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ON BUSINESS How to turn your business into an empire the ‘Virgin Way’

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CONTENTS

ATTENTION, ADVISORS: NEWS/ANALYSIS 6 | Cross-Canada clients Where exactly is the best place to be an advisor in Canada? We tell you where the country’s most risk-tolerant clients live

28 | How to buy a book Peter Bailey explains why those looking to purchase a book of business are increasingly in the driver’s seat, but...

10 | Focus forum

FEATURES

12 | Top 50: WP is looking for the country’s Top 50 advisors and you may be one of them

32 | Transitioning to fees Many advisors have fought against the fee-only model, but done right the move could expand billing horizons

28

18 | Turning ‘likes’ into leads A guide to maximizing the power of social media 22 | Newsmaker interview: WP talks with Andrew Marsh of Richardson GMP on his major acquisition and what it means for the Canadian industry

issue

1.1 COVER STORY Branson on Business Advisors, take a page from the book of Virgin mastermind Sir Richard Branson on how to stamp your business with the kind of strong branding needed to grow your book

18

14

OCTOBER 2013 | 1

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CONTENTS

BUSINESS STRATEGY

A O A

48

40 | Referrals on route: They’re the lifeblood of advisors looking to grow their billings, so here’s how to increase them 48 | What makes them tick?

Getting inside the heads of your clients may be easier than you think, but it’s staying there that’s the challenge 58 | Bye, bias: Canadians invest in Canada. But here’s how an advisor gets them to fully embrace the opportunities off their home patch 64 | On the clock: A day in the life of one industry professional, hour by hour

2 | NOVEMBER 2013

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CONTENTS

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CONTENTS

WHAT’S IN A NAME? COPY & FEATURES EDITOR Vernon Clement Jones SENIOR WRITER Christopher Myrick CONTRIBUTORS Peter Bailey, Charles Beelaerts, Jill Fraser, Chris Karram, Patrick Kennedy, Marc Lamontagne, Jason Mcintyre, Sophie Nicholls, Kevin Prins, Kelly Willis COPY EDITOR Sophie Nicholls

ART & PRODUCTION GRAPHIC DESIGNER Joenel Salvador SENIOR DESIGNER Alicia Chin

SALES & MARKETING NATIONAL ACCOUNTS MANAGER Dane Taylor ASSOCIATE PUBLISHER Trevor Biggs GENERAL MANAGER SALES John MacKenzie MARKETING AND COMMUNICATIONS Claudine Ting PROJECT COORDINATOR Jessica Duce

CORPORATE PRESIDENT & CEO Tim Duce OFFICE/TRAFFIC MANAGER Marni Parker EVENTS AND CONFERENCE MANAGER Chris Davis

Editorial enquiries vernon.jones@kmimedia.ca Advertising enquiries dane.taylor@kmimedia.ca Subscriptions tel: 416 644 8740 • fax: 416 203 8940 subscriptions@kmimedia.ca KMI Publishing 312 Adelaide Street West, Suite 800 Toronto, Ontario M5V 1R2 wealthprofessional.ca Copyright is reserved throughout. No part of this publication can be reproduced in whole or in part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as IB magazine can accept no responsibility for loss.

Wealth Professional. As far as magazine titles go, that one says it all. It lays out our objectives and, dear readers, our intended audience. Still, while it gives, it also takes by demanding we cover this wide industry from its frontline mutual fund advisors to its exempt-market dealers. Where it grants us some latitude – latitude we’re happy to take – is in the way we cover it.

Wealth Professional is focused on bringing you the news, but also the insights of industry experts and your peers. Really, we’re a discussion forum smack-dab in the middle of two glossy sheets. We’re also designed to bring advisors, of all stripes, together.

For our inaugural issue, Sir Richard Branson does some of that heavy lifting, with his engaging take on what exactly advisors and others must do to better brand and build their businesses (p. 14).

No less important to us is bringing you newsmaker interviews — this month with Andrew March. Fresh from his triumphant acquisition of Macquarie Private Wealth, the Richardson GMP president and chief executive sits down with Wealth Professional to discuss the present and future state of the industry, which acquisition targets may be next, why scale is important when facing off against the banks, and why a cull of advisors is inevitable. To say the least, he doesn’t mince words (p. 22).

Before you get there, have a look at the best place to be an advisor in this country (p. 6). Wealth Professional tells you in which markets clients have the fattest wallets, the most investment-friendly attitudes and, conversely, where pricey residential real estate eats up investible cash.

There is much more on offer in this issue, including our invitation to put yourself forward for Wealth Professional’s first-ever Top 50 Advisors list (see p. 12). It’s a salute to the success of industry players in an increasingly competitive and, dare we say, well-read industry.

Cheers, Vernon Clement Jones Editor

CONNECT

Contact the editorial team:

vernon.jones@kmimedia.ca

4 | NOVEMBER 2013

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CONTENTS

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NEWS / FORUM

HOUSEHOLDS

CALGARY INVESTORS

AN ADVISOR’S TAKE

% CHANGE TO AVERAGE HOUSEHOLD NET-WORTH (Y.O.Y. - 2012/2011) Ontario

On top of Calgarians having among the highest salaries in Canada and relatively low housing costs compared to Vancouver or Toronto, the oil sector’s dominance also provides people with an incentive to invest, says Peter Murray, senior financial planner with Assante Capital Management.

“Because there is a concentration of oil and gas companies here in Calgary, people are investing in the companies that they work for, whether it be through stock options or plans that have some incentive to purchase company stock on a matching basis” Peter Murray, senior financial planner with Assante Capital Management in Calgary

WHERE’S THE BEST ADVISOR PATCH?

Canadians are generally – and, perhaps, rightfully so – a conservative breed. But is that restraint standing between advisors and thousands of potential clients? If so, it may be a matter of geography

Hear us out: Could it be that Canadian investors become progressively “savvier” as they move westward? That’s the conclusion of research now giving advisors food for thought about where exactly is the best place to ply their trade.

Still, it appears that those working in Atlantic Canada may have the toughest time in wooing clients given the preference for hard assets such as property, GICs and cash in the bank.

“People here are inherently suspicious of banks and investment firms and all the rest, although there are some here who do very well with that,” says Lydia LaPointe of York Financial Services in Fredericton. “But there are a lot of people who just buy land or GICs.” According to BMO Nesbitt Burns “Savviest Investor Index,” Atlantic Canadians are the least savvy with a score of 74, followed by Quebeckers (76). Ontarians with a score of 82 are at the national average. Investors become savvier as we move through the Prairies (86), Alberta (88)

8.18 Saskatchewan

7.57 7.49 6.47 6.00 5.47 4.61 Nova Scotia

NWT

Manitoba

Newfoundland

Alberta

Quebec

4.01 2.77 2.59 2.43 2.27 B.C.

