it for free from my current advisor or local bank branch?”
Fast forward 17 years. Canadians are much wiser. Independent fee-only Financial Planning is considered an invaluable process and a viable occupation. It's viable as a career now, because consumers are willing to pay for it.
And banks? They have to sell even harder than they did 25 years ago. Here are three reasons why:
Far more competition – from credit unions, independent wealth management firms, virtual banks, and financial technology platforms such as robo-advisors. Do a little googling of “blockchain” and you’ll quickly realize that the basic foundation of banking is being challenged.
“You never call, you never visit” – Sounds like a complaining family member, but in fact it’s the refrain of your bank manager. ATMs and online banking free consumers from the drudgery of visiting the branch. So there are fewer opportunities for bank staff to “offer” banking solutions to their customer base. It also makes it harder for them to build meaningful relationships with customers, so the pitch becomes more selling than problem-solving.
It’s generational – Historically Canadians maintained their relationship with their bank for a lifetime. It set the banks up to be the solid, profitable businesses that they are today. What got them here won’t get them there though. Today, Millennials, GenX and GenY and many Boomers put value ahead of loyalty when choosing financial products. It’s easier to make a change than ever before. That leads to a more aggressive bank sales culture, since everyone’s business is up for grabs.
Moral of the story
Canadians can be proud of their banks. The World Economic Forum has singled out Canadian banks as one of the soundest in the world for the past nine years in a row.
But! Remember, when you talk to any bank employee, that banks are not impartial, and they do have an agenda. While it is easy to see a bank as a solid, safe, unbiased authority, the real story is more nuanced.
Keep that in mind, particularly when you are making a banking or investment decision!
This information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact your financial advisor or Caring for Clients prior to implementing or acting upon any of the information contained herein.
Lucky Americans – they pay much lower investment advisory fees than we do in Canada.
Or so many people think … but is it true?
With the new CRM2 legislation showing investors how much you pay for advice, it’s considerably easier to do a cross-border comparison. Let’s start with the two components of the fees you pay. And a heads-up – read this part twice! Most people don’t understand the two-component aspect of how financial advice is priced; you’ll be well ahead if you do.
Two components to fees
1. If you are working with a financial advisor, there are two components to the fees you pay, product and advisor:
Product cost – the cost of the investments recommended by your advisor, e.g.
Fund management portion of a mutual fund Management Expense Ratio (MER)
MER of an ETF
MER of a pooled fund or segregated fund
2. Advisor cost – the cost of professional advice
Service fee portion of a mutual fund MER
Percentage charged by a fee-for-service financial advisor
Flat fee or hourly fee charged by a fee-for-service financial advisor
Fee insights from a U.S. benchmarking study: the results may surprise you
FA Insight recently released its 2016 financial advisor benchmarking study: Growth By Design. The latest information on fees might surprise you.
Since 2009 the median US advisory fee (not including product costs) on assets under management has hovered close to 1%. Fees drop to .70% at $5,000,000 and to .50% at $10,000,000 +.
But despite the fee pressure exerted by the robo-advisor trend, which took off in earnest in 2012, the 2014 edition of the FA Insight indicated that 70% of firms planned to keep their fees steady and 28% of firms planned to raise fees in the next two years. The data from 2016 confirmed the rise: 34% actually did raise fees.
So, do we pay more in Canada?
I believe that fees are somewhat higher here than in the US. This is based on both ongoing anecdotal evidence and data from the Globe and Mail Fee Tool (available to Globe Unlimited subscribers).
For example, I used the fee tool to find the average advisory fee being reported by Canadians with a portfolio between $500,000 and $1 million. 30% reported paying between 1.0 - 1.24% and 38% pay between 1.25% - 1.74%.
That is well above the 1% being charged in the US. Canadian investors are paying more relative to our US counterparts – it looks like the prevailing wisdom is correct!
The really big question – is it worth it?
It’s a matter of personal judgment as to whether you are receiving sufficient value for the fees you pay. However, at the very least, if you work with a financial advisor, you should know how their fees fit in the marketplace.
And even if the fees being charged by your advisor are competitive, you still need to evaluate whether you are getting value from the relationship.
The breadth and depth of service you receive depends on both the firm you deal with and the specific advisor. Some firm cultures encourage and reward holistic planning and advice; others pressure their advisors to focus on asset-gathering and reaching annual fee generation targets. What kind of firm do you think yours is?
