The wealth management landscape has changed more in the past three years than it has in the previous 10. Some of the changes happened quickly: more investment choices, more financial technology (fintech) and greater fee disclosure. Other changes have been more gradual like the transition to fee-based advice.
The challenge for wealth management firms and investors is determining which of these changes are the most progressive and relevant. Is the traditional wealth management model dead? Should the banks be investing heavily in a robo-advisor model? What about fee disclosure? Does knowing how much I’m paying help me make a better decision?
To help answer these questions it’s important to start with some of the less debatable points.
The availability of information combined with regulated disclosure is a good thing. People generally know more about investments thanks to Investopedia and personalities like Kevin O’Leary. In addition, all investment firms in Canada must now provide clients annual fee and performance summaries. Digital information and improved disclosure help the public speak “finance.” Ask better questions. If everyone speaks the same language, you can talk about more important stuff.
It is also abundantly clear that Mr. and Mrs. Smith are in a position to demand more. Investors have been largely indifferent about transactional investment decisions for a very long time. Calls from their stockbroker were mostly an awkward, obligatory exchange. With greater competition and greater awareness, end investors should feel confident asking for all aspects of wealth management. Ask the difficult questions. What do I get for my fees? What do you do besides investments? Why should I keep my accounts with you?
On the flip side there are also some truisms for wealth management firms.
Firms that rely on the transactional model will struggle. As mentioned, most people don’t want to be bothered by investment calls. Others can trade for $9.99. And what happens to new issue revenues when one of the longest bull markets in history ends? Many investors won’t be interested in the hot new stock. The unpredictability of transactional revenues coupled with stifling regulatory costs will be crippling.
Investment advisers will be forced to articulate their value. In the U.K., when regulations forced annual fee disclosure nearly one-third of investment advisers left the industry within 12 months. In Canada, the impact has been less pronounced but it is still very evident. Where did their clients go? Some chose a DIY model, but most chose an advisor that provided more value. If you only talk about investments and you generally have a hard time beating the market, then you will undoubtedly lose market share.
These are all very broad brush strokes but they help address some of the original questions.
Is the traditional adviser model dead? No. The Gordon Gekko model is dead. The firms and the individuals that provide comprehensive wealth management and can justify their fees will thrive.
Should banks invest in a robo-advisor service? Yes. Fintech and robo-advisors are not going away and can complement a full-service offering.
What about fee disclosure? Fee disclosure is progressive and empowering. Whether or not it helps you make better financial decisions requires careful consideration. Start by using the information to ask better questions. Then decide who will manage your wealth.
When it comes to wealth management there is lots to consider. At National Bank Financial we feel that the best way to achieve mutual success is to provide goals-based advice. We challenge our investment advisers to focus on tangible life goals and continually maintain trust. It’s what clients deserve.