PEI

Nunavut

New Brunswick

Source: Environics Wealth Profiles

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WEALTHPROFESSIONAL.CA

HOUSEHOLDS

% CHANGE TO AVERAGE HOUSEHOLD INCOME (Y.O.Y. - 2012/2011)

1.41

+

1.89

+

Toronto

1.75

+

London

Ottawa

1.80

+

Hamilton

0.56

-

Edmonton

1.24

+

Vancouver

0.50

-

3.71

+

+

Winnipeg

Quebec

2.20

Calgary

2.31

+

Montreal Source: Environics Wealth Profiles Advisors go where the money is, so let this map be your guide. 2012 saw high-net-worth households in most cities add to their income, although a closer look points to two exceptions.

and British Columbia (92).

The index is based on a poll of 1,000 Canadians seeking answers on whether they have a financial plan, how aware they are of their investment profile, the amount of attention they pay to market trends and their general knowledge about investments and how various factors can impact their portfolio.

The low score of the East Coast shouldn’t be taken as a lack of investment success, says LaPointe, as people do acquire wealth, but they don’t have complex portfolios or monitor markets.

“You have a lot of what I would call quiet million-

aires,” says LaPointe. “They get rich through very simple methods: they don’t go into debt, they don’t hold credit cards, they do buy land, they pay down their homes and they put their money in daily-interest savings accounts.”

Anecdotally, the level of savviness people on either coast display may just be the different ways their distrust of financial institutions manifests itself.

Stephen Whipp, an advisor who specializes on ethical investing in Victoria, B.C., suspects that people on the Pacific coast may come across as savvier, or at least more knowledgeable about portfolios, in part

182,884

$

New Brunswick

*Liquid Assets - 2012 average for high-networth households

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NEWS / FORUM

VANCOUVER INVESTORS

AN ADVISOR’S TAKE

“Vancouver has a conservative, British Columbian kind of feel where people are much more gun-shy (than Calgary). I would have assumed that there would even be more cash holdings in Vancouver. Calgary is very much an investment town, where B.C. has more service- based industry. People are very content here and there’s more of a lifestyle orientation.

They’re happy with what they have and they don’t want to rock the boat. It’s pretty frustrating for me, to be honest, doing business here.”

Daniel Popescu, President of Harbourfront Wealth Management in Vancouver

WEALTH SNAPSHOT Region

Year End

Households

Household Income

Liquid Assets

Savings

Investments

Real Estate

Canada

2012

13,945,494

$83,389

$210,385

$82,349

$128,036

$309,881

Newfoundland and Labrador

2012

214,532

$79,326

$95,435

$43,302

$52,133

$192,175

Prince Edward Island

2012

58,815

$67,308

$121,647

$49,788

$71,858

$174,795

Nova Scotia

2012

404,393

$70,072

$144,381

$40,810

$103,571

$187,336

New Brunswick

2012

323,636

$67,270

$108,720

$40,315

$68,405

$148,929

Quebec

2012

3,504,736

$70,652

$153,776

$64,129

$89,647

$194,164

Ontario

2012

5,168,437

$90,628

$231,947

$97,783

$134,163

$365,623

Manitoba

2012

483,744

$75,881

$173,560

$84,681

$88,879

$222,106

Saskatchewan

2012

425,607

$80,858

$208,444

$83,068

$125,375

$243,858

Alberta

2012

1,464,801

$104,658

$295,287

$83,602

$211,685

$350,964

British Columbia

2012

1,856,940

$79,372

$250,158

$94,963

$155,195

$453,083

Yukon

2012

14,962

$90,188

$187,980

$48,958

$139,022

$293,453

Northwest Territories

2012

15,643

$113,478

$104,297

$25,756

$78,541

$246,023

Nunavut

2012

9,248

$92,837

$85,284

$24,720

$60,564

$95,430

Territories

2012

39,853

$99,944

$131,302

$34,226

$97,076

$228,884

Toronto

2012

2,120,908

$100,661

$296,474

$122,365

$174,109

$485,652

Montréal

2012

1,665,168

$75,036

$184,340

$73,728

$110,612

$228,083

Vancouver

2012

944,162

$85,698

$291,931

$112,936

$178,995

$551,461

Ottawa - Gatineau

2012

529,189

$98,158

$199,329

$75,113

$124,215

$323,236

Calgary

2012

490,760

$119,772

$379,547

$94,660

$284,887

$439,648

Edmonton

2012

474,995

$99,719

$251,278

$79,957

$171,322

$338,449

Québec

2012

359,200

$73,863

$143,308

$58,169

$85,139

$187,581

Winnipeg

2012

302,301

$80,376

$188,509

$87,903

$100,606

$246,258

Hamilton

2012

297,049

$88,578

$201,374

$77,540

$123,833

$346,431

London

2012

205,381

$80,911

$199,471

$78,642

$120,829

$239,185

Source: Environics Wealth Profiles

because of West Coast cynicism.

“I haven’t worked in the other provinces, but I’d probably find it surprising if we weren’t one of the top one or two provinces,” Whipp tells WP. “Most investors in B.C. are cynical, are critical and most people I run into want to know what they are investing in. Our clients are always asking questions, and they’re not shy.”

