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ADVISE W W . A D V I S O R . C THIS A
THEY MAY BE REBELS, N
BUT THEY SHOULD BE YOUR CLIENTS. E W
HERE COMES GENERATION X. I T ’ S M E O C P L
CRAFTING CONFIDENCE P.15 Y P
WORDS . FROM 4 1 WALLACEBURG P.9
KENNY HOTZ actor, writer, producer
Rogers Publishing Limited, P.O. Box 720, Station K, Toronto, ON M4P 3J6 • PM 40070230 R10969
AE10_ofc_resend.indd 1 10/04/2007 02:12:06 PM ADVISOR Group/Groupe Conseiller consists of Advisor’s Edge, Advisor’s Edge Report, Advisor.ca, Advisor Live, Objectif Conseiller, Conseiller.ca and Conseillers En Direct. vol.10 no.10 o c t o b e r 2 0 0 7
ADVISOR’S EDGE Philip Porado, Editor; Editor, Advisor Group Conferences (416) 764-3802 [email protected] Heidi Staseson, Associate Editor (416) 764-3804 22 x missed the spot [email protected] The next generation of investors is cynical, suspicious, and Aniko Nicholson, Art Director (416) 764-3850 cheap. Reality bites. By Philip Porado [email protected] Deanne Gage, Consulting Editor Bert Vandermoer, Contributing Editor Michael Finley, Production Manager 5 41 (416) 764-3928 [email protected] iNSIDE eDGE CoMPLIANCE OuTLOOk Marie Atkins, Executive Assistant CuT TheM SlACk Take It BaCk Make the most of what Genera- How should an advisor unwind Donna KerRy, PubliSHer Advisor’s Edge, Advisor’s Edge Report tion X has learned about money. an inappropriate investment? (416) 764-3805 By Philip Porado [email protected] Jean Goulet, ExecutiVe PubliSHer 45 Financial & Advisor Services Group, Quebec 6 tAx bREAk Paul WilliAMS, ViCe-PresIDent frONT eND lOAD BrINGING WoRk HOME FinancIAl PubliSHIng Brand Extension & Online/Development Services News, people and trends from Before clients claim home Canada’s capital markets. offices, make sure they know SUBSCRIPTIONS Cornerstone, 1-866-236-0608 the tax rules. By Gena Katz [email protected] 9
ADVISOR.CA CUSTOMER SERVICE AdVISOR CoNfiDENTIAL 46 Cameron Clark SuNSET SaIL? FORGET iT ClOSING BeLL Customer Service Administrator How one advisor brokered 50 ziP iT! (416) 764-3859, [email protected] years with the bank. Spend some time listening— SALES By Heidi Staseson really listening—to your clients. Kathleen Murphy (maternity leave) Senior National Account Manager By Beasley Hawkes (416) 764-3838 15 [email protected] tOOLBOx André Meurer National Account Manager FIGhtING FEAR gO sURfiNG! (416) 764-3838 A tendency to overreact leads [email protected] Amy Nelson most investors to significantly Don’t miss our coordinated coverage National Account Manager underperform markets. package, “Advice For the Ages: Bridging the (416) 764-3809 [email protected] By David Sung Generational Divide” on Advisor.ca. Eileen Lasswell National Account Manager (416) 764-4164 25 Featuring an audio interview with noted [email protected] MeET Mr. X demographer Dr. David Foot, as well as stories Sophie Bellemare Kenny Hotz talks about money, providing insights on how to work with specific Account Manager, Eastern Canada (514) 843-2133 La La Land, and his generation. age groups, the different life stages clients [email protected] By Heidi Staseson will go through, and the events that shape their world views. 33 OnE foR the TeAM You’ll find the package at: Team-based advisors are also www.advisor.ca/generations top producers with clients. By Julie Littlechild
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AE10_003_resend.indd 3 10/04/2007 02:13:55 PM inside edge editor CIRCULaTIOn And RESEArCH p h i l i p p o r a d o [email protected] Keith Fulford, Tricia Benn, Circulation Director Director of Research Cindy Younan, Elizabeth Hall, Circulation Manager Research Manager (maternity leave)
EDITOrIAl AdVISOrY BOard David Wm. Brown Al G. Brown and Associates David Christianson cut them slack Wellington West Total Wealth Management Kathleen Clough PWL Capital Make the most of what Generation X has John Horwood Richardson Partners Financial Limited learned about money. Rebecca Horwood Richardson Partners Financial Limited Cynthia J. Kett Stewart & Kett Financial Advisors Ltd. Jim Rogers In the summer of 1939, my father was playing near a sewer trench when Rogers Group Financial he spotted a bill lying in a puddle. He grabbed it, ran home to his mother, Kurt Rosentreter Berkshire Securities and proudly announced he’d found a dollar. When his mother examined the Nancy Shewfelt Wellington West Capital Inc. muddy discovery, she told him he’d in fact found a $10 bill—enough to feed Thane Stenner their family of five for a week. Stenner Investment Partners, GMP Private Client Lynne Triffon Growing up in the Depression, my dad had no idea bank notes worth more T.E. Wealth than $1 existed—his find was a Tutankhamen treasure for a family with genuine Terry Zive Gordon & Zive needs. Naturally, he didn’t object when my grandmother tucked the bill away.
RoGERS MEDIA INC. Just before my parents got married in 1953, my grandmother produced the Anthony P. Viner, President and CEO bill, handed it to my father and told him, “This is the $10 you found as a little RoGERS PUBLISHING LIMITED boy. Now it’s yours. Keep this as a good luck charm so you’re never down and Brian Segal, President and CEO John Milne, Senior Vice-President, out.” It’s been 54 years and the bill, mud stains and all, remains in his wallet. Business & Professional Publishing Group Marc Blondeau and Michael Fox, I was raised on such stories. My dad showed me the family’s welfare card, Senior Vice-Presidents punched only twice during the depths of the Depression because my grand- Immee Chee Wah and Patrick Renard, Vice-Presidents father was ashamed to take charity. My mother told me about having to help support her family after her father’s death in 1942. University was sadly out
, established 1998, is of the question for a woman who whizzed through complicated math. She published by Rogers Publishing Limited, a division of Rogers Media Inc. Advisor’s Edge subscriptions include 24 issues per year, became a bookkeeper, passing to me her care with cash. consisting of 12 issues of Advisor’s Edge in magazine format and When I got to university, the whole “Where are you from?” thing kicked 12 issues of Advisor’s Edge Report in tabloid newspaper format. Rogers Publishing Limited, One Mount Pleasant Rd., Toronto, in. We shared stories and it was then I realized I was part of something larg- Ontario M4Y 2Y5. Montreal office: 1200 avenue McGill College, Bureau 800, Montreal, Quebec H3B 4G7. er—an emerging cohort raised by people who’d faced similar trials. Soon, Subscription price per year: $70 CDN; outside Canada per year: demographers gave us a name, Generation X. $144 US; single copy price: $15 CDN. ISSN 0703-7732. Printed in Canada. While generations are difficult to define, like me, the bulk of these kids had PM 40070230 R10969. Canada Post: Please return undeliverable address blocks to: been brought up by people who’d experienced poverty, and struggled to keep Advisor’s Edge, us in school despite a recession. And we were often jealous of our generational P.O. Box 720, Station K, Toronto, ON M4P 3J6. siblings lucky enough to have younger, hippie-era parents who worried less E-mail: [email protected] We acknowledge the assistance of the Government of Canada, about spending. Generation X, a fitting moniker for people forced to stare through the Publications Assistance Program toward our mailing down a lean economy, though we resent the popular press’s labelling us slack- costs. Contents copyright © 2007 by Rogers Publishing Limited, may not be reprinted without permission. ers, just because our careers got off slow. Advisor’s Edge receives unsolicited materials (including letters to the editor, press releases, promotional items and images) from What they, and perhaps some advisors, don’t understand is that we have a time to time. Advisor’s Edge, its affiliates and assignees may use, secret weapon. By cutting our teeth on tales of poverty, our parents prepared reproduce, publish, re-publish, distribute, store and archive such submissions in whole or in part in any form or medium whatsoever, us for the worst. Many X-ers may never get rich, but we’ve heard enough hor- without compensation of any sort. ror stories to ensure we’ll do what’s necessary to avoid becoming poor. Smart advisors can capitalize on that attitude. AE porado
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AE10_005.indd 5 09/20/2007 07:00:02 PM c r o s s c o u n t ry hit the road
’Tis the season of the road motivate consumers with show and financial organiza- Vaz-Oxlade’s no-nonsense front tions are pairing with pundits approach to financial man- to spread their mercenary agement, and get them to messages. think about building a plan Last month, Credential “sooner rather than later,” Financial Inc. took its Master according to senior VP Your Finances seminar series Elaine McHarg, chief mar- end to Vancouver, veered Ed- keting officer of Credential. monton way in early Octo- Says McHarg: “Every Ca- ber, and will wrap the tour in nadian can better achieve Ottawa toward the end of the their financial goals with a month. formal plan in place, but it is Partnering with credit making that first step that unions and Slice channel’s can often seem the most load Gail Vaz-Oxlade of the “Til challenging.” Debt Do Us Part” TV series, Three more Master Your the evening seminars aim to Finances seminars are sched- An RrSP is not provide financial planning uled for other Canadian retirement planning. tips for both consumers and cities in January 2008. advisors. read It’s a savings instrument. it Opening segments in- stats It’s set up to defer clude a pre-session for advi- this taxes, and that’s all. sors, followed by a presenta- 2.1 million tion by the ever-animated issue Canadians between and irreverent Vaz-Oxlade. Alexandra 55 and 64 were esti- Consumers will learn the ba- macqueen mated to have been sics on starting a financial The Moneypower group employed or looking plan, while being advised on for work in 2006. sample questions to ask their planners. % missed Data from Ipsos Reid the spot 37 page 22 (2006) indicates only one- a n d , A u g s t 2 0 6 X quarter of Canadians have of Canadian women C d ata t r a k formal written financial between 60 and 64 e : S t a i s c after hours plans. Credential aims to were working. c o u r S
work-life balance? Schmalance. That seems to be the prevailing Survey respondents include more than 2,200 financial managers tune Canadian finance managers are whistling while they crunch the representing 17 countries. Forty-seven per cent of Canadian finance numbers. Staffing services firm Robert Half International, which spe- managers said their hours have increased over the last two years, cializes in accounting and finance, has published a new global report with nearly 64% indicating they work five to 15 hours longer a week. on the work habits of financial managers. The same group notes average working hours of 42.5 weekly— Entitled “The Working Hours: A Global Comparison,” the study’s greater than their U.S. counterparts who clocked 40.9 hours. Cana- findings highlight the fact that financial professionals have upped the dian financial professionals marked a near-clean sweep when it came time spent on the job from two years ago, and are also demonstrat- to out-of-office hourly duties, with 44% saying they take work calls or ing a marked tendency to make themselves more accessible to check e-mails from home in the evenings. The Canuck figure doubled clients after hours. data from Germany and came only second to the Netherlands (46%).