Individual advisors differ as well. Some focus narrowly on investment management and advice. Others see their role more broadly, as financial planners, with a mandate that expands well beyond investment portfolio design and rebalancing.
In my mind? Premium pricing is appropriate only when you, the client, have access to advice that extends well beyond investment portfolio design.
The information contained herein was obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.
Bidding wars are a fact of life when waging the buying war for Toronto real estate. Bully offers and condition-free offers seem to be one of the only tickets to a successful bid. Sellers have discovered that a mild staging is sufficient to generate competition for their property, leaving kitchen upgrades and basement renovations to the buyer.
More often than not, buyers are purchasing properties fully planning to take on a sizeable renovation. They factor in an estimate of the reno cost into their bidding strategy. Doing so exposes the buyer to the risk of underestimating the ultimate cost and scope of the reno, potentially leaving them in a financial bind.
How do you mitigate this risk?
We have started recommending that our clients take a trustworthy, experienced contractor with them on a walk through of their dream house before offer day. The contractor can let them know what they are in for financially given their vision for the house.
Rona: Has there been an increase in demand for pre-house bid renovation consulting?
Rob: Yes, although only slightly more. I don’t think many companies will do a walk through unless they have a contract in place. At Equinox we see the opportunity to gain knowledge of a potential site as well as impart some knowledge of the benefits of our processes to a potential client.
Rona: How does that kind of client engagement work?
Rob: At the moment it’s just contacting us with a request to do a walk through. As long as the timing can work and it hasn’t been left to the last minute we are usually available. We don’t charge for the service but we do hope that puts us at the top of the list of potential Project Managers to execute the work.
Rona: What risks do clients face if they don’t get a professional opinion before purchasing a “fixer upper”?
Rob: A professional is going to be able to have a cursory look through and around the house and be able to give you a rough idea of how much work there is to do and possibly an idea of what it might cost. Foundations, structure, mechanical and electrical systems, framing, plumbing, etc... There are all sorts of building components that could be no longer up to code because of their age or because they are just failing altogether. A professional builder is going to be able to let you know if you are taking on too much or just the right amount of work for your budget. Unfortunately, possession of the property is needed to pop holes in walls to see what’s going on behind them with insulation and vapour barriers etc, but a decent amount of info can be garnered from a walk through, enough to know almost exactly what you are in for.
Rona: Thanks Rob. What’s your email address for the curious?
Recently, the Globe and Mail created a tool for investors to compare if they are paying more or less for advice than other investors who complete the questionnaire do.
Fee transparency is important, and it got us thinking that how advisors spend those fees is also important and can provide clients with insights as to the business values of their advisor. So we analyzed our allocation of revenue and shared the results in our most recent client newsletter.
Perhaps the broader public is also interested, hence this blog post.
A recent analysis of our practice showed the following breakdown:
*information compiled internally
Compliance and Back Office 15% – This is the cost of all services provided by Queensbury Strategies, our investment dealer. We value Queensbury as a platform to provide conflict free advice and service without the pressure of sales quotas, within a collegial and supportive culture. When I worked at CIBC Wood Gundy, this percentage was over 50%. Keep in mind that the bank provided an employee, a workstation for me and my employee, and the brand value of Wood Gundy. In spite of this, for many reasons for the benefit of clients and my practice, I left the firm 15 years ago to become an independent advisor.
Salaries 40% – This includes staff salaries, health and dental benefits, CPP and other payroll related costs. As an independent, I’m on the hook for these expenses. However, rather than having only one dedicated support staff, I’ve chosen to have three. Two associate financial planners and one administrative assistant. The additional staff enable us to deliver a much more comprehensive and responsive service to clients. Furthermore, this strong base of expertise ensures seamless support to clients when I am on vacation or at home with the flu. These great young talents are also the future of the practice, and will hopefully be around long after I have retired.
Training and development 5% – This includes courses and exams related to continuing education and skills development for the entire team. Continuing education is a priority at Caring for Clients, and as you can see we invest a great deal more on training and development than we do on marketing. Our view is that if we strive for continued excellence, growth in clientele will naturally follow.
Marketing 1% - This includes all activities related to marketing and promotion. New clients come from three sources: existing client referrals, referrals from other professionals, and unsolicited inquiries through our website. We have invested a lot of time on delivering value to existing clients, building professional relationships beyond our clientele, and in building a reputation as an industry leader which shows up in our media mentions and growing web presence. Our efforts in this regard are resulting in business growth that is not reliant on advertising and traditional sales and marketing.