121,647

$

Prince Edward Island

*Liquid Assets - 2012 average for high-networth households

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WEALTHPROFESSIONAL.CA

HOUSEHOLDS SAVINGS

% CHANGE TO AVERAGE HOUSEHOLD NET-WORTH (Y.O.Y. - 2012/2011) Calgary

Edmonton

1.50

Vancouver

3.90

Ottawa

London

Hamilton

Toronto

Quebec City

Montreal

Winnipeg

5.13 0

6.26

4.43

2.29

3.73

4.91 5.90

Source: Environics Wealth Profiles

WEALTH SNAPSHOT

PRINCE GEORGE INVESTORS

Region

Year End

Households

Household Income

Net Worth

Debt

Canada

2012

13,945,494

$83,389

$400,151

$120,115

Newfoundland and Labrador

2012

214,532

$79,326

$203,719

$83,892

Prince Edward Island

2012

58,815

$67,308

$216,950

$79,491

Nova Scotia

2012

404,393

$70,072

$235,799

$95,918

New Brunswick

2012

323,636

$67,270

$182,884

$74,765

Quebec

2012

3,504,736

$70,652

$265,109

$82,832

Ontario

2012

5,168,437

$90,628

$464,693

$132,876

Manitoba

2012

483,744

$75,881

$301,695

$93,971

Saskatchewan

2012

425,607

$80,858

$351,865

$100,437

Alberta

2012

1,464,801

$104,658

$484,613

$161,638

British Columbia

2012

1,856,940

$79,372

$550,554

$152,687

Yukon

2012

14,962

$90,188

$367,142

$114,290

Northwest Territories

2012

15,643

$113,478

$244,537

$105,783

Nunavut

2012

9,248

$92,837

$129,918

$50,796

Territories

2012

39,853

$99,944

$263,969

$96,217

Toronto

2012

2,120,908

$100,661

$617,846

$164,280

Montréal

2012

1,665,168

$75,036

$315,957

$96,465

Vancouver

2012

944,162

$85,698

$662,600

$180,791

Ottawa - Gatineau

2012

529,189

$98,158

$393,556

$129,009

Calgary

2012

490,760

$119,772

$620,607

$198,589

Edmonton

2012

474,995

$99,719

$433,970

$155,758

Québec

2012

359,200

$73,863

$250,058

$80,830

Winnipeg

2012

302,301

$80,376

$330,738

$104,029

Hamilton

2012

297,049

$88,578

$420,515

$127,290

London

2012

205,381

$80,911

$339,828

$98,828

Source: Environics Wealth Profiles

AN ADVISOR’S TAKE

“People in Prince George have higher disposable income and more reasonable housing costs – likely around $300,000 tops for a good-sized home – so they’re more likely to have more assets in investments (than south B.C.), I would expect that portfolio allocation is likely 30-40 per cent in bonds and cash across the board, but I think B.C. people plunk a lot of cash into their houses while Alberta people tend to be more leveraged.”

John Kason an advisor with Global Securities in Prince George, B.C.

NOVEMBER 2013 | 9

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NEWS / FORUM

FORUM FORCES

Comments from WealthProfessional.ca on the news stories making waves in advisor waters

REGULATION ROUTING

NAME AND SHAME Disclosure of advisor history via a Security Commission database is prevalent in the US and a helpful source of information to an investor making a decision regarding choice of an advisor. Nothing, however, should be posted UNTIL an advisor has been charged by a responsible, totally independent ethics body AND such posting must be followed up with a posting of the decision once rendered.

Let’s protect the public!

- Doug McCaw Toronto advisors say a UK regulator may be going too far to protect consumers by publishing warning notices identifying firms or individuals suspected of unproven misconduct.

CULL CONVERSATION

LAST ONE OUT, TURN OFF THE LIGHTS I think the victors in the loss of advisors will be the seasoned veterans of the industry who understand the client and the markets and are committed to jumping through the regulatory hoops. If you are not, then you’re out of here.

- Lawrence Turnbull

I don’t think we would see that aggressive action being taken here in Canada because the principle of due process is more developed here. Advisors would be up in arms. As they should.

-Kelli Parr

Industry leader Andrew Marsh set off a firestorm of commentary on how many advisors will be “culled” in an industry grappling with regulatory changes expected to affect commissions and client confidence.

BRANDING

Agree 100%. Also, a professional designation and membership in a professional association should be mandatory.

There are too many so-called “Financial Advisors” pushing a product only for the commission.

BOOZIE BAY STREETER He who is without sin cast the first stone.

Otherwise get real. This is a sort of old boys’ club, something that is rapidly changing, and this kind of bad behaviour is still out there.

-Ken

- Anonymous in Oakville

I’m new to the business and I have already built a significant book on the basis of fee-only. I think that any cull in investor numbers will come from those advisors who can’t show the value they bring to the investment process.

Transparency will run out some of the old advisors.

-Maureen

Join the debate at wealthprofessional.ca /forum

Financial advisors are taking heed – both on and off the job – with a lawsuit alleging a Bay Street player made a mockery of himself and his career during a “drunken escapade” in Arkansas.

NOT, I repeat NOT, the best impression for a financial services professional to make. You are right Ryan: We are always on the clock.

-Graham

10 | NOVEMBER 2013

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NEWS / TOP-50 ADVISORS

SAMPLE QUESTIONNAIRE Name: Years working as a qualified financial advisor:

LOOKING FOR CANADA’S

TOP 50

ADVISORS

T and... it’s not about size

The best advisors combine financial knowledge and the ability to build relationships. The next issue of Wealth Professional magazine will highlight the accomplishments of elite advisors who took on the challenges of 2013 and overcame them. Are you among them? Wealth Professional is searching for Canada’s Top-50 Advisors – your chance to gain recognition for your hard work throughout the year and your contribution to the advisory industry.

And it all starts by applying online to the Top Advisor, on www.wealthprofessional.ca.

The Wealth Professional advisor survey is a great opportunity to give your business a boost and make sure all clients and colleagues know who you are.

Being recognized as a top advisor will not only raise your profile within the industry, it will serve as a valuable independent third-party endorsement that will be beneficial in your marketing to new and existing clients.

In spite of stiff competition in the wealth management industry, there are many success stories that need to be told – and advisors deserving of praise from their peers.

The methodology behind the vetting process is straightforward, based on fixed performance criteria.

The first two aspects ranked are an increase in assets under management for the 12 months ending Oct. 31, 2013, and the revenue each individual advisor contributed to the firm. Also in the mix, although on a weighted basis, are growth of the advisor’s book

Business name: Brokerage/Dealer group name: Direct phone #: Email address: Your Business: 1. Total assets under your individual management (AUM) at October 31, 2012 $ 2. Total assets under your individual management (AUM) at October 31, 2013 $ 3. Total revenue you contributed to the business between October 31, 2012, & October 31, 2013 $ 4. Number of clients as of October 31, 2012 5. Number of clients as of October 31, 2013 6. Number of new clients gained between October 31, 2012 & October 31, 2013 Additional comments (e.g. contributions made to the industry, local community, charities, mentoring etc.)

Advisors who look set to qualify for a Top 50 ranking will be contacted with regard to the dealer group verification process. Wealth Professional is an independently owned website and is not aligned to any other industry player.

through new client acquisition as well as client retention. The formula is designed to provide a broad cross section of well-rounded professionals and not just those with the heftiest of books.

To see where you stand, simply spend two minutes supplying some basic metrics about your personal practice and submit online at www.wealthprofessional.ca.