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AE10_006,007.indd 6 09/20/2007 07:01:01 PM $124,000 misappropriation P E E P S A N D P E E R S was funnelled into accounts of MOVING ON DON’T people with ties to Petriello’s father and spouse. More IDA “MR. OLIVER goes to tive training DO admonishment: “He master- Ottawa” is the statement Joe classes, minded a misappropriation Oliver’s political supporters copious reading and talking THAT from beginning to end; he is hope to hear after the next to his political peers. “It’s like essentially everything we loathe federal election. In June, Oliver back to school for candidates,” in the financial markets. This stepped down from 12 years he remarks. is a stereotype of a broker we at the helm of the Investment Having navigated the circuit want to avoid, so when we see Dealers Association of Canada from law to investment banking A Pointe Claire, Quebec IDA the facts baring the truth, it’s (IDA), but last April he started to securities regulation, Oliver member has been permanently embarrassing for us all and it strategically careening his acknowledges every area has its barred from the industry. What affects everybody in the indus- career in capital markets to expertise and politics is no differ- kicked Orazio Petriello off the try. It’s an eyesore for every- that of Conservative Party can- ent. “People are completely mis- island? Depositing six bank body in the Canadian capital didate for the Toronto riding of taken if they think they can jump drafts purchased by one client markets.” Eglinton-Lawrence. into something without really into two other client accounts. Jeff Kehoe, director, Oliver’s regulation-rich per- spending a lot of time learning More outrageous is that the enforcment litigation, IDA spective has primed him well about it. The best way to learn for politics. He now welcomes [about politics] is on the job and
N I T P I X the chance to do something from people who have a lot of about all that “ails the country,” experience,” he notes. BOOK: Everything I Needed To Know About Business . . . rather than offering mere mutter- But will political life allow I Learned From a Canadian, by Leonard Brody and ings among his peers. Further, Joe Oliver to push ahead on David Raffa Oliver’s a staunch Tory and a his passionate advocacy for Review by Bryan Borzykowski Harper devotee. “I believe the a national regulator of capital Prime Minister is accomplishing markets? That’s up to the PM, BBeforeefore pputtingutting ooutut tthehe callcall forfor cli-cli- a lot for Canadians,” he says. he says, admitting he’s still ents,ents, fi ndnd outout howhow C Canada’sanada’s bbusinessusiness “This is an approach from the happy to help support the eelitelite w wentent f fromrom r ragsags t too r riches.iches. StartingStarting y yourour right party from my perspective.” “long, long overdue” initiative if oownwn ppracticeractice mmightight soundsound likelike a goodgood idea,idea, butbut actuallyactually shov-shov- But there’s little room for called upon. But he’s quick to ing the advisor-for-hire stake into the ground is harder than puttering, what with all that door- point out it’s not a platform for you think. Authors Brody and Raffa outline the success sto- knocking. “I can’t say I’m particu- partisan politics: “It’s a jurisdic- ries of business behemoths, from CanWest’s Leonard Asper, larly idle; my days are fully taken tional issue; it really requires Novopharm’s Leslie Dan and eBay founder Jeffrey Skoll. up,” says Oliver. “I had all sorts probably one major western The 230-page book is strewn throughout with practical of personal projects I thought I’d province to come on side, and tips and sound advice. Asper, sounding more like a portfolio start working on...stuff I’d been that might be the tipping point.” manager than a media mogul tells us that diversifying assets meaning to do for years. I took For now, Oliver’s steering is better than being “confi ned to one market,” while Dan dis- home boxes from the office—I far from retirement, and aside cusses how to properly sell your practice. figured I’d spend an hour a day from some pleasure travel, While offering numerous nuggets, the book avoids delving filing. Not happening.” writing and family time, he’s into one of the most important parts of business—failure. The Hitting the canvas is just keen to make the trek to and profi les are too fawning, and rarely question subjects’ business one of the many duties Oliver’s from Parliament Hill part of his decisions. There’s no men- taken up, along with Conserva- daily grind. “I still have a lot of tion of the National Post’s BE THERE energy. I want to do something downward fi nancial spiral October 24, Investor Forum, presented meaningful and I think public or Bonnie Fuller’s failure by: the OSC; the IDA; the MFDA; and the Ombudsman life would fulfill that goal,” he to improve Star magazine’s for Banking Services and Investments, Metro Toronto explains. “Certainly people lacklustre position in the Convention Centre, South Building, Level 700, Room 718, who’ve seen me play golf know marketplace. Still, the book’s Toronto, e-mail: [email protected] that can’t be a new career.” insights are defi nitely useful. —Heidi Staseson
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AE10_006,007.indd 7 09/20/2007 07:01:11 PM A D V I S O R CONFIDENTIAL Sunset Sail? Forget It. How one advisor brokered 50 years with the bank. BY HEIDI STASESON
T H E ’FESS UP
Toy: my 40-foot Pacemaker yacht, “Just Relaxing,” and a 30- foot Shepherd, “Just Relaxing II,” built in Niagara-on-the-Lake in 1935. Only three of them left in the world. CD or Vinyl: IPOD: with a lot of Gilbert and Sullivan. Scotch: The Malts. Burberry or Aquascutum: o reach the fi ve- or 10-year point of any endeavour is a notable neither; I never wear a shirt or feat for most, but get to the half-century mark and you’ve got a tie except at funerals. real excuse to party. Complete with Cristal and patio lanterns, Loafers or Lace-ups: today thought Robin Southgate, as he and assistant Cheryl May they’re brown and beat up and Tlicked the last of 400 envelopes containing the August 4 invitation to one of I’m not wearing socks. Wallaceburg, Ontario’s swankiest dos—Southgate’s 50th anniversary as an Scarsdale or Atkins? investment advisor with RBC Dominion Securities. I like lemon pie. But the backyard bash was not to be, and come mid-July, the coveted Preferred Statesman: Disraeli invites were followed by 400 delay notices. Doctors ran an angiogram on Trudeau or Mulroney: P.E.T. I was Southgate’s heart and it turned out the 72-year-old’s a Liberal Party Bag Man. arteries needed some heavy-duty fi ltering a whole lot ROBIN SOUTHGATE Hold the door or let them get it? tougher than Drano. Three days later he found him- RBC Dominion Securities, VP, director, Wallaceburg, Ont. hold the door, naturally. self under the knife. Aston or Mazeratti: Porsche; Flash forward two-and-a-half weeks, on a sunny I’ve had a couple of them. Now N Sunday, and Southgate has launched his 40-foot Pacemaker yacht off its Port I T R
A I’m driving a monstrous truck; Lambton, Ont. mooring, out onto the St. Clair River—with 33 family mem- M
E
V I love it. bers in tow. Talk about a party compromise, and fi tting for one who, in the E T
S banking industry, has garnered the reputation as a natural-born Yes man. Wallaceburg may not be Wall Street, but Southgate’s continued on page 11
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AE10_009-011.indd 9 09/24/2007 06:12:56 PM a d v i s o r confidential
T h e continued from page 9 a sharp shooter and if something’s not Southgate’s practice over- crystal, he’s not going to pawn it on a customer—as evinced by sees average client assets up- his straight-dope style with a client at the start of our inter- wards of $5 million, with his vault view—with the phone only half-covered. book reaching $140 million. The Broker Biz: A true [“That’s pretty speculative; that’s risk and you don’t take any risk— He says his hardest task was family affair; son Greg you’re retired!”] culling. “I hated it because I’ve is an investment advisor Southgate began his lengthy career during the Dirty ’50s af- always had the door open to with RBC DS in Vancouver; ter he and his family emigrated to Toronto from England and everybody and little clients of- son Christopher Robin is family friend and former IDA president Jack Kingsmill steered ten turn into very big clients,” a client-relationship officer the 23-year-old into the brokerage business via a recommenda- he notes. “But the tendency with EFG Bank, based in tion to Ross Knowles and Company, which travelled a circu- now is to deal with higher-net- Geneva, and VP, head of itous path to become RBC Dominion Securities. Kingsmill told worth clients than you used to, EFG Bank and Trust Baha- him: “You’ll probably get a chance to buy a piece of it pretty and that makes sense.” mas Ltd., based in Nassau. quickly if you’re any good.” [“No, that one doesn’t