mature couple at home meeting with financial advisor

Canadians are more aware that they pay for financial advice and are more likely to consider switching financial advisors than before the full implementation of the second phase of the client relationship model (CRM2) regulatory regime, according to recent research from Mississauga, Ont.-based Credo Consulting Inc.

Credo’s research comes from the Financial Comfort Zone Study, an ongoing national consumer survey that Credo conducts in partnership with Montreal-based TC Media’s investment group. (TC Media publishes Investment Executive.) Forty-three per cent of investors surveyed between July and August 2018 indicated they’re charged for the financial advice they receive from their advisor.

That percentage rose relative to the surveys conducted between January and March 2017 for this study, when 38% of investors indicated that they pay for the advice they receive from their advisors. In the surveys conducted between October and December 2016, 34% of investors said the same thing.

“If the goal of initiatives such as CRM2 was to make Canadian investors more aware of the fact that they’re paying for financial advice, then these initiatives certainly are working,” says Hugh Murphy, managing director of Credo.

Most firms in the investment industry began delivering CRM2-compliant client account statements in the early part of 2017, even though the industry wasn’t required to do so until July 2017. These statements include information about fees related to advice, stated in dollar amounts, as well as enhanced performance data.

However, Credo’s research suggests that this shift toward greater awareness of fees may be contributing to growing dissatisfaction among some Canadians regarding their current advisor.

Credo asked Canadians surveyed for the study to rate (on a scale from one to 10, with 10 indicating the highest level of agreement) their agreement with the statement: “I am considering finding a new financial advisor.” Investors surveyed during the period between July and September 2018 gave the statement a rating of 3.3.

In comparison, investors surveyed during the corresponding period a year earlier gave the statement a rating of 3.1, while investors surveyed between October and December 2016 gave the statement a rating of 2.8.

“A shift in investors shopping for advice began in late 2017, and this [shift] has continued [to increase] since,” Murphy says.

Some industry experts echo Murphy’s sentiments, saying that CRM2 has indeed contributed to growing awareness among clients about fees and how advisors are compensated.

“CRM2 has brought in a transparency that was not there before,” says Sara Gilbert, founder of Montreal-based Strategist Business Development.

After the rollout of CRM2, investors understood better how much they were paying once they saw their fees stated in dollar terms rather than in percentage rates, she suggests.

However, Sam Febbraro, executive vice president, advisor services, at Investment Planning Counsel Inc. in Mississauga, Ont., says that increased client awareness of fees “is driven not only by regulations, but also by competition – from new and old [industry competitors] – and, I would argue, by technology.”

Greater awareness of fees overall among clients is putting pressure on advisors across the industry who haven’t embraced advisory service models that focus on providing broader wealth planning services, Febbraro says.

“There’s a shift in the industry, [in which] you have one group of advisors who are focusing more and more on price and searching for [cheaper investment] product offerings before they have to reduce their fees,” he says. “Then, there’s another group – and I think this is the larger group – who are doing a very good job. They’re moving away from return on investment and focusing on things such as return on life and meeting broader expectations from the client.”

Adds Sean Etherington, president of Assante Wealth Management (Canada) Ltd. in Toronto: “What we’re seeing among investors is that their expectations of what constitutes value [for advice] are evolving. [These expectations are] not just about putting together a portfolio and speaking about an asset mix and claiming an expected rate of return; [they’re about advisors] understanding what’s unique to clients.”

Client relationships built on a foundation of broad wealth planning help foster trust between clients and their advisors over time, Etherington says. These relationships have a greater likelihood of enduring, especially through periods of market uncertainty.

“In periods of downmarket volatility, clients want to know how they’re doing,” Etherington says. “When you can answer that question in the context of where they are with respect to their [financial] plan or their desired outcome, that changes the conversation [from investment returns to goals].”

Thus, advisors could be doing a better job in communicating to clients the value of the advice and guidance advisors are providing, Gilbert says.

“We tend to talk to the client in [the first] meeting [about] all the services we offer: ‘We can help you with insurance planning, retirement planning, etc.’ But clients don’t retain all that information,” Gilbert says. “For the advisor to talk to the client constantly about the journey that they’re on together, as much as what they’ve already done together and what’s next for them, is important.”

Of course, often the best counsel advisors can give to clients is not to make drastic changes to a financial plan, Etherington adds: “[An advisor who can] stop me from making a mistake if we have a [financial] plan on which we should stay the course – that’s an element [through which advisors] can continue to add value.”