Confidentiallity is assured and no information will be published without your prior consent.

12 | NOVEMBER 2013

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TOP

ADVISORS Are you one of Canada’s Top

50 advisors?

Entries for the inaugural Top 50 Advisors ranking are now open.

In a first for Canada, Wealth Professional will rank the top 50 individual advisors based on assets under management, client retention, revenue contributed and number of new clients introduced to the business during the 2013 fiscal year.

A place in the Wealth Professional Elite Advisor ranking is clear recognition of your professional

standing as one of the leading advisors in the Canadian financial services industry, and by making a submission you are giving yourself a chance to be included in the rankings.

Those in the Wealth Professional Top 50 Advisors list will be able to use this ranking as a valuable marketing tool to enhance their reputation and credibility within the profession and the industry.

Complete your online application form at wealthprofessional.ca SUBMISSIONS CLOSE December 6th

TOP

ADVISORS 2013 12-13-Top50.indd 13

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COVER / BRANSON ON BUSINESS

VIRGIN TERRITORY

Like him or loathe him, Sir Richard Branson is one of the most successful entrepreneurs in the world. In this exclusive interview, Wealth Professional probes the Virgin mastermind about the secrets to his success Wealth Professional: Many of our readers run small- to medium-sized businesses. What’s the difference between a business that chugs along at a happy medium and one that develops into a world-leading, global empire? How do you go about building an empire rather than just a business?

Sir Richard Branson: Big or small, I believe that all successful and innovative companies need to have an excellent product or service, they need strong management to execute the plan and a good brand to give it the edge over competitors.

Often entrepreneurs can create a good product and a brand but lack the management to help expand and create a truly great company – people are the core differentiator between a business that just chugs along and one that grows into an empire.

An entrepreneur needs to build up a very strong and capable management team and delegate out the responsibility to run the existing companies to them, so that he or she can focus on new ideas and finding the next business to start up. Just remember that it is impossible to run a business without taking risks. Virgin would not be the company it is today if we had not taken risks. I couldn’t tell you which was the riskiest – there has been quite a few!

WP: Both Virgin and Sir Richard Branson are names that are known the world over. How important is a strategic approach to branding – personal and/or corporate? Can they be separated?

What are the must-do’s when building a brand?

RB: Brands ultimately belong to the consumer.

While a business can influence its brand by what it does and how it behaves, it is what the customer thinks at the end of the day that is the only important thing. With this in mind, I think that it is important to try and identify early on what attitude you would like your brand to convey, and then go about building it!

Brands need to be constantly nurtured, to be kept fresh and be seen. When I was thinking about setting up my own airline, the late Freddie Laker said to me: “You’ll never have the advertising power to outsell British Airways. You are going to have to get out there and use yourself. Make a fool of yourself. Otherwise you won’t survive.” I’ve been following his advice ever since and used myself to get the Virgin brand in the headlines and become more visible.

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COVER / BRANSON ON BUSINESS

BRANSON ON… RELAXING WP: It’s all too easy for an entrepreneur to get stuck dealing with the

daily workings of a business. How important is it for an entrepreneur to get out of the office and do other things? What helps you refresh yourself mentally and physically?

RB: I do try to keep fit – anytime I’m near a Virgin Active club I make sure I get in there and work out. I love tennis and kite-surfing and pretty much do some sort of exercise every day, without making it too rigid, as that just doesn’t work for me. I enjoy being outside and being active – keeping fit as a result is almost a by-product of doing something I enjoy! I recently completed the Pick n Pay Cape Argus Cycle Tour, a wonderful 109-kilometre ride with 36,000 cyclists, and an extraordinary atmosphere with breathtaking views.

I have always believed that I needed to find good people to run my businesses and to delegate day-to-day management to others. I did this from a very early age and, importantly, that has allowed me to go and set up new ventures, sometimes in a new sector or country.

WP: Our readers’ businesses deal with intangible services in the financial sector. What are your tips for effectively marketing and selling intangibles?

What have you learnt from ventures such as the Virgin Money companies?

RB: Even today, the Virgin brand is not a product like Coca-Cola or McDonald’s; it’s an attitude and a way of life to many. At Virgin Money, we’re building a better kind of bank. A bank that genuinely cares about the customer and provides a better experience and better-value financial products in a straightforward, transparent way. I think that it is important to build up a strong brand when selling an intangible service as it makes your service distinct and different from anyone else’s.

WP: You’re famous for your ‘Screw it, let’s do it’ approach, which has led to missteps, as well as successes.

What is your biggest business failure, and why?

How do you pick yourself up from mistakes – both personally and financially?

RB: Whenever I experience any kind of setbacks, I always pick myself up and try again. I prepare myself to have another stab at things with the knowledge I have gained from the previous failure. My parents always taught me never to look back in regret but to move on to the next thing. The amount of time people waste on failures rather than putting that energy into another project always amazes me. I have fun heading the Virgin group of businesses, so a setback is never a bad experience, just a learning curve.

WP: Part of the skill of a successful entrepreneur is identifying tomorrow’s growth sectors and opportunities – Virgin Galactic being one of the most high-profile examples of this. How do you discover tomorrow’s opportunities today?

RB: There are many different reasons for entering new businesses. It can be as simple as a business sector really interests me or one of our directors at Virgin, and we see areas in that sector where our brand can make a real difference to the consumer.

Sometimes it is as simple as the fact that an existing service has frustrated us and we believe we could do it better.

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people with enterprising spirit who seize chances when they come along will be the ones who drive the economy and make a difference in the future.

WP: Another aspect of business that every entrepreneur understands is getting the right people around you.

How do you find the best talent for your businesses – and how do you keep them interested and engaged?

RB: We don’t really have a general recruiting process at Virgin – it depends on the type of business and the position we are looking to fill.

However, as a rule we tend to pick out employees who are inquisitive about the bigger picture, and have a ‘can do’ attitude, are positive and enthusiastic and, most importantly, have a strong sense of fun! I have found that choosing enthusiastic, talented and positive people has helped to shape a positive character for our businesses.

WP: Innovation is clearly something that is central to the Virgin ethos. How do you unlock this, both personally and in your business teams? Can you create a culture of innovation and, if so, how?

RB: I believe our culture of innovation is a result of our ability to adapt to changes quickly. We run our companies small; there is very little red tape and certainly no bureaucracy – we make decisions quickly and implement them, before our competitors in the market have held their fifth meeting on the same issue.

Additionally, Virgin has many, many entrepreneurs within the organisation. In business, the picture is constantly moving and changing so I try to employ people who enjoy thinking outside the box and are constantly creative and inspiring.