pay a Son-in-law Kurt Fellner is [“The high trade today has been $40.67 and the low trade $40.31. It’s dividend; almost nothing. Not your Southgate’s partner and very close to what you want but it hasn’t hit it yet…I would say if you cup of tea…No, you can’t buy that associate. just wait you’ll get it.”] one because it’s owned by the gov- The Rest of the Brood: Southgate worked there a couple of years on various trading ernment of China—they’re not go- six children ranging desks and the exchange floor, earning a salary in 1957 of $25 a- ing to cut you in just because between 14 and 47. week. Next, he was sent on loan to the States to work on a deal you’re Chinese!”] Commentary from assis- with E.F. Hutton. So how did he come to rest in Wallaceburg— Looking back on his half-cen- tant Cheryl: “Friends and mid-point between Chatham and Sarnia, Ont., birthplace of tury, Southgate says he particu- family are very important James R. Lee, inventor of the Lee rifle? “I went to the Toronto larly notices improvements in the to Robin. His zest for the Public Library in 1956, and I did studies of money-in-the-bank, industry’s professionalism. “Of business is contagious. He by county, in Canada,” he explains. the people, of the companies, the comes in the door every Eliminating Toronto from “the conundrum,” he found the rich- quality, the compliance,” he says. morning whistling with the est per-capita region in Ontario at that time was the County of “It’s a lot safer to be an investor Globe and Mail under his Kent, encompassing Wallaceburg. “As a budding broker that was nowadays. And it works; more arm and the briefcase in where I should go; that’s where the money was,” he recalls. and more people are investing.” the other hand. He could be [“When are you going to China? If you’ve got to have the money to He hopes to see a single se- talking to a billionaire and go then you’ve just got to sell it…I would just leave it in at $41; it’s your curities regulator in his lifetime. if a coffee came into his choice. But I think it will get there.”] And with doctors saying he’s office he would stop and So he headed southwest, set up home, shop, and went got a good quarter of a century thank you. He will never not a-knockin’. “I met every farmer, every business; I’d knock on in him to enjoy his Pacemaker thank you.” doors all day long, for years,” he says. And he’s still crossing and his practice, it just might thresholds today. “If I see a nice house and somebody I don’t happen, but he says it’s going to take a good government to turn know, I’ll go introduce myself.” that trick. “These little fiefdoms set up by civil servants, one in When you’ve spent almost 50 years in one spot, it’s tough for each province, are ludicrous. Why on earth do we want to make everybody not to know your name, especially if surrounded by it so difficult for Canadian companies to raise money? You’ve got the tall grassroots you’ve set up as Town Council member, to look over the long haul and not be so short-term minded. nursing home and hotel owner and Liberal Party Bag Man. “Competition is so keen now in other parts of the world, so At RBC, Southgate’s even seen several title changes: “They’ve if we don’t do it we’ll get left out to do the washing… called it a broker, an IA, an RR—and they’ve called me SOB Words from Wallaceburg!” too. You name it, I’ve been there.” [“Nothing wrong with that one. That will fly you to China and you’ll [“Your mom’s still alive? You’re a Rich Bitch! Go back and do it! Shall we make a fortune. Now let me go back to talking with this lady and then just leave it as is or do you want me to change it down? The highest it’s pop around later in the week, okay? But I bet you’ll sell it at $41.00. been today is $40.67; $41.49 is the all-time high. Whatever you like.”] Now, go build your mother a new house!”] AE staseson
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AE10_009-011.indd 11 09/24/2007 06:13:12 PM t o o l b o x S t r a
tool-t e g i s f o r a d v i
BY boxDavid Sung, CFP, CLU, RHU, a principal and senior advisor with fighting fear Nicola Wealth Management in Vancouver.
[email protected] s A tendency to overreact leads most investors o r s
to significantlly underperform markets. f r o m a d v i returns. Interestingly, it also concluded investors have a history of underperforming equity markets by as much as You’ve just finished a detailed financial plan for your 8% annually. In other words, investors can be their own new client and part of it includes a thorough analysis of worst enemies. So, as advisors, we must guide our clients various funds and stocks. You’ve carefully chosen the by helping them to quell their fears, and resist the urge
ones you think will perform admirably over the long run. to become “Pogo” investors. s o r You’ve finally settled the portfolio and your new client is Aristotle once wrote that all human actions have one
now waiting patiently for the money to roll in. or more of these seven causes: Passion; Reason; Habit; s Over the course of a few months, however, your client Desire; Nature; Compulsion; and Chance. Judging by begins to see a decline in the value of his portfolio. He the 2006 Dalbar QAIB report, it seems that many human thinks something has gone horribly wrong and it’s time investment actions are caused by all of the above influ- to take action. It’s time to sell—sell gross, and sell fast! ences—except, sometimes, Reason. Sound familiar? Educating this investor and manag- Although most of us would like to believe we make ing his emotions suddenly becomes more important than rational choices when it comes to our investments, the all the work you did structuring the portfolio. In times evidence suggests that many investors do not. When like these, our skills as financial advisors must reach be- Kelly coined the meeting-the-enemy phrase in 1970, he yond the obvious investment and market due diligence was using it to describe how humans often need to find that’s normally required of us. We must stand between reasons for poor outcomes. In many cases, those reasons our clients and their emotions, safeguarding them from have much more to do with their own actions than with the potentially devastating effects of fear-based trading. I attacks from the outside. When that’s the case, then yes, would argue that no other skill set would have a greater “the enemy is us”—and never has this been more true impact on our clients’ long-term returns. than with investing. Many years ago, cartoonist Walt Kelly’s most During the 20-year period covered by Dalbar’s 2006 famous character, Pogo, made the statement, “We have QAIB report, the S&P 500 returned 11.9% annually. met the enemy and he is us.” Each year, Dalbar, Inc., a However, the average U.S. equity fund investor earned Boston-based financial services market research firm, only 3% annually. Over this same period, the average an- releases its Quantitative Analysis of Investor Behavior nual inflation rate was 3.9%. Clearly, the average inves- (QAIB) report. The 2006 report covers investor behav- tor suffered dramatic financial losses despite the market’s iour for the 20-year period between 1985 and 2005, and solid yields (see “Comparing Returns,” page 17). comes to the same conclusions as past reports, namely Lest you think these numbers are the result of abys- that despite major market indices posting impressive re- mal performances by overpaid mutual fund managers, in turns, the average investor earned only a fraction of these fact, over this same time period the continued on page 17
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AE10_015,017,018,021.indd 15 09/24/2007 06:15:22 PM toolbox
