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Consumer Insights

Consumer Insights offers an exclusive series of articles analyzing the results of the on-going Financial Comfort Zone Study, conducted by Missis­sauga, Ont.-based Credo Con­sulting Inc. in partnership with Montreal-based TC Media's investment group. (Investment Executive is published by TC Media's investment group.) The survey, conducted monthly in English and French, is designed to gain insight into the relationships among financial advice, financial well-being and overall life satisfaction in Canadian society. The number of respondents is expected to grow to 12,000 within 12 months.

Trustworthiness and honesty are issues for the majority of younger demographic

By Tessie Sanci | February 2017

Clients who think less highly of their financial advisors tend to be younger, possess fewer investible assets and are less financially literate, according to a recent report released by Mississauga, Ont.-based Credo Consulting Inc.

This suggests that "maybe advisors should be paying more attention to their younger clients to make sure that they stick with [those advisors] in the long run," says Brandon Bertelsen, research director at Credo. He notes that many advisors prefer to build a service offering for clients who are older and have higher amounts of wealth at the expense of the relatively asset-poor younger demographic.

Only about one-third of investors aged 25 to 34 who participated in the survey described their advisors as trustworthy and honest, compared with about two-thirds of retiree clients, according to the most recent edition of the ongoing Financial Comfort Zone Study, a national consumer survey conducted by Credo in partnership with Montreal-based TC Media's investment group, which publishes Investment Executive.

Further, slightly more than one-third of clients with less than $500,000 in investible assets described their advisors as being intelligent, responsive and dependable. However, that percentage increases by about 10 percentage points for investors with more than $1 million in investible assets.

Younger clients may be reluctant to describe their advisors favourably because these clients encounter resistance from many advisors on the topics of fees and low-cost funds, says Benjamin Felix, associate portfolio manager at PWL Capital Inc. in Ottawa.

"Younger people make data-driven decisions and they're comfortable using the Internet to find information," says Felix. "When you start looking at investing and personal finance, there is a ton of information online about index funds, low-cost investing and commissions."

Advisors need to consider that there are a growing number of alternatives, such as robo-advisors and other firms that specialize in low-cost investing, for investors if advisors are unwilling to provide services at a lower cost, Felix adds.

Gen X Canadians also are not overly enthusiastic about their interactions with their advisors. Fewer than half (45%) of survey participants between the ages of 35 and 44 described their advisor as friendly, a percentage that is significantly lower than the 62% of clients over the age of 65 that said the same.

This younger group often is challenged by immediate financial obligations connected to homes and children, and may not feel comfortable with advisors who discuss long-term investments and retirement savings, says Sara Gilbert, founder of Montreal-based Strategist Business Development.

Advisors can help these clients by "talking in smaller numbers" about their current needs and approaching the idea of budgeting, Gilbert suggests.

Lower net-worth clients also are less prone to speak positively about their advisors than more well-off clients are. The difference can be attributed to the fact that clients receive different levels of service depending on their level of wealth, says Gilbert, who adds that advisors should not be faulted for segmenting their client base, as the financial needs of wealthier clients are more complex.

However, advisors must be mindful of all of their clients in some way, says Gilbert: "Complaints [to firms and regulators] rarely come from A- and B-level clients. Complaints come from C-level clients."

She suggests that you have a service plan for lower-tiered clients that includes thorough conversations when review meetings take place. As well, stay in touch through a newsletter so those clients can see your name on a regular basis.

Some advisors make a conscious choice to avoid a segmented service plan. For example, PWL Capital generally serves high net-worth clients, but its advisors treat these clients and those of more modest wealth who helped launch the firm equally. This strategy has worked in the firm's favour: lower net-worth clients will provide referrals for prospective clients, according to Felix.

The survey found that clients with high levels of financial literacy - as determined by their responses to a quiz within Credo's survey - also perceived their advisor in a more positive light.

About two-thirds of the most financially literate clients described their advisors as professional and knowledgeable, compared with about 40% of the least financially literate.

Advisors should take this data as a signal to be more proactive in helping their clients understand their investments, says Bertelsen. Doing so could be good for business. Credo's research found that the likelihood a client will provide a referral to his or her advisor gradually grows with that client's increasing levels of financial literacy.

"The takeaway is that spending time educating your clients on financial matters is valuable and worthwhile because the more [clients] understand, the more likely they are to recommend you," says Bertelsen. "And the more they understand, the more likely they are to ascribe positive personality traits to you." IE

The online Financial Comfort Zone Study polled 16,000 Canadians, with approximately 8,000 of those survey participants having advisors. The survey is meant to gain insight into the relationships among financial advice, financial well-being and overall life satisfaction in Canadian society. Canadians are polled monthly, and the number of survey participants will increase each month.

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