Our people don’t just think about the numbers but think about how a deal will enhance the whole brand.

WP: You’re a globally recognised philanthropist and supporter of charities. How important is it to devote time and capital to not-for-profit work as a businessperson? Does it matter what size your business is? Is it more important to donate time or capital?

RB: I believe that today’s businesses – regardless of their size – must be prepared to do good in societies around the globe. I am optimistic that we

BRANSON ON… TECHNOLOGY WP: From big data to social media, the digital revolution is disrupting

industries across the world, with business models being forced to change, whether they want to or not. As an entrepreneur with a history of disrupting established industries, does the potential of digital excite you? What’s your advice on how to make the most of emerging technologies?

RB: The mobile revolution has allowed entrepreneurs to better talk to their customers, suppliers and staff in real time to determine exactly how each one is responding to particular situations, and determine exactly what they want and need. An entrepreneur who takes full advantage of this is well on the way to making himself a success, because he knows how to approach his consumers and how to deliver his offer in just the right way. I know it’s a cliché, but knowledge is power.

Virgin is a major advocate of social media and the power it can hold for companies. My advice to the businesses of the future would be to improve their social media presence and use it as a way of knowing their customers more intimately. It can act as a wonderful warning system for businesses as well as a cost-effective way to get your message out.

“The amount of time people waste on failures rather than putting that energy into another project always amazes me” can make the world a far better, safer and more equitable place, but business and enterprise must sit at the heart of this process. We need government, business and the social sector to work together for the benefit of everyone.

It should no longer be just about typical ‘corporate social responsibility’ where the ‘responsibility’ bit is usually the realm of a small team buried in a basement office – now it should be about every single person in a business taking responsibility to make a difference in everything they do, at work and in their personal lives.

Virgin Unite, the non-profit arm of the Virgin Group, call this approach ‘Capitalism 24902’ because it’s focused on getting business leaders all over the world — all 24,902 miles of it — to look at how we can do what is right for people and the planet. Virgin Unite also helped incubate a recently launched not-for-profit organisation called ‘The B Team,’ which is framing a new approach to business where people and the planet are priorities, alongside profit.

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SOCIAL MEDIA / LIKES TO LEADS

TURNING

LIKES LEADS INTO

Compliance-obsessed advisors get nervous when discussing Twitter, let alone using it. But social media can - and should be more beneficial than burdensome. Here, writes Maggie Crowley, are four key steps to success Advisors still question the value of social media - is it worth the time and effort spent learning how to use it properly and is there really an ROI? Here’s the bottom line: Social media will help you reach your target market effectively. More than half of the entire planet is on social media – and you should be, too.

Social media platforms are not only a great way to find new prospects, but are also essential to being found by your audience. Your clients and prospects are looking for you via social; if you don’t appear online, consider yourself invisible.

Chris O’Neill, director of Google Canada, reported that 86 per cent of Canadians do research online to get more information about products and services before they buy. Even more intriguing, social media plays an active role in purchasing decisions. For instance, 42 per cent of users learn about products and services from their connections on Twitter and 79 per cent of users are more likely to recommend brands they follow.

These numbers aren’t so astonishing when you think about what social media is at its core: people talking to other people. Who do you trust more — a friend’s referral or a TV advertisement?

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Let’s start with the facts. In April 2013, Advisor Websites surveyed nearly 100 advisors about how they currently use social media. Fifteen per cent of respondents say they saw results from their social media efforts “almost immediately” and 19 per cent per cent claim they have acquired between 10-20 clients using social media.

Based on these numbers, we know social media is an effective marketing strategy that generates tangible, measureable results. But how? Here are four ways to incorporate social into your web marketing strategy.

INCORPORATE SOCIAL INTO YOUR WEBSITE Social media networks and your website should work seamlessly to promote your brand online. Working together, these two channels drive an unlimited number of interactions, impressions and ultimately sales to help grow your firm.

One of the quickest ways to make sure your online assets are working together is to include visible social media buttons on your website. This strategy makes it easy for your web audience to “like,” “follow,” or “share,” your web content. Where do you find these buttons? Tools like NiftyButtons.com generate social media buttons and icons for free.

According to best practice guidelines, social share buttons should be displayed at the top or bottom of your home page, in addition to either the left or right sidebar. Go ahead and add them to your blog and to other pages of your website that get the most action.

SOCIAL STRATEGY A multitude of research concludes that, in most circumstances, posting 2-3 times each day is ideal.

If you only post once, it’s likely to be lost in the millions of other messages being aired, while more than three posts each day often desensitizes users to the value of your message.

The exception? On Twitter it’s acceptable to post as many as 5-6 times each day, as long as your tweets span across several hours.

Don’t think you have enough to say to your audi-

“More than half of the entire planet is on social media – and you should be, too” ence to post more than once a day? That’s OK because experts suggest keeping your posts short – less than 80 words. It’s also worth mentioning that images and video are more likely to engage your audiences. Try writing one short post each day and posting a picture or video as well. See for yourself which gets more action.

Posting regularly is vital to creating a community around your brand, but don’t make the No. 1 mistake of social newbies: me-posts. Me-posts advertise your brand while you-posts are created with your audience in mind. Sharing tips and helpful resources for financial success is one of the easiest ways to build a relationship of trust with your online audience.

We recently learned of the 90-9-1 rule when it comes to grading your engagement with your social media audience. Out of 100 points, you get 90 when a message gets shared, 9 points for a comment and 1 point when someone “likes” it. What’s the big picture? Getting your message shared via social media is much more valuable than other types of engagement. So, how do you make people share your message?

The first rule to getting your online audience to share your message is to ensure that your posts are valuable. As a financial professional, share your knowledge about a specific topic or offer templates or guides that will help your viewers solve a problem.

For instance, creating a free downloadable monthby-month budgeting template is much more likely to get shared online opposed to a generic post promoting your firm. Providing your viewers with value is the simplest way to get them to share your message.

LINKEDIN When Advisor Websites surveyed advisors on their social media usage, 44 per cent of advisors reported spending the most time and effort on

42%

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SOCIAL MEDIA / LIKES TO LEADS

LinkedIn and more than 60 per cent of advisors used LinkedIn to gain new clients. Get the most out of the professional network by creating a top-notch profile: • Add the LinkedIn “Company Follow” button to your company’s website. The button, or widget, gives your audience an opportunity to follow your company on LinkedIn without ever leaving your website. That way, every time you create a new post on the professional network everyone who follows your company will see it.