continued from page 15 average U.S. equi- ty manager had a respectable 11% aver- Comparing Returns age rate of return annually after fees. In- A look at returns over 20 years shows average investors vestors were still 8% per year below what significantly underperform the S&P. a monkey could accomplish throwing a dart at a list of mutual funds. So, how is it that average investors 14% managed to let the ball drop? QAIB’s 12% 11.9% report provides strong evidence that in- 10% vestment return is far more dependent on 8% investment behaviour than on fund per- formance. It indicates the average inves- 6% tor was unable to hold on to mutual fund 4% 3.9% investments through periods of volatility 2% 3.0% and tended to buy funds when they were 0% expensive and sell them when they went S&P 500 return U.S. inflation Average U.S. equity down in value. Commenting on a past fund investor Dalbar study, Heather Hopkins, direc- Source: Dalbar, Inc., Quantitative Analysis of Investor Behavior, 2006 tor of marketing for Dalbar, said, “mu- tual fund investors who simply remained invested earned higher real-investor re- turns than those who attempted to time moving out of their funds and into cash, the market.” at possibly the bottom of the market. Un- Am I preaching the “Buy, Hold and derstandably, few things are more terrify- MANDATE NATIONAL MORTGAGE CORPORATION Prosper” mantra? Absolutely not; we’re ing than extrapolating a 10% quarterly simply highlighting that indices, or even loss out over 10 years. funds, have tended to outperform the av- During volatile periods, it’s important /$/& erage investor—not because they’re bet- for our client portfolios to have what ter investments than what the average some managers affectionately refer to as 9>K>9:C9E6>9 investor might have chosen, but because a “thumb-sucking component”—a con- H:8DC9FJ6GI:G'%%, reactive emotional decisions tend to over- sistent cash flow that gives investors a rule the detached analytical synthesis of sense of security. Perhaps this element of N HJE:G>DG9>K>9:C9H information that would allow us to make cash-flow income is what’s always made E6>9:K:GN86A:C96G rational investment decisions. real estate investors less fickle, more FJ6GI:GH>C8:&.-( As James O’Shaughnessy wrote in his assured and, ultimately, more successful national bestseller, What Works on Wall than most equity fund investors. N GGHE$GG>;:A><>7A: Street, “Markets often outperform the Of course, it’s not that real estate is a average investor, because they are always better asset; but the value is perceived to N ;jcYH:GKBCB&%% consistent and never vary . . . They don’t be greater due to the income generation have egos. They’re not out to prove any- of the property, as opposed to its market N H=6G:H6K6>A67A:>C thing. If they were people, they’d be the value. In many cultures wealth is not mea- 7#8#6C96A7:GI6k^VVc D[[Zg^c\BZbdgVcYjb death of any party.” sured so much by net worth as by income. EVhieZg[dgbVcXZ^hcd\jVgVciZZd[ No recent period of time reveals this And this makes sense, since our lifestyles [jijgZgZijgch dilemma more clearly than the recent and standards of living are a function of three-year period between January 2000 our incomes. K^h^ijhVi to December 2002. During those years, Unlike the stock market or mutual mmm$cWdZWj[cehj]W][$Yec market volatility had many investors fund investor, own- continued on page 18
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continued from page 17 ers of real estate do not receive monthly or does an investor behave rationally? The answer is cash flow. By quarterly statements reflecting the value of their property. They looking at the $40,500 in annual income, an investor’s nature be- have an idea of the market value, based on what they paid for it comes somewhat pacified and he or she develops the ability to and comparable sales in the neighbourhood, but what they really hold on to the investment. Holding on would have seen this same know about is the income (the cash that flows into their bank ac- investment more than recoup its losses, all the while paying out counts on a monthly basis). Stock market investors often have no $40,500 per year and generating a nice, tidy 8.5% average annual idea what the income generation of their portfolio is. Therefore, rate of return for the six-year period. they perceive the value of their investments to be exactly what’s Had an equity investor experienced a 20% loss without receiv- reflected on the bottom line of their quarterly statements. ing cash flow, the discipline to hold on to the portfolio would Take, for example, an average $500,000 portfolio in October, have been harder to muster. Of course, this is where we see many 1996, invested equally into mortgages, high-yield bonds, income investors realizing their losses and underperformance in both trusts and dividend funds (all income-generating assets). By the funds and markets (see “Real Versus Paper,” page 21). end of 2002, this portfolio would have been worth $852,000. Like Cash flow generates two main benefits: a real estate asset, this portfolio had a consistent average income 1) It reminds us that we are continually earning money and this of $40,500 per year. And it’s this income generation that offered inhibits us from making rash selling decisions; and the “thumb-sucking component” to the client, particularly when 2) It allows us to reallocate cash to other investments at op- this portfolio’s market value would have taken a dramatic 20% portunities when values may be lower. We are forced to attend to drop in the five-month period preceding October, 1998. asset allocation, not simply by buying and selling what is already Human nature would have many investors extrapolating that owned, but by using the new cash flow to add to the portfolio. 20% drop and concluding that all their money would disappear Understanding that most of our money-related decisions are over the next few years. Faced with a sudden $100,000 loss, how probably driven by factors other than reason, continued on page 21
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continued from page 18 it follows that investors should willingly seek guid- Real Versus Paper ance in these matters. An objective, The income aspects of real estate, and lack of constant price data, reasonable and analytical third party make it easier for investors to hold on. (us, as advisors) could likely have helped the average Dalbar-study in- Income-producing real estate vestor bridge the gap between that Therefore dismal 3% annual return and the Market value rises and Income is value is equity market’s 11.9% annual re- falls and is stable and perceived to be equal turn. It is here that an advisor pro- unknown is known to income vides true value. In recent months, many articles have proclaimed that MERs on mu- Stock/Bond portfolio tual funds are high and erode inves- Therefore tor returns. Market value Income is rises and value is In many cases this is true; how- unpredictable perceived to be falls and and ever, while fees and costs are an is known equal to market (i.e. not income) daily/monthly unknown important factor in choosing an in- (usually) vestment strategy, they pale in com- Source: Nicola Wealth Management parison to a disciplined approach that’s diversified, value-oriented and compels investors to see the advantage in picking unpopular to protect our clients from themselves, or at least from the emo- 18 AE 1 0 2 007 www.advisor.ca assets when they least want to. tions that might have them make detrimental, fear-based invest- The Dalbar study isn’t just an analysis of investor behaviour; ment decisions. It’s never easy to tell clients that they are their own it’s evidence of human nature. Investors get scared when they see worst enemies, but the ability to do so may separate the more suc- lots of losses with little-to-no gains. They panic. Nevertheless, cessful financial advisors from their less-successful peers. there’s a way to steady the ship: create a portfolio that includes The Dalbar study shows that left to their own devices, most in- cash-flow-providing assets. Seeing a steady income in the face vestors will significantly underperform markets. Ironically, most of losses is exactly the kind of pacifier thumb-sucking investors investors (and the financial media) seem more concerned about need. It quells the panic and eases the fear. And any time we can fees than they are about sabotaging the health of their own in- eliminate those two problems, there’s a good chance we’ll be able vestment portfolios. to employ reason before an investment action, instead of looking It’s our job to show clients the nominal fee most of us charge for reasons for poor outcomes. these days (1% or less) is money well spent, particularly when Clearly, our roles as financial advisors 27625I_Gtreedemand broad-reaching Ad 2Final:Layout you consider 1 the7/12/07 empirical 9:38 data AMthat Pagesuggests 1 that without sound skill sets. We must possess not just an expert command of markets, advice, investors may miss out on 8.9% per year. AE sung global economic vagaries, and ever- changing financial planning matters. We must also have an aptitude for Solid Performance From persuasion. We are constantly called One Generation To The Next to task as educators and counsellors, Developing sound, innovative strategies to increase your wealth without added risk and our ability to influence our cli- Gentree Asset Management, merging state-of-the-art technology with cutting- ents to make the right choices will edge academic derivatives and proven expertise to deliver innovative alternative ultimately define the long-term suc- investment opportunities. We’re pleased to launch our flagship fund, the Market Risk Reduction StrategyTM, targeting enhanced returns, reduced volatility cess of their portfolios as well as the and steady cash flow distributions for today’s investor and future generations. success of our own businesses. To speak with one of our investment Beyond our obvious fiduciary re- associates, please call 877.607.3131 sponsibilities, we have a responsibility A New Generation of Investing or visit www.gentree.ca
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AE10_015-021.indd 21 09/20/2007 08:01:14 PM the next generation of investors is cynical, suspicious, and cheap.
