Industry News

There is a need to adapt to change, but not just for millennial clients, panel discussion recommends

By Jade Hemeon |

One of the biggest drivers of change in the investment industry is the advancement of information technology, and financial advisors and product providers will need to embrace it fully to ensure clients are getting the best advice, said John Adams, the new chairman of the Investment Funds Institute of Canada (IFIC), at the 28th IFIC Annual Leadership Conference in Toronto on Thursday.

"Perhaps the most far-reaching development of the past decade is that, today, we are all interconnected through handheld devices and social media," Adams told the conference in his keynote speech. "Individuals can access information, services and products how and when they want. Governments and large organizations can no longer carry the influence they once had."

Although the entry of bare bones robo-advisors to the financial advisory world is presenting new cost competition, Adams stressed that there is still an important role for advice, particularly for older clients, and advisors need to focus on their value proposition as a result.

"There is some speculation that robo-advice will replace the personal service that an advisor can provide," said Adams, CEO of PFSL Investments (Canada) Ltd. "Each family has unique financial needs, and I believe that many, many families will continue to benefit from personal advice. Also, robo-advice will not be helpful for the growing numbers of vulnerable investors who may not have the cognitive ability to assess alternatives and to make the best possible decisions about investments in the absence of some meaningful guidance."

In a subsequent industry panel discussion at the conference, David Scandiffio, president and CEO with Toronto-based CIBC Asset Management Inc., said some robo-advisory services and products could be incorporated across all advice channels from full service to discount, and not focused solely on the young, do-it-yourself investor.

Video: The future of technology and financial advice

"There is a need for the industry to adapt and change, not just for the millennial investors, but for all investors," he said. "Right now, robo-advice is a small and emerging field, but we see that expanding, and there is potential for robo planning tools to be used in all channels, including clients who deal with advisors. As a client's assets grow, so do the complexities of the planning issues, and there is potential to leverage these new kinds of technologies more broadly."

Although robo-advisors initially focused on determining a client's risk tolerance and appropriate asset allocation through online questionnaires, there is an opportunity to add other tools for financial planning to the online relationship, Scandiffio said.

Furthermore, as robo-advisor clients' financial needs change or their assets increase, they often want to have some personal contact through a phone call or face-to-face meeting — and this is resulting in the robo channel and advice channel moving closer together, he said.

Advisors in the fuller-service advice channels may also incorporate low-cost, robo-advisor friendly products such as exchange-traded funds as part of their toolbox to cover asset classes in which active management adds less value, Scandiffio said, resulting in some mixing and matching to lower costs in a highly competitive environment.

Fellow panelist, Paul Lorentz, president of Manulife Investments, an arm of Toronto-based Manulife Financial Corp., said the need for advice is not disappearing. Furthermore, families have less and less time to manage their investments and financial planning on their own.

"I'm indifferent as to how consumers access our products, whether its through the advice channel or online," he said. "But the need for advice is not going anywhere. Less than one in 10 people are prepared to be do-it-yourself investors."

Technology is particularly appealing to the younger demographic, and millenials tend to avoid meeting meet face-to-face, and in some cases prefer not to visit a website, Lorentz said. Instead, millenials want to use mobile technology and smartphones, and they are accustomed to instantaneous communication.

"An advisor can't afford to give complex advice to someone without a lot of money and needs to leverage technology to give advice in an economical way," he said.

What young clients need most of all are methods to get them started with regular savings as they have time on their side to benefit from compound growth, Lorentz pointed out. Meanwhile, older clients' needs are becoming more complex as they live longer and find they want to spend more money to enjoy life in the early stages of retirement while planning for rising health-care costs in the later stages.

"Many people are reaching retirement and finding that in a low-rate environment, their savings are not providing as much income as they expected," Lorentz said.