Technology and Client Service 10% - We are constantly investing in our planning technology, and are currently investing in the development of a new client portal that will make the client onboarding experience an even more pleasant one. The online portal will be expanded over time as we identify opportunities to use technology to enhance the client experience. In addition, we look for ways to express how much we value our clients and these expenses fall into this category too.
Office Rent 4% - The cost of one office and two workstations in downtown Toronto. So far, my team member, Alexandra doesn’t mind sharing an office with me. I try to be on my best behavior! J We are in a great building in a convenient location that our clients seem to really like.
Retained Earnings 25% - Otherwise known as profit. This is the part that is available for annual bonuses for staff, and for investing in the future of the business such as hiring additional staff when needed. It is also important to run a profitable business to ensure sustainability during cyclical downturns when revenue falls. Ours is a cyclical business, and operating conservatively from a financial standpoint means that we can stay focused on client service even when revenues decline, which happens during a bear market. A secure business is one that will be around over the long term. Given the fact that our clients will need us over the long term, we view this as an important strength.
By the way, I used the Globe and Mail fee comparison tool to see where our fees stand in the marketplace. I was pleased to see that as full-service planners and wealth managers, in all categories, our clients pay less than average, while (in our view) getting more advice and service than average.
This information is general in nature and is not intended to constitute specific financial advice for any individual. Please speak with us directly for advice customized for your needs.
I’ll admit it, when I picked up a copy of Preet Banerjee’s new book, Stop Over-Thinking Your Money, The Five Simple Rules of Financial Success, I immediately flipped to chapter seven. This is the chapter on Financial Advisors and I was very interested in what Preet would say about financial advice. I have a lot of respect for Preet and his efforts to improve financial literacy in Canada, so I was expecting that he would present the subject in an objective, informative manner.
I wasn’t disappointed. His plain language, common sense advice regarding the financial services industry is in line with the plain language, common sense advice in the rest of the book.
Why is this book essential reading for those who desire grounding in the basics of financial planning? As the great philosopher, Voltaire, once said, “common sense is not so common”.
Preet delves into the fundamental rules of financial planning, helping the reader understand the importance of each. He dispels some common misconceptions and presents each rule in a relatable manner. The rules are:
Disaster-Proof Your Life
Spend Less than You Earn
Aggressively Pay Down High-Interest Debt
Read the Fine Print
Preet also includes a great primer on investing and insurance, both subjects that the financial industry often over-complicates.
Does this book replace the need for Financial Planners like me? Both Preet and I don’t think so. What it does do is empower Canadians with information on the critical aspects of financial decision making that, when implemented with or without an advisor, leads to greater financial security.
I consider it essential reading for young professionals entering the workforce. The sooner one embraces the 5 rules, the fewer regrets in the future.
The spirit of the holiday season inspires charitable giving. Whether it is dropping a few coins in the Salvation Army bucket, helping out at a local food bank, or by donating funds in lieu of gifts, it really is the season of giving. Here at Caring for Clients, in lieu of holiday greeting cards, we made a donation to World Vision, in particular to programs that generated corporate matching donations.
To help you decide which organizations to support, Moneysense publishes an annual guide which provides detailed information on how charities raise and spend giving dollars. Check it out here.
At the end of 2009, there were over one million unclaimed bank account balances worth $395 million dollars in Canada.
An "unclaimed balance" is a Canadian-dollar deposit or negotiable instrument, issued or held by a federally regulated bank or trust company. It can be in the form of a deposit account, bank draft, certified cheque, deposit receipt, money order, GIC, term deposit, credit card balance, or traveller's cheque.
When there has been no owner activity in relation to the balance for a period of 10 years, and the owner cannot be contacted by the institution holding it, the balance is turned over to the Bank of Canada, which acts as custodian on behalf of the owner.
The Bank of Canada will now hold unclaimed balances for thirty years, once they have been inactive for ten years at the financial institutions. Therefore, balances will now be held a total of forty years prior to being prescribed.
It is not unusual for older Canadians to have a myriad of bank accounts as a means of maximizing CDIC insurance, which until 2005, was $60,000 per bank account and GIC. (The coverage is now $100,000) Such accounts can get lost in the shuffle, particularly if the customer has moved residences multiple times. If you become a financial power of attorney or estate executor, it makes sense to inquire with the Bank of Canada regarding potential unclaimed balances.