reality bites. missed the
Kenny hotz spot actor, writer, producer
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by philip porado, j e f
editor of Advisor’s Edge. f e r
k i r k
They respect authority and, generally, take your advice. They have good jobs that pay well the next generation of investors is and let them accumulate scads of in- cynical, vestable assets. All that liquid capital in a time of low interest rates sent suspicious, them screaming into the equity mar- and kets. You just had to grab a mutual cheap. funds licence, set up shop, and col- lect the trailer fees. Yeah, pretty soon you’re really reality bites. gonna miss the boomers. And how, because you’ll be stuck with the newcomers: Generation X. Those kids born roughly between 1962 and 1980 who stepped out of university into recessions and a job market crowded with baby boom yuppies who wouldn’t get out of the way or give them decent salaries. While most have since done well for themselves, they carry the scars of those early failures into adult- hood. And they’re going to carry them right into your offices—with long sleeves to cover the tattoos, and piercing holes starting to close—flop down in front of your desks, and ask for help. An advisor with one eye on re- tirement might ask herself why she’d bother catering to a bunch of brokesters who don’t listen. Fair question. The answer is boomers are rapidly converting their assets into income vehicles, and numerous ad- visors have already created specialty practices catering to those needs. But not every planner can switch to that niche, so they’ll have to work with the remaining accumulators, fewer of which will be boomers. Like it or not, the clock is continued on page 25
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AE10_022-031.indd 23 09/20/2007 08:05:03 PM continued from page 23 ticking. Wouldn’t it be smart to extend an olive branch to Gen meet mr. x by heidi staseson X now, if only for the sake of that young advisor you’re grooming to take over? SoME of the best ideas are born in the cars—lots of cars. Rob Kelland, director and associate shower—hence our decision to put Kenny Hs: Do you have an advisor? portfolio manager at the Kelland Group Hotz on AE’s October cover. Better known as kh: I have two amazing accountants at Baskin with ScotiaMcLeod in London, Ont., one-half of the prime-time pranksters Kenny Financial in Toronto. They’re friends of my fam- points out the investment needs of X-ers and Spenny, who could argue Hotz’s position- ily. I wanted to be with somebody for who aren’t “significantly different from those of ing as the quintessential Canadian Gen X-er? my money was personal. any other generation.” He’s best friends with “South Park” creators Hs: How often do you see them? While some may be asset-lean now, Trey Parker and Matt Stone, and, along with kh: Rarely. I trust them so I don’t even need over the long haul—say the next three sidekick Spencer “Spenny” Rice, Hotz co- continued on page 27 decades—their goals and needs will be creates, executive-produces and directs the substantially similar to those of their pre- hit Showcase series “Kenny vs. Spenny,” decessors. Provided they live within their heading into season four next month. means, save, and invest for the long term Hotz (who says he’s 35) sat down with rather than chasing fads, they’ll eventually associate editor Heidi Staseson to wax philo- become good clients. sophical on money, media and the mayhem And, keep in mind many X-ers are the he generally creates wherever he sets foot. children, or younger siblings, of existing Hs: Are you more money-motivated than clients. Taking them on will help keep your Spenny, or are you really just a slacker? practice in the picture when wealth trans- kh: Spenny is way more money-motivated fers take place. Further, as a group, they’re than I am. I don’t know what happened to always looking for the next cool thing and him; he snapped. I think he realized there once they build up financial cushions, was potential to make cash and actually they’ll make good candidates for invest- turned. ments your more traditional clients reject. Hs: Are you thrifty or is your spending Lastly, never forget not every X-er is as obnoxious as your personality? broke—and as the labour market tightens kh: I’m into compiling cash. I’ve been up in the wake of boomer retirements, living out of hotels and furnished Gen X will move into management and up apartments since ’99, so all I have to the salary curve. spend my money on is food. I think material goods are useless. Dig the New Breed Hs: Any lessons learned from Due to the sheer number of boomers in Hollywood? the marketplace, a lot of advisor practices kh: When I first moved to haven’t focused on X-ers. L.A., I was about 25, and Those wishing to accommodate the some famous friends told generation will need to make modifica- me, “Whatever you do, don’t tions, perhaps including adoption of a fee buy a car; don’t buy anything, model for low-asset clients to ensure the because you’re going to be out firm receives adequate compensation for there for so many years before you work performed. actually have the potential to make it. Just Expect the transition from boomers to save up all your cash.” I was poor for so long X-ers to be rocky. Client meetings won’t that I was just used to not spending money. be as relaxed. “There is no deference. I ate ketchup sandwiches; I lived in Venice They’re not saying, continued on page 27 Beach, rode my bicycle, and I dated girls with
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AE10_022-031.indd 25 09/20/2007 08:05:14 PM continued from page 25 ‘You are clearly the I nvisible Investors continued from page 25 expert,’ ” says Alexandra Macqueen, a fee- For some advisors, Generation X isn’t even to see them. They just kind of take care of only financial advisor at The MoneyPower on the radar, or is viewed as a second-tier me—like even with that little market dip they Group at Raymond James in Mississauga, client base. Sheldon Gray, an investment pulled half my cash out before that happened. Ont. “I have one client who in a perfect advisor with Dundee Securities in Vancou- I could just save cash without their assistance world would be doing his own investing, ver says about 40% of his clients were born but they’ve actually been making me a lot of but he doesn’t have time. He will say, ‘I between 1966 and 1975. money. I’ve got things spread out. When I was want you to put me in this and that.’ He’s The group accounts for a smaller per- a kid I would usually just invest in mutual funds. not coming in and saying, ‘What do you centage of the money he manages with an HS: Who taught you how to do that? recommend?’ ” average of $80,000 invested, and a good kh: When my uncle died he left me five Out the window goes the explanation portion of X-ers he runs money for are grand, and my dad said “why don’t you put about how you’re holding a specific stock there as part of group RRSPs, or are re- some money into Templeton Growth?” I was because it fills a hole in the client’s port- lated to older clients. 15. I put $800 in there 20 years ago, now it’s folio; that it’s part of a larger, long-term Says Gray: “A lot of these people have $16,000—from $800 as a kid. strategy. The client just says, ‘I don’t care. young families, which puts a squeeze on HS: So the trust factor is really important to It’s my money.’ them—95% of them have cash-flow issues. you—does that mean you wouldn’t seek out an But sometimes that bravado masks in- I only have a handful where cash flow is advisor you didn’t know already? security, notes Scott Plaskett, CEO of not a concern. That even goes for my most kh: Well, I would need a personal friend Ironshield Financial Planning in Eto- successful clients who are partners at ac- then that I truly trusted to steer me off to bicoke, Ont. Unlike boomers, who saw counting and law firms—those people are somebody. I think there’s been a history in the steady increases in income after embarking maximizing their RRSPs and whatnot but market—especially now with Enron and the on careers, X-ers did a lot of job-jumping still don’t have a lot of extra money.” like—people have their own corporate motiva- post-university—and some persist in that Assets or no, Kathleen Clough, a wealth tion; people get paid to invest in companies; pattern. That often translates into a lack of manager at PWL Advisors in Toronto says they get cuts. Our generation believes people confidence about being on a success track; this group still needs planning help—oth- are slime; we’re very cynical. We watched our they see people just slightly older with far erwise they’ll never make the first steps to- parents lose all their cash, we lived through fancier toys and want them too, conse- ward being able to hang up work. “They’re Bernardo and AIDS and all these things. We quences be damned. a bit early in the cycle but the foundations understand the world; we’ve been introduced “It looks like they’re doing well but need to be set. So the Gen X-ers have to to the media; we’ve watched the space shuttle they’re spending everything; there’s a be willing to pay for some of the planning blow up and the World Trade Center collapse. BMW in the driveway, but it’s leased,” says advice as opposed to getting it as a subset Everything for us is like we’re on the brink of Plaskett. of their investments,” she explains. “These Armageddon. So yeah, I’m very protective of But hey, unreasonable debt levels are a aren’t yet high-net-worth individuals but my cash and who gets it and what I do with it. way of life for a generation that entered they have the potential to be.” HS: Your parents are depression-era people— housing markets in the wake of a 1980s real Clough urges her planning peers to start how did that shape growing up? estate boom that saw average resale prices coaching X-er clients on asset accumula- kh: We were really poor. We lived in Forest double, and even triple in some urban areas. tion so they can invest later, but stresses Hill. You could back then. We had this façade Young couples planning families, who had her colleagues consider offering services of being like everybody else. I just learned that less income to draw on in the first place, on a fee basis until enough assets are you don’t really need certain things. But we were forced to borrow more—or commit amassed to begin serious investment. In had an amazingly functional family. to a lifetime of renting. some cases, she notes, clients may choose HS: Are kids in the picture? Thank goodness interest rates are low, to take advisor-prepared plans and execute kh: Most of my kids are at the city dump. except that’s made it difficult for X-ers transactions on their own through online The other half is sprinkled around Europe and to realize returns on what little money is or discount brokerages. I haven’t met them. I have four nieces, I don’t left after the bills are paid. Low salaries. Or, clients may simply move to another know if I really want a kid. I’m immature and High housing costs. No return on savings. advisor once the cash is saved up. Plaskett don’t like responsibility. Anyways, I’m living my Sweet! agrees a structure continued on page 29 dream now. AE
