VALUE

A sharper focus on the value of advisors.

How can financial advisors reassess their value? Read our 2021 Value of an Advisor Study to learn more.

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We believe advisors provide real value to their clients. Much of the work of an advisor is complex and happens behind the scenes, though, making it hard for clients to appreciate. Our Value of an Advisor program is designed to help advisors and investors articulate and understand the full value of an advisor’s services.

The Value of an Advisor formula
Cumulative value of the various services offered by a typical advisor.

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Let us help you demonstrate the value of advice
We focus on the value of financial advisors. Your clients are your most persuasive advocates. Helping them understand the value you deliver is key.


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A

is for Active rebalancing of investment portfolios

Without regular rebalancing, a client's diversified balanced portfolio could have become overly heavy in large capitalization U.S. equities.

For example, if an investor had started out with a balanced portfolio of 60% stocks and 40% bonds at the end of 2005 and it had not been actively rebalanced since then, by the end of 2020 the risk profile of the portfolio would have looked very different. That original balanced portfolio would have become a growth portfolio, with 70% invested in stocks and only 30% in bonds. That would have made the investor's portfolio far more vulnerable if equity markets suddenly reversed, as we saw in early 2020.

When balanced becomes the new growth

The potential result of an un-rebalanced portfolio

For illustrative purposes only. Not intended to represent any actual investment. Source: Morningstar, Russell Investments. Analysis based on quarterly data from 12/31/2005 - 12/31/2020. Initial asset allocation: 20% S&P/TSX Composite Index (Canadian equity), 20% S&P 500 Index (U.S. Equity), 20% MSCI EAFE Index (Foreign Equity), and 40% FTSE Canada Universe Bond Index (Fixed Income). Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

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B

is for Behavioral coaching

 

Many investors fled for the exit in mid-March when the S&P/TSX Composite Index registered its largest weekly decline since 2008. Without an advisor’s guidance, many investors could have sold low in March—in fact, $15.6 billion was pulled out of long-term funds in Canada in that month1—and perhaps have had to buy high as the markets recovered throughout the year. Or they would have been forced to remain in cash until a better entry point appeared—which is risky and quite difficult to do without a crystal ball.

As the graph below shows, missing out on even a few days of good performance can eat into an investor's portfolio's returns. And how do you know which days those will be? That’s the catch—you don’t. Markets can be unpredictable. But their long-term trend has been up. In fact, the S&P/TSX Composite Index has finished the year in positive territory 73% of the time since 1924.2 Investors who are guided by advisors and stick to their original investment plans often make the better choice.

 

Cycle of Investor Emotions

When things are great, we feel nothing can stop us. And when things go bad, we look to take drastic action. Because emotions can be such a thread to an investor’s financial health, it’s important to know how to keep your head above water in the cycle of investor emotions.

Ride the wave

The investment impact of missing best market days

10 years ending December 31, 2020

Source: Morningstar. In CAD. Returns based on S&P/TSX Composite Index, for 10-year period ending December 31, 2020. Click here for underlying data of the best missed days. For illustrative purposes only. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.

1 Source: Russell Investments, Investment Funds Institute of Canada (IFIC).

2 Canadian Institute of Actuaries, BNY Mellon, Refinitiv DataStream, Russell Investments. Note: Returns prior to 1957 are based on the Report on Canadian Economic Statistics, June 2009, from the Canadian Institute of Actuaries. Returns 1957 to current are based on total return of the S&P/TSX Composite Index.

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C

is for Customized client experience & planning

Robo-advisors are automated platforms that provide basic investment management. They generally doesn’t provide a financial plan, ongoing service, or guidance that you could get from a trusted advisor; just the option for an investor to choose from a pre-selected list of funds, an annual statement and a phone number to call in case of questions. This would be fine if all investors are alike.

Each investor has their own set of goals, circumstances, and preferences. And that is why we believe the customized client experience that an advisor can offer has significant value. At one time, an advisor was essentially a broker—selecting investments for clients. Now, most advisors are expected to provide holistic wealth advice for entire families. Indeed, between 2017 and the end of 2020, there has been a 39% increase in advisors providing comprehensive planning services2 in the U.S. While Canadian data is not available, we believe a similar trend exists here.

We have found that the value that advisors deliver through the customized experience is much higher than the cost of an automated service and cookie-cutter plan from a robo-advisor.

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P

is for Product alignment

If every investor has their own goals, circumstances, and preferences, then it stands to reason that each will require a different mix of products. But how can an advisor provide that customized client experience when there is only an average of 2,000 work hours in a year? That’s based on 40 hours a week over 50 weeks. And that’s not accounting for illnesses, additional vacation, conferences, meetings and other events that can take a bite out of the time an advisor has available. Impossible, right? Besides, we’ve already discovered that investors value advisors for their personalized service and want more frequent communication. So it makes sense for advisors to provide the wealth management services and outsource the stock picking. This is where the use of multi-asset portfolios, which are designed to achieve a specific outcome, can really help free up an advisor’s time while still ensuring each of their clients gets the customized client experience they value.

Hypothetical scenario for illustrative purposes only.

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T

is for Tax-efficient planning & investing

Paying taxes on hard-earned income—including investment income—is never a pleasant task. Especially if that tax bill could have been minimized by selecting investments that actively optimize to maximize investors' after-tax return. Because what matters most is not what investors make; it’s what they get to keep. An advisor can help investors decide between mutual fund trusts or corporate class, and which investments to shelter in a registered account. As well, advisors can help investors structure the income they receive from their investment portfolio in the most tax-efficient manner.

Helping clients keep more of what they earn

Differences in taxation of $1,000 of distributions

For illustrative purposes only. All examples shown are based on the following 2020 Ontario marginal tax rates for calculating the tax liabilities: interest income = 46.4%, Canadian eligible dividends = 29.5% and capital gains = 23.2%.

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Conclusion

Communicate advisor value

 

This post-pandemic world could be the perfect time for advisors to reassess the full value they deliver and how they communicate that value to their clients.

We know that many advisors worked hard through 2020’s challenges to keep in touch with clients and keep them invested. Our formula shows that even if advisors were only able to help their clients avoid the behavioral mistakes that many investors make in the face of the significant volatility we saw, advisors have already provided value above and beyond their fee. Add to that their other services, the active rebalancing, customized client experience advisors give clients, ensuring their portfolios align with their specific goals, and the savings from a tax-managed approach, and it seems clear that the value advisors deliver is significant.

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Client relationships are your most valuable assets
Use this additional material to help shape your conversations with clients.

Download client-friendly eKit

A collection of materials for frequent client conversations, this kit includes our evidence-filled report: Why work with a financial advisor? Because that relationship may be one of your best investments.

 

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