• Since LinkedIn’s redesign in August, you only get 120 characters at the top of your profile to describe who you are and what you do. Create a compelling headline for yourself that will capture readers on the first glance. Instead of “Financial Advisor,” try using adjectives like “Innovative Financial Planning Professional.” Make the most of your 120 characters.

• Reach out to groups on LinkedIn and share your expertise. More than ever, advisors are turning to social media, LinkedIn specifically, to find new prospects. Why? Because LinkedIn makes it so easy! Search for groups that fit into specific areas of your clientele, like “CEOs planning for retirement.” Search for questions that are being asked repeatedly and spend some time writing a really well-crafted answer that highlights your knowl-

“Today, digital measurement tools like Google Analytics help reveal what’s working” edge in the field. Zeroing in on new clients is as easy as becoming a thought leader online.

MEASURING RESULTS

The most successful marketing plans need to be measured in order to gauge success. Advisors and marketers alike have expressed that the biggest challenges in using a social media strategy is identifying metrics by which to measure.

Today, digital measurement tools like Google Analytics help reveal what’s working. There are three key factors that indicate how well your social strategy is working: • Traffic from social media: Take a look at which social media sites send the most traffic to your website. From this measurement you can establish which social sites you should concentrate your time and resources.

• Social media engagement: Applying marketing analytics to your social media is crucial to help you prioritize where to allocate your time. One of the most revealing metrics is how engaged your audience is. Social media engagement indicates how receptive your audience is to the messages you share.

This measurement is also, arguably, the toughest to measure. Using a tool like Hootsuite makes it easier, though. Hootsuite allows advisors to streamline and automate social media messages. It’s also free.

Maggie Crowley is the Vancouver-based digital marketing coordinator at AdvisorWebsites.com. The firm is focused on delivering websites that push the boundaries on online presence for financial industry professionals through tracking, analytics and content management.

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24/10/2013 5:57:43 AM 3/10/2013 11:32:57 PM

THE BIG INTERVIEW / ANDREW MARSH

I LIKE BEING

DISRUPTIVE

In September, Richardson GMP became the largest independent wealth manager in Canada with the $132-million purchase of Macquarie Canada’s retail business. CEO Andrew Marsh tells Wealth Professional’s Christopher Myrick what prompted the deal and the big changes he sees for Canadian advisors WP: When announcing the acquisition of Macquarie, you said the merger would help Richardson compete with larger players while retaining a boutique culture.

How much of a threat do you think small and mid-sized players face from the large institutions?

AM: I would answer that two ways, but they don’t really fall in line with each other. To some degree, the risk stems from the dominant brand that the banks have in Canada and the resources that flow from that. I can say this from experience because we literally started up GMP Private Client, one of the predecessors of our firm, nine years ago. When no one knows who you are it’s tough to compete with the banks; the strength of the bank brands in Canada is extremely powerful. Clients in Canada are very conservative and they are convinced that the only place that their assets are safe is in the banks. We know that’s not the case, but that certainly is one of the challenges.

But the reason I think independents have more runway than we’re given credit for, is that we certainly see that the level of frustration is increasing every week, every month, from the best advisor professionals at the Canadian banks who are looking for a more entrepreneurial culture.

The reason I think that we now are in a position to be competitive is that those really good advisors

at the banks who are frustrated have been looking around and they see that there are a bunch of independents competing with each other, but none seem to have the characteristics of stability or scale.

So I think that we’re in a position now where an advisor looking to make a change can cross one thing off their concern list – is this company going to actually make it.

I think that independents can compete, and I think that interest among the best advisors about making a change from the banks is going to continue to grow.

But it is difficult to compete against the strength and brands of the banks.

WP: Hence your desire to achieve greater scale?

AM: Oh yes. Scale is everything, and brand is everything. There is an acknowledgement that our new scale gives us a sense of permanence in the marketplace.

WP: Ian Russell, president of the Investment Industry Association of Canada, said that the merger was “bad for the market.” He didn’t say anything bad about you or Macquarie, but he did say that it was bad to see two large firms disappear into one.

AM: I think it’s a good thing because we need to have

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“I think the power of having at least one (large) independent in Canada is more important than having four or five independents who are barely hanging on”

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HARD FACTS

at least one large independent that can stand the test of time than to have four or five independents that are all striving for the same thing and yet are competing with each other. What we found, with Macquarie, especially, was that if an advisor was looking to make a change they were going to either Macquarie or us. They weren’t talking to any of the other independents. So advisors will still look to make a change; they now have one choice, and it is a choice that is stable and offers clients that permanence. As opposed to clients going to one independent firm, and having that turn into another independent firm, and then into another independent firm.

I think the power of having at least one (large) independent in Canada is more important than having four or five independents who are barely hanging on.

WP: You say that people were either coming to you or Macquarie, but you also had people who were going from you to Macquarie. Are they being welcomed back now?

AM: Well, we are going to look at that on a personby-person basis. This isn’t the firm for everybody, we have certain standards that we’ve come to be known for, and people are the right to work where they want to work. Not everyone will fit in here.

WP: There have been 13 firms’ names that have disappeared this year and there were 10 names that disappeared last year. Where do you see things going in the next couple of years?

AM: We’re quite optimistic on the future of capital markets in Canada – the economy and business conditions – but it has been a number of very challenging years for businesses that don’t have a holistic and comprehensive approach to wealth management. So I think that it’s sad to see some of these firms go, but it is also the result of a dynamic and changing marketplace. The firms that will survive will be the ones that can embrace the future of wealth management and not be stuck in the past. Those that are stuck in the past, hopefully conditions will improve enough that they can skate back on side.

We’ve always had our attitude toward growth focused on three things: one is recruit one advisor at a time; provide the tools and resources for advisor teams to grow organically; and the other is to be

13 10

independent firms gone in 2013

independent firms gone in 2012

opportunistic when consolidation opportunities come our way. I don’t know whether one will come our way again; we’re also very choosy as to what fits our model and making sure that we don’t dilute our brand.

WP: What types of firms would fit your brand? Boutique agencies?

AM: I think the firms that fit our brand are as much the investment counsellors as they are the IIROC dealers. There are fewer and fewer IIROC dealers that would fit. There are a number of them, but I also think there are a number of investment counsellors and portfolio managers out there who would have set up their own individual shops, but are now looking at all of the regulatory and technological complexities that have grown into their business and are can appreciate a firm that supports the portfolio manager platform as well as anyone else. I think Richardson GMP is to combine the world of the portfolio manager under the OSC with the world of the IIROC wealth advisor.

