TORONTO (Reuters) - While financial advisers have struggled against headlines that suggest their fees and rates of return don’t offer enough benefits to ordinary investors, South Carolina adviser Kent Thune said he’s very clear about how he helps his clients.
“The number one value advisers provide is not picking stocks or asset allocation or timing the market. It is protecting the clients from their own behavioral mistakes,” said Thune, a certified financial planner and founder of Atlantic Capital Investments in Hilton Head Island, South Carolina.
Five years after the financial crisis ransacked investor portfolios, advisers are struggling to convince clients to come back to professional management, particularly as sophisticated and low-cost online tools pop up to feed the do-it-yourself (DIY) market.
Shifting focus from much-hyped rates of return to promises to keep investors on track and focused on their financial goals is the new mantra in wealth management - with advisers likened to the personal trainer that gets the client to the gym.
“People tend to compare returns pre- and post- cost of advice, and say the value isn’t there ... What they are missing is the benefit the consumer gets from the advice,” said Paul Lorenz, executive vice president and general manager, retail markets, at Manulife Financial in Toronto.
Pointing to a 2012 study sponsored by the Investment Funds Institute of Canada, which represents the fund companies, Lorenz said advisers are key to boosting savings rates.
The study showed households that use a financial adviser save at twice the rate of households that are passive investors and not using an adviser.
“It’s less about the investment and more about creating the plan and creating the discipline and having people save more,” said Lorenz.
Lee-Anne Davies, founder and president of Victoria, British Columbia-based Agenomics, said it is more important than ever for advisers to be aware of how they can complement the needs of do-it-yourself investors.
Baby boomers are moving into retirement age, and many will have more time to manage their own investments, she points out. At the same time the cost of the online brokerages is falling, making it more attractive to invest through them.
Even so, there will always been a need for both investment managers and planners, Davies said. People with large portfolios will need asset managers, and new investors and young families need planners.
“It is not going to be a fading profession, it’s just going to be a changing profession,” she said.
While young investors starting families may not have many assets to put to work, they have a big need for planning and credit management, a role ideal for financial planners who work on a fee-for-service basis.
Older investors with lots of assets need portfolio managers who can focus on diversifying and minimizing downside risk, and keeping emotion out of decisions.
Thune said clients with fewer assets should stay away from advisers who charge on a percentage basis, but would benefit from a professional who can set up a plan and keep the client on track and honest. Advisers in turn need to be focused on where they can add value, not diminish it.
“Someone with $20,000, I might charge 1.5 percent - at that level I‘m dragging on their performance,” Thune said. “It’s a lose-lose.”
“(I tell them) ‘You’d be better putting the money in a couple different index funds and then stay in touch, we’ll talk more in the future.'”
Thune said advisers have to be prepared to be part of team as consumers shift to a do-it-yourself approach with parts of their portfolio, or with parts of the process. Some may prefer to plan, but want investment advice. Others can do the investing cheaply with an online broker, but don’t have the actuarial or tax skills to maximize their returns.
Manulife’s Lorenz said finding a good adviser-client fit is critical, so that both the adviser and the client are comfortable with a team approach.
“It’s not an all-or-nothing equation, it’s more of a selective approach,” said Lorenz.
Thune said investors also have to know themselves, because in some cases fees more than offset the time they need to spend managing their own money and their potential for mistakes.
He recommends advisers ask potential clients to reflect on their own strengths and weaknesses, how they want to spend their time, and how much they know about what they don’t know.
Manulife’s Lorenz said he hired a financial adviser for his own family once he realized he didn’t want to spend that time when his own workday was done, and - speaking as a true life insurance man - wanting to ensure his family has help if he’s not around to be managing their finances anymore.
“I decided I didn’t want to be the one they relied on, and I didn’t have the time anymore, or the attention, that it required.”
Editing by Frank McGurty and Tom Brown