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AE10_022-031.indd 27 09/20/2007 08:05:14 PM continued from page 27 where people see These are, after all, people to whom em- on paper, fewer what they pay for is perfect for this rip-off- ployers showed zero loyalty at the starts of wary crowd. “When we write the plan, we their careers. and fewer of them charge their credit cards. They see what And, when an X-er is home Web surf- are going to they’re paying; they’re more comfortable ing, all sorts of investment options catch have the lifestyles with that,” he says. his fancy: flow-through shares, structured On the flipside, X-ers are demanding products, new fund companies that are do- they desire. and want their money’s worth. Plaskett is ing interesting things. The problem is the accustomed to his younger clients com- investments he’s learning about are bet- Ottawa. And then they need life insurance. plaining about how they didn’t hear from ter suited to people in their peak earning Nothing fancy, just enough to get the job their last advisor often enough. He coun- years. So when an advisor tells him he’s got done. “It’s term-20 to get them covered ters this by requiring clients to commit to $40,000 in unused RRSP room and should because they need it but it’s not expensive,” meeting every six months—important for be starting there, his senses are dulled. A Gray explains. younger people who don’t have as much capitalism 101 lecture about budgeting Some of his better-off clients in the age background on sophisticated investments. isn’t what he had in mind. group, who would ideally go with perma- There’s also a market naïveté among “They’ll say, ‘You mean it’s not going to nent insurance that’s cheaper over the long some X-er clients who tend to be aggres- be a discussion about a great product or a haul, can’t because of income issues. “They sive and sometimes expect miracles from hot new stock?’ It’s not cool enough,” says need something more affordable,” he adds. their advisors. “Gen X-ers don’t have the Macqueen. “For them, the conversion privilege is im- wisdom that comes from being through But they need the lecture. Advisors say portant. They can switch it later.” complete stock market cycles,” notes Plas- the vast percentage of clients in this age kett. “If you started three or four years ago, group have young children, and are strug- F amily Ties you think it’s easy to make money.” gling with their mortgages and the last Right now, Clough says the majority of X- Gray adds most X-ers come to him after vestiges of student loans. They’ve been ers either have or are planning families and they’ve cleared up their consumer debts. in the workforce awhile, but still need to are trying to figure out what an extended He rarely has to tell them there’s not much set priorities and make the most of the as- period of interrupted cash flow during ma- sense in investing until those resource sets they have. “They can’t take advantage ternity leave will mean for their finances. drains are off the books. “People who are of a lot of discretionary opportunities,” “They have to decide between paying starting with a few thousand are getting notes Gray. “It’s not, ‘I’m going to max my down the mortgage or putting money good product from the banks and at least RRSP and then buy permanent life insur- into the RRSP. So we look at whether we they’re doing something. They’re getting ance and then some critical illness and dis- can blend the two and take the tax savings it invested,” he says, adding a balanced ability coverage, and then put some into a from the RRSP and put that toward the growth portfolio is fine for a start, but that second non-registered account to have a mortgage, or determine if what they need part of the generation with less money vacation fund.’ ” to do is just pay down debt,” she says. might still be missing out on quality advice Nope. Not even close. It starts with bud- They’re tough calls for a generation about how they should be prioritizing. geting and from that you identify the needs that grew up in the ’70s and ’80s when versus the wants, says Doug Nelson, a se- divorce became more common, and two- G oogle Factor nior financial advisor at Nelson Financial worker families became the norm. A large Ironically, one of the greatest assets for Consultants in Winnipeg. “Then you say, percentage of X-ers have reacted with life- Generation X—early adoption of the In- ‘What’s the best way to allocate this $1,500 style choices that impact the pocketbook. ternet and comfort with technology—can a month?’ They need to know where to get One spouse has elected to stay home with be a huge impediment for advisors trying the greatest leverage,” he explains. the kids, and even if the other is earning to form working relationships. All that These are people who need a plan to a decent wage—say $80,000—that’s still googling means they’ve surfed not only pay off the mortgage. They need guid- not enough to be writing a $15,000 RRSP your Web site, but those of your competi- ance to ensure they put money into their cheque every year. tors. If you don’t say something compel- kids’ RESPs while their income levels are Advisors need to educate, says Mac- ling or reassuring, they’ll move on, fast. still low enough to garner kickbacks from queen, noting couples continued on page 30
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AE10_022-031.indd 29 09/20/2007 08:05:14 PM continued from page 29 in particular tend to When X-ers do save, Plaskett suggests it they happened to be visiting. But none of couch their conversations in terms of re- can be haphazard. He’s had first meetings it’s been managed properly. Notes Plaskett: tirement, as opposed to building wealth with Generation-X clients that uncover five, “The next year, they’ve moved, so they open over the long term. All those RRSP ads six, even seven separate RRSP accounts at at a different institution. Or they happened on TV in February become an impetus for various institutions or branches. Each year, to be downtown, as opposed to their usual people to start saving, which is good, but these clients responded to the February branch, and opened the account there.” these3014 youngerAdvisorsEd_Oct clients still 4.625x7.5 don’t fully un- 9/18/07deadline 6:18 by PM taking Page an RRSP1 loan out and The result can be clients who do have derstand the message. stuffing away some money at whatever bank assets, but no single advisor knows where everything’s stashed. “When I put together a net-worth statement and tell them what they own it’s really an eye-opening experi- ence,” Plaskett says. That statement then They need more income You can becomes a stepping stone to encourage unlock the clients to consolidate management of their value of their funds so they can have more money work- biggest asset ing for lower fees. “I agree with diversifica- tion, but I’m a planner,” he adds. “So we’ll One call to CHIP diversify among managers but everyone is all it takes has to tell us everything or we can’t do our We help homeowners jobs properly.” 60 and older unlock up to 40% of the 40 and Fried equity in their homes without moving. And then there are the X-ers who have We can provide money. Many of Nelson’s clients in the age up to $500,000 in group have moved into higher-paying po- tax-free cash that you sitions. “A lot of them are working their can invest to enhance tails off and have produced a pretty good their income. whack of dough. They have the lifestyle An experienced and they want to protect it,” he explains. CHIP representative The downside is burnout. They’ve will answer all your missed too many soccer games and school clients’ questions plays. They’ve got no balance and want ad- and complete all the paperwork. You visors to get them off the money-go-round. receive a referral fee “They want to maximize their returns and and the opportunity they’re asking me to calculate what it will to invest the proceeds. take. On the bright side, they’ve got the Find out how you cash flow to do it,” he says. can offer the CHIP Home Income Plan. Here’s a person Call 1-866-536-2447. who’s so burnt www.chipadvisor.ca out that he’s okay with making less money if it gives him a little TM Trade-mark of the Canadian Home Income Plan Corporation. more flexibility.
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Publication: Advisor’s Edge Size: 4.625" x 7.5" Bleed: 0.25" all 4 sides Material Due Date: Sep 11/07 Insertion Date: Oct/07
AE10_022-031.indd 30 09/25/2007 10:47:06 AM But to help people in their 30s and early money if it gives him a little more flexibil- about bringing in new blood. “You tend to 40s, advisors need to explain how job- ity,” he explains. attract clients who are similar to you. I’m jumping will impact benefits and pension And that’s really it. Far more than the 39; I’m one of them, and so I really relate options, and how that fits in with retire- boomers before them, this group wants to this need. If all your messages feature ment planning. They must make it clear advisors to relate to their aspirations—per- grey-haired people, then that age group these clients are largely on their own and haps because they often seem so far out of isn’t going to locate within your practice. can’t rely on an employer for retirement, reach. One way to accomplish that, says It’s like putting on Dad’s tie. It doesn’t says Clough, explaining that disability in- Macqueen, is for advisors to get serious quite fit.”AE porado surance coverage from a non-employer source is critical for this group. Gray adds only five of his clients in the Gen-X age group have jobs that pro- vide defined benefit pension plans, and he doubts they’ll have those jobs when it’s time to cash out. “A DB is a luxury that most companies can’t afford and I don’t know if they’ll be around in 20 years. These are going away, so people have to do it on their own,” he says. The good news is a lot of his clients are making savings commitments. The bad news is, based on projections of what these people are capable of putting away for the next few years, they’ll really have to beef up contributions when they reach their 50s if they ever want to retire. “On paper, few- er and fewer of them are going to have the lifestyles they desire,” Gray pontificates. Even the better-off X-ers need help with cash-flow management, so Nelson sets up automatic withdrawal systems that allocate money to a savings plan earmarked for in- vesting. If a client wants the money, he has to go to the advisor and ask. Since most won’t do that, they end up saving. Also keep in mind this group shares a different perception of retirement. They’re not headed to Golden Pond. But while some may never stop working, they’ll love nothing more than being able to choose their assignments. Nelson’s now working with a successful 40-something for whom a job change is on the horizon. “What he looked for from me was the assurance that he could choose to not take on a certain level of work. Here’s a person who’s so burnt out that he’s okay with making less
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AE10_022-031.indd 31 09/20/2007 08:05:16 PM one
by julie littlechild, prfesident of Advoisor Impact, whicrh the provides management training and tools for advisors in Canada, the U.S. and U.K. team
team-based advisors are also top producers with clients.