You can search for an unclaimed balance by completing the online form at http://bit.ly/zytV8 or by calling the Bank of Canada at 1-888-891-6398.
I multi-task and I know that it interferes with my productivity.
Recently, expert sales and productivity coach Nicki Weiss wrote a fantastic article on how (and why) to stop multi-tasking. Below is the article in it's entirety. This article comes from Nicki's super monthly newsletter. It is worth subscribing to and you can do so on her website's home page www.sa1eswise.ca
Sa1esWise: How (and Why) To Stop Multitasking
During a conference call with the executive team of a client company, I decided to send an email to another client.
I know, I know. You'd think I would have learned.
What could go wrong?
First I sent the client the message. Then I sent him another one with the attachment I had forgotten to append. In my third email I explained why the attachment he received wasn’t the one he was expecting. When I eventually refocused on the call, I realized I hadn't heard a crucial question.
Multitaking makes you stupid
I swear I wasn't smoking anything, but apparently I was acting as if I had. A recent study has shown that IQs drop by 10 points in people who are distracted by email and phone calls.
We’re only fooling ourselves when we think we get more done by doing several things at once. In reality new research shows that our productivity can decline by up to 40%. We don't actually multitask; we switch-task, rapidly shifting from one activity to another, interrupting ourselves and losing time.
You might think you're different, that you have multitasked so much you’re an expert. But you'd be wrong. Recent findings show that heavy multitaskers are less competent at doing several things at once than light multitaskers. The more you multitask, the worse you are at it.
An experiment in non-multitasking
I decided to do an experiment. For one week I would not multitask and see what happened. When I was on the phone, I would only talk or listen. In a meeting I would only concentrate on the meeting.
I didn’t think I could sustain that kind of focus, but turns out I was pretty successful, at least most of the time.
During the week I discovered six new ways of looking at the world:
1. The experience was delightful. When you stop checking for email you stay in closer touch with your surroundings. I noticed this phenomenon especially with my teenage sons. Normally I feel they don’t want to interact with me much, given how uncool I am. However, I was surprised to notice how often they initiated a conversation when I wasn’t constantly responding to the e-mail ping.
2. I made significant progress on challenging projects. I usually try to distract myself from work that requires thought and persistence, such as writing and strategizing. However, without distractions I was able to plough through the uncomfortable times and overcome the mind blocks.
3. My stress dropped dramatically. Research shows that multitasking isn't just inefficient, it's stressful. I can vouch for the stress factor. I felt liberated from the strain of keeping so many balls in the air, and I experienced a sense of accomplishment when I finished one task before going on to the next.
4. I lost all patience with time-wasting activities. An hour-long meeting seemed interminable and a meandering conversation was excruciating. I focused my attention like a laser beam on my list, and quickly burned through the “to-do’s”.
5. I had tremendous patience for enjoyable activities. I was in no rush to end conversations with my clients, and my mind stayed focused when I was brainstorming about a difficult problem.
6. Single-tasking has no downside. No one became frustrated with me for not answering a call or failing to return an email the second I received it.
Why don't we all just stop multitasking?
So, why not use all your brain’s energy to listen to a prospect on the phone while booking a trip to Paris online?
Sounds good, except the brain is already working at capacity when you’re doing just one task. It is picking up conversational nuances or thinking about what you’ve just heard. Ask it to take on a second or third task and you take away its ability to deal fully with the first one.
How do we resist the temptation?
Turn the distractions off. I often write and plan at 6:30 a.m. Following my successful experiment I continue to leave my cell phone and email off just in case a multitasker is trying to reach me. I turn my car phone off, too…sometimes (other single-task warriors I know leave their cell phones in the trunk).
Use your impatience constructively. So you’re itchy without all the ring tones and email pings to answer. Fill that void by creating unrealistically short deadlines. Give yourself a third of the time you think you need to accomplish something.
There's nothing like a deadline to fully occupy your brain. If you only have 30 minutes to finish a presentation, you’re not going to take a call or flip back an email.
Ironically, single-tasking to meet a tight deadline will reduce your stress, and just might help you to be more productive.
Talk back: What is your experience with multitasking? How does it affect your productivity? Your customer relationships?