FEATURE/ A CRITIC’S TAKE
A CRITIC’S TAKE SIPA chairman Ken Kivenko sounds off on the sins of the industry. Nicola Middlemiss reports
Successful and self-directed, veteran investor Ken Kivenko ditched his financial advisor decades ago. Will your clients soon be doing the same? Here, the outspoken entrepreneur reveals why he went solo and what you’ll have to do to stop others following suit.
INDEPENDENT INVESTING While he’s worked with a financial advisor in the past, it didn’t take Kivenko long to fly the financial nest and begin investing independently. “I was able to do the analytics, the mathematics, the statistics and the risk analysis better than my advisors,” he explains. Most of your clients probably aren’t as clued-up as Kivenko, but that doesn’t mean they won’t try and spread their wings sometime soon, especially with the recent arrival of robo-advisors and the unlimited amount of information available online. So how can you keep business booming? According to Kivenko, it calls for a complete overhaul of the industry.
INDUSTRY INTEGRITY As chairman of the advisory committee for the Small Investors Protection Association (SIPA), Kivenko says he received 60 complaints about advisors following the TFSA penalty scandal. “Thousands of people pulled money out of their TFSA and then put it back again,” he says. “Their advisors told them to do it. In other words, they did not understand the TFSA rules, but these are the people calling themselves advisors.”
Even if you didn’t stumble at the TFSA hurdle, an over-saturation in the market means underqualified peers may have led your expertise to be called into question. “Everybody’s an advisor today,” says Kivenko. “In fact everybody’s a vice president today. They (advisors) create these designations and false titles; this has to be cleaned up and turned into a profession again. The CFAs and most of the CFPs, they’re what I call professionals.” Kivenko insists that professionalizing the industry is the only way forward. “If financial advisors professionalize their industry, there is certainly a place for them,” he says. “There is no doubt that a good advisor can add value, but not the way they’re doing it now.”
SLIPPING STANDARDS Kivenko is concerned that real, seasoned professionals are unlikely to work with people who have limited funds to invest, leaving small time investors with underqualified advisors who may not work in the best interest of their client. “The people who are selling the mutual funds, a lot of the people who work for brokers and just have to pass some basic tests, I question whether they’re really advisors,” says Kivenko. “They’re really dealer representatives or salespeople, and they don’t have a fiduciary duty.” So what’s the solution? Investor advocate group FAIR Canada have proposed a statutory best interest standard which Kivenko staunchly supports. “There has to be a new standard,” affirms Kivenko. “You have to be competent to give advice, have better qualifications and have a duty to act in the best interest of the client, not the company.” Among other things, the standard would consider whether embedded commissions are compatible with working in a client’s best interest.
THE PERSONAL TOUCH Along with a statutory best interest standard, Kivenko showed early support for robo-advisors and identified the controversial tool as a great, low-cost opportunity for small investors. However, he also recognizes the importance of the personal touch and believes that investors value being able to talk to their advisor. It’s important to be empathetic and understanding towards your clients. But above all, you must also build a relationship of trust. This will prevent them from fleeing to an electronic alternative. “You’re not talking to a human, so you can’t say you’re a little stressed or worried,” says Kivenko. “This is why (robo-advisors) are at a disadvantage. It’s nice to be able to talk to someone, but only if you can trust that person.”
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