I get many questions from friends about their investments and their dealings with their financial advisors. When my friends ask for help, I do what I can – ranging from bringing them in as a client or referring them to another trusted advisor to giving out free advice.
Over the past year, I’ve had a front-row seat to the process followed and advice given by a variety of advisors dealing with affluent clients. Although all the advisors in question attempt to do well by their clients, some advisors make decisions that make them vulnerable to their competitors. These advisors can make some changes to improve their advice and strengthen their practices.
In two similar instances, two clients, each with a mid-six-figure portfolio, dealt with a (different) advisor at a (different) Big Six bank’s branch. In one case, the recommended portfolio was a handful of bank-sponsored funds-of-funds. The other case involved just a single fund-of-funds. In each case, the advisor could have recommended non-bank funds (a fact each advisor highlighted), but instead recommended only in-house products.
Kudos to the second advisor for suggesting just one fund-of-funds instead of several. One is as good as six – or better – as long as the asset mix is suitable.
Still, given the size of these portfolios, I expected more effort and creativity in designing solutions to reduce fees or to effect a more tax-friendly structure.
Each advisor was providing good overall service, as demonstrated by the client’s desire in both cases to continue their respective advisory relationships. But both advisors get two big “thumbs down” for not designing more client-friendly solutions.
I sent my friends back to their advisors to ask for a similar asset mix that uses the respective bank’s cheapest and most tax-efficient funds. My advice cut fees by 100 basis points a year in each case while maintaining the advisory relationships and probably improving long-term portfolio performance potential.
Another friend had her portfolio with a Mutual Fund Dealers Association of Canada-licensed advisor for many years. Although this advisor had done a decent job for my friend, recent interactions prompted her to begin questioning whether she was getting unbiased advice. My review of her portfolio revealed high costs and an inconsistent and complex portfolio structure in all her accounts.
For this friend, I built a portfolio that addresses all of the weaknesses I saw in her then-current portfolio. The result was a drastic reduction in fees and a simpler, low-maintenance structure.
Although not everyone has a friend in the industry or a knowledgeable investor ready to help out, robo-advisors are emerging as the next best alternative to address complicated and costly investment portfolios.
There’s an opportunity for all advisors to take a step back from time to time and scrutinize the portfolios (and financial plans) they design for their clients. Looking at a portfolio from the perspective of your competitors and your clients can yield important insights.
This is something we do at HighView Financial Group, and it allows us to be aware of our weak spots — and everybody has one or two — and to strive to strengthen the work we do for our clients. Other advisors who take this step will improve their businesses and bring tangible benefits to their clients.
Dan Hallett, CFA, CFP, is vice president of Oakville, Ont.-based HighView Financial Group, which designs portfolio solutions for affluent families and institutions.