WP: You said that not everyone is going to be a good fit with you after the acquisition. What steps are you taking to attract good fits?

AM: Well, since the announcement I forced myself on the road and put myself in boardrooms in front of people who were dealt a shocking piece of news that their company had just been sold to us. It created some challenging conversations, but I stood in front of them with humility and respect about what they were going through. It was a great exercise for me personally, because through that I was able to listen to what mattered to them.

I think if we had devised our retention package prior to the deal being announced, we would have come up with something that was wrong. After being in front of them and listening to their concerns and what mattered to them we’ve been able to take that back, devise something and take it to the most important people who we want to retain and offer them something that reflects the fact that we’ve heard them.

That will be a combination of cash – like most retention bonuses are – but it will also be equity in Richardson GMP. That’s a very important part of our culture and what we stand for. We’re the only firm in Canada that offers equity ownership to advisors.

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I know there are others who are a smaller scale that do, but from a large-scale IIROC firm we feel that we are a bit of a throwback to the days of McLeod Young Weir, Wood Gundy and Burns Fry. We own equity: I’ve got skin in the game, our advisors got skin in the game, and that’s important for our new partners to have.

But we have a lot of work to do to educate them as to what that means. So, if they do decide to stay or leave they will be doing so on the basis of full information.

WP: Earlier when you were talking about which firms will survive, you noted that it would be the ones who offer holistic services. Explain. Assuming that this is part of the way you see the industry going as a whole.

AM: Well, I wouldn’t so much say that I support a fee model. What I would say is that our advisory profession should be held to higher standards and that we should hold ourselves to higher standards.

The reason I say I’m not entirely in support of a fee model is because I’ve seen a lot of advisors convert to a fee-based practice and then take summers off. I think that the work ethic than comes from being a more respectful professional means that people should serve their clients in the way that they expect.

Whether you are a fee-based advisor or a transactional advisor, I believe that we should hold ourselves to higher standards and respect the fact that it’s not our money. And that we recognize what our specialities are.

I was an advisor for 14 years – from 1990 to 2004 – and as an advisor I wore seven or eight hats. I was half-decent at all of them, but not really great at any of them. So, now as demographics have changes and advisors have evolved, people are specializing in PM, in providing access to private venture companies, alternative investment managers, or just straight stock picking. I think that that’s ok, but I think that as a firm that recognizes where the specialities are, the real opportunities come from having the right teams to make sure that we can offer our clients a comprehensive solution. They may have four different advisors with us but they are getting complimentary services. That could be fee-based or transactional depending on the nature of the advisor and the client. So, I support fee based only if it represents a more comprehensive holistic approach to serving client wealth.

“Interest among the best advisors about making a change from the banks is going to continue to grow.

But it is difficult to compete against the strength and brands of the banks” WP: We’ve touched on this in other questions, but where do you see the industry heading over the next five years?

AM: I think the industry is heading toward a greater standard of professionalism, whether it is in terms of fiduciary responsibility, or disclosure and transparency of fees, our industry needs to step up.

I think that ultimately there will be fewer advisors – never mind firms, there will be fewer advisors in five or ten years. And I think that’s a good thing!

I think a regulatory regime that allows poorly prepared advisors working out of their basements is not a healthy thing for our industry. I think that advisors have to hold themselves to a higher standard in professional accreditation. I think they need to have to hold themselves more accountable in terms of transparency and providing conflict-free advice.

And Canadians deserve that.

I think the future is more of a professionalization of our advisory profession. I can say that because, as I said, I started in the 90s and I was a sales guy. I would recommend mutual funds and I would get paid for recommending mutual funds. What I realized after 10 years of doing that was that I really built portfolios out of what seemed to be a good idea at the time. You learn as you go, of course, but by the time I got my practice to a decent level, I had to reengineer the whole thing. Because what I realized is that what clients deserve is that you have to focus on the process of wealth management first and not focus on the products.

I think the problem that we have with the banks – and the problem that we have with a lot of advisors – is that they are selling the products. That has to come second. The process has to focus on making sure that there is a plan and making sure that you have an investment policy statement, and really making sure that you are taking the level NOVEMBER 2013 | 25

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professionalism in your approach to focus on that process. It requires disciplined risk management that you can articulate.

Advisors who are still stuck in sales mode, I think the business is going to pass them by. The advisors at our firm who have really been able to grow their business fit in that process bucket. The ones who are really struggling are the ones who are still thinking of something to sell.

WP: We have 13 regulators, so many multiple industry associations, and various regulatory streams for the different channels, let alone all the different firms. Where would the push for professionalization come from, would it come from industry, from the regulators, comsumers?

AM: I think there are demographic changes happening where Canadians are more wealthy than they ever thought they would be. The generational approach to that wealth creates people who think more like stewards rather than “I made this money and I’m going to spend this money.” Over the next 10-20 years there is going to be more wealth stewardship that our clients are going to have to talk about.

I also think that the technological information advancement will lead to better educated clients.

They are going to demand quality.

At the same time the regulators are going to want to ensure that they are delivering quality. There is still a ripple effect hangover from 2008. And the feeling among clients that they are not being treated properly by banks remains very high.

At the same time the generation of advisors who started in the 80s selling stocks is going to be retiring in the next 10-20 years, and they’ll be replaced by people who are better educated than they were, better trained than they were, and more interested in that holistic approach.

So, I don’t think it is anything that is going to happen in six months. I think the regulators as usual will respond to market forces, but those market forces will come from competitive pressures that we intend to apply to the Canadian marketplace but also the demands for quality that is coming from our clients.

Factor in the demographic shift of the advisors themselves, and I think we will see a whole new look and feel to a professional investment advisor in the next 10 to 20 years.

WP: Isn’t this part of the reason the banks

– and yourself – are pushing more toward fees?

AM: The problem is, I think the banks push toward fees is actually more self-interested. I actually believe in going to fee only if you are offering something of value that that fee can be ascribed to, like a risk-management process that a portfolio manager can articulate. Don’t get me wrong, the fact that we get 68 per cent of our revenue from fees has made us more profitable than some of the really, really terrible transactional businesses.

From a business perspective, I like fees, and I think that’s why the banks are pushing that, but it isn’t right for everybody and it leads to an advisor who builds a nice little lifestyle based on fees but they forget that it’s someone else’s money and their work ethic and dedication to their clients can sometimes diminish.

I like advisors who are professional, who work hard and focus on their clients’ wealth.