It is rare to find an advisor who says ship—ranking well above things like What does that mean to you? It he or she got into this business due to the frequency of contact. More than means that promoting a team ap- a compelling desire to manage peo- 40,000 clients assign “confidence in proach may not only support in- ple. But when they do find them- the team” an importance rating of creased efficiency, but contribute to selves in a position of leading a team 4.8 out of 5 (where 5 is critical and 1 long-term satisfaction and loyalty. of associates, it can be one of the is not at all important). continued on page 35 most powerful drivers of both prac- tice efficiency and client loyalty. Take The Input How advisors describe their time.* heed though, when and if it does come time to structure and manage a Number of hours worked per week 45 functional team, start by dispelling some common myths. Number of hours advisors spend on activities that should be delegated 11.25 (25%)
Myth #1 Total hours per year that could potentially be spent on “My team is not a critical driver of other client activity 506 client satisfaction.” Hours required by advisor to manage a top client 17 It’s often unspoken, but advisor ac- tions support this widely held no- tion. Through its Client Audit pro- The Impact The potential return on delegation. gram, Advisor Impact (AI), gathers ongoing feedback from clients, on Number of additional top clients that could be behalf of their financial advisors. managed per year with 25% more time 28
We’ve found that clients disagree Total assets represented by 28 top clients with the above statement. In fact, (at average of $974,000 per client)* $27,272,000
confidence in a planner’s team may Gross revenue (at average turn rate of 1%) $272,720 be one of the most important factors *Source: AI Practice Update, 2006 in the advisor and client relation-
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AE10_033-039.indd 33 09/24/2007 06:27:11 PM continued from page 33 Myth #2 “My team may improve efficiency, but Comfort Levels that doesn’t impact my bottom line.” More than half of clients say they’re comfortable discussing their portfolios with Research suggests that in addition to in- someone on their financial advisor’s team other than the senior advisor. creasing business efficiency, a team ap- proach can also positively impact your Yes No I don’t know bottom line—especially if positioned properly with your clients. Based on our 54% 57% research with advisors (see Table, page 33), 29% 30% we see that delegating more activities has 16% 13% the potential to add substantially to the top line. The reason is simple: delegation creates capacity. Average $500k+
Myth #3 municate this as a benefit to prospective clients and educate them “My clients just aren’t comfortable working with my team.” as to how your team functions from the outset. If this is truly the case in your business, then it may be an issue of AI’s 2006 practice update indicates that top producers take a positioning or client education. Confidence in the team doesn’t different approach to delegation from other financial planners. happen by accident. That said, the research suggests a majority of Top producers tend to delegate more activities, and with greater clients are, in fact, comfortable discussing their financial needs frequency. with someone other than the senior advisor (see “Comfort The most efficient advisors not only delegate more often, they Levels,” this page). delegate a broader range of activities. New Advisor Impact re- What does that mean for your business? It means that on av- search shows that the most efficient advisors go beyond just dele- erage, clients are comfortable with the team but you can push gating things like answering the phones and business processing, that percentage much higher if you take a proactive approach to and delegate many more aspects of client management. positioning your team as a benefit to your clients. So, if you’ve convinced yourself that you, and you alone, can Team Structure manage client relationships, bring the team in—it’s all good news We can approach the issue of team structure from two angles: the for practice efficiency, profitability and client satisfaction. structure of the work and the extent to which we motivate and sup- port the people who do the work. These are different concepts, and Myth #4 are both deserving of your attention. “Having a team is the same thing as taking a team approach to client management.” Laying A Strong Foundation Having a support team means that your team is dedicated to assisting You won’t have an effective team without effectively structured you in managing client relationships. You are positioned, and seen by workflow. your clients, as the expert and the primary point of contact. Laying a strong foundation is about defining and standardiz- Taking a team approach, on the other hand, means your team ing the work that you do. Do this before even thinking about works together to support the client in reaching his or her goals. the people on the team, because it ensures you’ll have a quality Different people on the team have different areas of expertise and process in place. there may or may not be different points of contact. You can com- Tactic 1—define job mandates Your next goal is to create clarity around the roles you have identi- Top producers tend to delegate fied for your team. These should be created initially without refer- more activities, and with greater ence to the individual in the role. This keeps things objective. For frequency. an advisor, client-service responsibilities might include the defin- ing of service standards, mapping out communications plans and meeting with clients. continued on page 37
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AE10_033-039.indd 35 09/24/2007 06:27:23 PM continued from page 35 Next, define the mandate and be as spe- cific as possible. There are typically two types of mandates: the Poorly defined expectations first is a project. For example: “Create operations manual by De- cember 31, 2007.” Second are those things that are ongoing in are one of the biggest causes the business, such as “Meet with 10 clients per week,” or “Run of dysfunctional teams— quarterly training sessions for the team.” a lot like families.
Tactic 2—standardize key processes Have a clearly defined delivery system that your team can run • develop a team profile that not only outlines roles and respon- and improve. You can standardize most routine processes in sibilities, but bolsters the credentials of the team; and your business—from welcoming a new client to setting client • play the team card from the outset, by introducing team mem- meetings to updating financial plans. Once you’ve identified bers, explaining how they work together and reviewing the which processes you want to define, you’ll need to break each benefits of having different people bring different areas of down into separate tasks, assign a timeline, identify who is expertise to bear on the relationship. responsible for each step and, ideally, create any associated Remember, your team can also include the extended specialists templates (such as letters). or centres of influence with whom you work. Your goal with the initial team tactics is to lay a strong foundation for a quality client Tactic 3—position a team approach with your experience. It’s at that point you can turn your attention to the clients and prospects people factor. Promote those team-based benefits by actively transferring credi- bility to team members and educate clients about how the team Tactic 4—communicate accountabilities works in tandem to deliver a quality service. Work carefully and directly with each team member to review the job mandates and your expectations. Poorly defined expectations Top producers with teams tend to: are one of the biggest causes of dysfunctional teams—a lot like • have assistants or juniors follow up directly with clients after families—and staff can’t read minds, so ensure both the role and meetings; the expected outcomes are clear. • include team members in client meetings (when appropriate), or have them play a clear role, such as sitting with a client to Tactic 5—monitor, assess and develop your team update his or her profile; This is all about ensuring your team is doing continued on page 39
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AE10_033-039.indd 37 09/24/2007 06:30:02 PM Take continued from page 37 the best job possi- Tactic 7—structure a clear team this case ble, but also about motivating them so communications plan that you can retain staff as well. Monitor- The best teams are those that have a com- and solve it ing is about developing for the future, not munications plan in place—one that’s both just judging on the past. well defined and proactive, rather than ad November 27, 2007 Try breaking your assessments into hoc and reactive. Toronto three parts. First, evaluate job perfor- You know the drill on the meetings: MaRS Complex mance against stated objectives. Second, clarify objectives, respect the time of all address any gaps in the competencies re- involved, track action items and follow December 3, 2007 quired to fulfill the role (such as software up on who is doing what to ensure noth- Vancouver training or business writing) and set some ing falls through the cracks. Consider ro- Marriott Pinnacle goals. Finally, look at personal develop- tating the chair position to get everyone ment and set goals in that area (such as involved and accountable. Presented by obtaining professional designations or Set different types of meetings to meet public speaking). different objectives. For example, ad- dress upcoming activities for the day in a Tactic 6—make it a great place to work 15-minute huddle each morning. Spend in cooperation with Don’t forget basic motivation. It’s about the 30 minutes each week looking at activi- little things like taking the team to lunch ties that demand your attention in the every now and then. But, it’s more linked to coming week. And each month, spend clearly communicating your business strat- 60 minutes to review events or communi- egy and goals, helping team members un- cations to come in the next month. Have Partner Sponsor derstand how they individually fit to help half-day planning sessions, four times a the business reach those goals, creating a year, to look at new activities for the next direct link between firm goals and individ- quarter. And don’t mix logistics meetings ual goals, and of course, creating a direct with planning meetings—the latter usu- link between individual goals and individual ally suffer. incentive or compensation. Create a feedback loop As a final note, when designing the perfect Bronze sponsor When designing team, don’t forget to include your clients in the perfect team, the consultative process. don’t forget to They’ll provide practical feedback on include your clients. the performance of your team and how well, if at all, you have effectively com- municated a team approach. Ideally, your compensation model Certainly, many of the typical problems should drive the behaviours you want to we see with teams can be solved during Association sponsor see. The best (and the most complicated) recruiting. Get that right and you’ll be have three parts: a base; a bonus that’s well on your way to a solidly functioning linked to the team meeting its business team. Even perfect people, however, can objectives; and a bonus linked to personal fail to succeed if they are not given the performance. The latter depends on the right direction and a process that works. role, but could be linked to anything It all sounds complicated (and it is) but an from growth of existing client relation- effective team can be one of the biggest ships to completion of specific tasks, or drivers of your future success. It’s worth client satisfaction ratings. the investment. AE littlechild
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AE10_033-039.indd 39 09/24/2007 06:30:09 PM c o m p l i a n c e o u t l o o k panellists (left to right) take it back heather phillips, compliance officer, Armstrong & Quaile, How should an advisor unwind an Waterloo, Ont. vipool desai, president, ARA Compliance Services, Toronto
inappropriate investment? karen mcg uinNess, compliance chief, Mutual Fund Dealers Association of Canada (not pictured)
compliance outlook is moderated by Philip Porado. Please submit scenarios you’d like to see addressed to This month, Advisor’s Edge commission cheque is adjusted ac- [email protected] introduces a new department. cordingly. The branch manager or “Compliance Outlook” seeks head office compliance would only • the rep documents his or her to give you multiple perspec- get involved if the client complained findings from reviewing client tives on compliance and as a result of the mistake. paperwork, the rationale for rec- regulatory issues by polling Vipool Desai | The steps depend on ommending the change, and the industry specialists. We hope how the portfolio became unsuit- assessment of any loss to the their views help you define able. If it was the result of a series of client; and shape best practices for unsolicited orders that were not in • the rep reports the matter to the your businesses. line with account objectives, the ad- branch manager and head office visor should have appropriately compliance to ensure corporate warned the client. If the client still and regulatory policies are fol- For the inaugural column, we asked insisted on putting through such or- lowed; the panel to address the following ders, they should have been marked • the rep contacts the client (and scenario: during a routine review of unsolicited. If the orders changed sends the client-complaint form) a client’s account, an advisor deter- the overall risk profile of the ac- explaining the situation with the fmines he’s placed that client in an count’s holdings, the know-your-cli- solution; unsuitable investment. He knows ent document should have been • the process is documented and the problem has to be corrected, amended to reflect the new profile includes the client’s agreement to and wants to do it quickly because and the client should be asked to the proceedings; and the client’s interest is at stake. What’s sign the revised KYC. For good • if the client isn’t satisfied, the the best way for the advisor to han- measure, the advisor should also put representative puts him into con- dle this problem? What’s the appro- a note in the file documenting his or tact with head office compliance, priate chain of command? And how her discussions with the client. If which then works with the client should the advisor explain the situa- these steps weren’t fully undertaken directly. tion to the client? when the order was accepted, the VD | A client’s portfolio can also be- Heather Phillips | When a represen- advisor can circle back and ensure come unsuitable because of a sig- tative discovers his or her mistake, the order ticket and KYC are appro- nificant change in the nature of an the client is to be contacted right priately amended. account’s holdings—a major re- away and informed. I would not ex- Karen McGuinness | We would ex- structuring of an issuer’s business, a pect the client to be upset. However, pect the advisor to update or confirm debt rating downgrade, or the col- if the client suffered a loss due to the the KYC information on file and ex- lapse of one fund into another that rep’s mistake, our policy is for the plain to the client that the portfolio doesn’t share the same objectives or rep to compensate the client for fees does not match the KYC. Then, with quality. In such cases, timely notifi- and losses incurred. A letter of in- client consent, we would expect the cation is important. Client com- demnity is issued by the representa- portfolio to be rebalanced and con- plaints aren’t truly about technical tive to head office and forwarded to sistent with the KYC information. matters such as adequacy of disclo- the fund companies to correct the HP | At that point, there are specific sure. They’re often about a feeling matter; and, if necessary, the rep’s things a rep and dealer need to do: of being treated continued on page 42
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AE10_041,042.indd 41 09/20/2007 07:03:31 PM c o m p l i a n c e o u t l o o k panellists
continued from page 41 unfairly. Calling the client and advising of trouble early on helps set the right tone. HP | Next steps are based on the factors of each case, including whether or not the complaint would be communicated with the MFDA. At all times, honest and open communication is promoted between all parties: clients, representatives, and the dealer. VD | If a client continues to insist on investments that the advisor feels are highly inappropriate, the branch manager should be consulted. Not only is this in line with the branch manager’s regulatory obligation to supervise the rep’s activities, but it also FUNDWRAPFILTER & allows the rep to share responsibility with the manager. Howev- ASSETALLOCATIONFILTER er, the advisor is obligated to follow the branch manager’s guid- ance on how to deal with the client or situation. KM | We would also expect there would be no negative implica- tions to the client. HP | When a complaint is received at head office, the following MORE HANDS. steps are taken: • the complaint is registered in the complaints log; MORE HANDS ON. • a complaints file is opened and activity will be initiated and One program—two free tools—to monitored by the compliance officer; filter, sort and streamline asset • a complaints file control sheet is prepared, which, among other allocation and fund wrap programs. things, indicates the date of the complaint; the name of the reg- Get your hands on these tools now istered rep and his phone, fax and e-mail information; the deal- er and the rep’s branch number; the nature of the complaint and at advisor.ca all related details; • client statements are requested from the branch manager; • the representative is asked to respond to the complaint in writing; • the representative’s licensing and registration file is reviewed; • regulators may be notified; and • an initial client response is made. Compensation is never to be paid directly to a client by the representative. All such monetary resolutions are to be referred to and handled by the head office.A E porado
Time to Comply Later this fall, the Advisor Group will host its first annual Compliance Conference. PARTNERS The special half-day program will be a must-attend for IDA-registered advisors and compliance teams. Watch Advisor.ca for details and plan to be there!
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ROG pub jongleur 0807 eng.indd 1 08/09/2007 07:04:28 PM AE10_041,042.indd 42 09/20/2007 07:03:43 PM t a x b r e a k
BY
gena katz, FCA, CFP, an Executive Director with Ernst & Young’s National bringing work home Tax Practice in Toronto. “Tax Break” appears monthly. Before clients claim home offices, make sure they know the tax rules.
ten off. Deductible expenses actually vary depending on whether the indi- What better way to defray some of of the time. So for a business owner vidual is an employee or a business the costs of home ownership than or professional who maintains a home owner. For a business owner, home- with tax assistance available by office for doing that nighttime paper- office expenses include a reasonable claiming a home office. Sound sim- work, home-office costs related to the share of rent, property tax, mortgage wple? Beware. real estate asset will not be deductible. interest, utility and repair and main- The deductibility for home-of- Those expenses relating to certain tenance costs. fice expenses is subject to very spe- phone charges, office supplies and a Although depreciation can also be cific rules. So, when clients consult computer can still be deducted. deducted, it’s important to keep in you, let them know about the re- And interestingly, if an individual mind that such a claim may restrict strictions—it may prevent unwel- does pass the principal-place-of- the use of the principal-residence come surprise tax reassessments. business test, there is no require- exemption on capital gains when the Employees can only claim home- ment that the workspace in ques- home is sold. office expenses if their employers tion be used solely for business or For employees, deductible ex- require they maintain and pay for employment-related activities. This penses are far more restricted. their own workspace (the certifica- means the home office can also be Generally, they’re limited to rent, tion is made by the employer com- the spare bedroom or the study. utilities, maintenance and minor re- pleting and signing form T2200). But if that’s the case, expenses pairs. However, commission sales- This generally precludes employees will have to be prorated between people can also deduct a portion who choose to work from home a business and personal use to deter- of their property taxes and home couple of days a week from claiming mine the amount deductible. For insurance. But in no case can an a home office. example, if the workspace is used employee claim mortgage interest But take note: just because an weekdays for business, and person- or depreciation (and that includes employer has signed the T2200, ally for weekends, only 71% of the depreciation on any office furniture that doesn’t mean the CRA will ac- expenses related to the maintenance or equipment). Capital expenses cept the home-office claim. There of the home office are deductible. cannot be claimed against employ- is an additional requirement for Where the home office is not the ment income, except in the case of both employees and self-employed principal place of business or employ- cars or airplanes. individuals. The home office must ment, it must be used to meet clients, Deductible expenses must then be either the individual’s principal customers or patients, and the work- be apportioned between business place of business or employment, space must be used exclusively for and non-business use on a reason- or used exclusively for employment work. This test is helpful for medical able basis (generally based on square or business purposes on a regular or practitioners, aestheticians, or other metres of floor space used). continuous basis for meeting clients, professionals who have a primary Finally, a business or employment customers or patients. out-of-home business location but loss cannot be created or increased To meet the first condition, the also see patients or clients at home. with home-office expenses. Any un- home-workspace must be the chief After determining that the home- deducted amount, however, can be location from which business or em- office expenses can be claimed, the carried forward and used against ployment responsibilities take place— next set of rules relates to which ex- business or employment income in this generally means more than 50% penses, and how much, can be writ- a subsequent year. AE katz
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AE10_045.indd 45 09/20/2007 07:54:41 PM c l o s i n g b e l l beasley hawkes, a practising BY financial advisor with a firm he’d rather not name. Beasley Hawkes is a pseudonym, he can be reached at zip it! [email protected]. Spend some time listening— really listening—to your clients!
client, for that matter), try to avoid questions that can be an- Did you hear the one about the client who walked into a lawyer’s office? swered with a yes or no. Instead She couldn’t say anything—the lawyer wouldn’t shut up. of, “Do you intend to help your I wish that was just an old joke, but I witnessed that exact situation last kids with university funding?” ask, month, when a recently widowed woman was referred to me by her lawyer “Tell me about the level of sup- dand accountant. port you want to give your kids for We met at the accountant’s office, where the two professionals took turns university.” telling me everything I needed to know about the client, while she and I sat Another favourite of mine is looking at each other amusedly. After listening for a while and taking notes, any variation on “What are the I started asking the client questions directly. Almost none of these were key challenges you see with your financial questions; most were about her goals and objectives, her experi- money?” For example, “What are ence with managing money and her plans. the dangers you see in your life?” I’m certain you would have been as shocked as I was that the accountant or “What keeps you up at night?” and lawyer felt completely comfortable and capable of answering all these If you can keep people protected personal questions on her behalf, as well as the financial ones. I mean from their fears, you have really that literally—even to the point of interrupting her few forays into explor- done your job. ing her feelings, to complete her thoughts or tell me (and her) how she I have scars on my tongue from really felt. biting it to stop myself from fin- Laughter very nearly escaped my lips on several occasions. However, ishing people’s sentences, and I actually have a lot of respect for both of these professionals and I was grate- from stopping in mid-sentence ful for the valuable referral. They obviously meant well, and clearly care a when I see that they have some- lot about the woman. They were both very close to her late husband and thing to say, or that they have sincerely want to take care of her. stopped listening. Never force But we all have to learn to curb our enthusiasm at times, and force someone to wait to speak. Causing ourselves to listen, no matter how well-meaning our interactions may be. them to forget what they were go- This was just an extreme example. ing to say is among the worst sins Have you ever caught yourself in mid-verbal flight and said, “I wish you can commit. I’d stopped talking three minutes ago?” I do it all the time. It usu- Finally, overcome your urge ally happens to me when I’m excited about something or as a way to to change the subject every time break those awkward pregnant pauses that can ensue when conversing things get personal, awkward or with a quiet person. (Although, I admit I am getting better at catching uncomfortable. That’s when the myself.) real meaty stuff comes out—the If you feel those same urges to talk when a client is slow to fill in the topics that mean the most to the gaps, learn to stifle yourself. For a person like that, you might be the first client. That’s a tough one for me, listener who was ever patient enough to really hear him out. When someone but when I overcome my desire gets a chance to completely voice his feelings, it’s usually a pretty deep bond- to make things nice, and instead ing experience between him and the listener. If you can follow that discipline, stand my ground and hear them you can be the advisor upon whom the person actually places his first, or out, that’s when the real bonding deepest, trust. takes place. AE Asking open-ended questions helps a lot. With a quiet client (or any hawkes
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