Fees are not always the way to go. To charge a fee on a portfolio that doesn’t trade much?

You’d really better be able to articulate what value there is for a client and there has to be a wealth plan or an investment policy statement, a risk management process, or what is the client paying the fee for? A bank can’t just say “we’re interested in fee-based business because it’s good for the client.” There has to be actual value to the client, and if they can demonstrate that I’m all for it.

WP: Is there anything else you would like to conclude on?

AM: I like to joke that we started GMP Private Client nine years ago, with me in my role as national sales manager – but we had no sales or sales people. I’ve been flying around recently and I look back at the nine years and the blood, sweat and tears we’ve put in to building a really strong independent platform, and with this acquisition we’ve made it. We still have a lot of work to do, but the landscape changed dramatically when we announced this acquisition.

And I like being disruptive and I like changing the nature of the landscape. I think Richardson GMP is in a strong position and we will continue to be real strong competitors.

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FEATURE / BUYING A BOOK

The coming

BUYERS’ MARKET

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Young advisors seeking to acquire a book of business are usually told it’s a sellers’ market, but Peter Bailey of Worldsource Financial Management disagrees. With two deals in quick succession, and a third soon to close, Bailey increased his assets under management from $30 million to $100 million in just a few years. Can you do the same?

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Coming from a dot-com background, Peter Bailey had the time and the money to develop a businessgrowth strategy before entering the industry at the age of 38. Surveying the landscape, he noticed that most Ontario advisors were nearing retirement.

While proficient at helping others plan their retirements, it seemed to Bailey that many advisors were less prepared for their own golden years than were most skilled tradesmen.

“I was working part-time in construction, and noticed that carpenters and bricklayers and electricians all had apprentices and spent time teaching young guys how to do what they did,” says Bailey. “I saw that these outgoing advisors would have to transfer their business to someone, and that they would need to transfer the goodwill to someone.

So, it may as well be me.”

from a tax planning perspective. “Whatever money they are earning they’re still paying 46 per cent tax on, but if they did a sale with the capital-gains exemption they would pay no tax.”

Nevertheless, Bailey notes that his blunt pitch is only the start of a longer process of relationship building.

“You can’t just walk up to them and say ‘hey, I’m Joe Smith and I want to buy your business.’ You have to get to know them and you have to play golf with them,” said Bailey. “The number one thing for these senior advisors is that they care about their clients and they want to make sure that they are passing a book along to someone who takes care of their clients as well as they have been taken care of by the senior advisor.”

ELEVATOR PITCHING

Very early in the process, Bailey learned that buying a book from one of the big-six bank affiliated houses would be a near impossible task for an independent outsider.

The banks “own the business and they dictate from a branch manager standpoint, and there’s also a lot of politics involved over who ‘owns’ the relationship with the clients,” said Bailey. “I went down that path with a couple of people for a short period of time – and they had large, large books – but I figured out right away that it wasn’t going to work because they didn’t have the autonomy over their business that an independent advisor has.”

Although Bailey found himself essentially lockedout of the bank channels, for advisors within the bank networks looking to buy a book it is an area where they will have an advantage – although even an internally brokered in-house purchase would likely be highly competitive, with multiple bids.

“The big-five have a plan for advisors to sell their

From day one, Bailey believed that an apprenticeship that led eventually to him becoming a junior partner in a succession plan was the best route to success – and he eventually would serve in a five-year apprenticeship before taking over the book. To find a partner, he started by going to industry events and approaching advisors with a somewhat blunt elevator pitch.

“I started by speaking to the grey hairs and asking these 64-year-old advisors what they planned to do for an exit. Most of them said ‘I don’t really have one yet’ and my response was ‘well you’d better because your clients are planning one for you,’” says Bailey.

“They would ask ‘what do you mean?’ and I would tell them: ‘No offense Mr. Advisor but your clients know that you are turning 65 and that you are not going to work forever, so they are looking for a new advisor who is my age right now.’”

Bailey also notes that a sale can have advantages

SELECTING TARGETS

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FEATURE / BUYING A BOOK

“A mistake many young advisors make is trying to get the senior advisor out of the way too quickly”

Valuation may also depends on whether the advisor works with 20 fund companies as opposed to five, he notes, whether they use 25 funds versus 125, whether they have an office with staff or work from home.

“A lot of the valuation depends on whether a person is incorporated or not,” Bailey says. “If you are buying from someone who has incorporated, there is a lot more risk to deal with, there is more costs due to the amalgamation of corporations and all of that. For an asset sale alone, you will pay more but it is an easier transition.”

MANAGING A TRANSITION

books internally,” says Bailey. “If they did try to sell to an independent the brokerage would have 25 (internal bidders) all over those accounts to keep them at TD or RBC, for example.”

By approaching independent brokers, Bailey was able to talk directly to advisors who control their own business and avoid the tight control banks have over transition processes.

VALUATION One trick in entering a purchase agreement is getting the right price, as the formula for valuing a book can vary widely depending on the nature of the business.

“On the valuation side, basically the ‘street value’ is anywhere from two to three times trailer and/or recurring revenue, or it could be based on free cash flow, there are so many different ways to value a business,” says Bailey. “From an assets-undermanagement per-client standpoint, if someone has $10 million dollars but has 1,000 clients, that’s obviously not a good book to buy because that’s a lot of work; but if you have a $30 million book that has 50 clients, that’s an almost $450,000-per-client book.

That’s obviously more lucrative.”

“You have to go slow and steady. The junior advisor has to have a relationship with the senior advisor, and they both have to have an understanding about what they are going to do and what is the purpose of the relationship. Once you get that down, it’s more about having the junior advisor around to meet clients with the senior advisor, the senior advisor sending out communication telling clients ‘I’ve brought a junior advisor in because I want to raise the level of service for your account as I’m may be working less because I’m getting older.’ Basically it’s coaching the clients and telling them that ‘as a senior advisor I’m doing this for you, so that you are not left high and dry when I eventually retire.’”

Bailey says the succession process should allow the senior advisor to ease into retirement at his or her own pace. “You have to be patient and respectful.

I think that a mistake that many young advisors make when they buy a book is they try to get the senior advisor out of the way as quickly as possible. But these guys have an emotional attachment to their clients so you can’t do that, it won’t work that way and you won’t get the deal done.”

Nevertheless, the junior advisor will need to clearly lay out the process, and put his or her foot down if needed.

“A purchase-and-sale agreement needs to be drawn up and this is also a costly document – sometimes you can get it from a dealership but mine is really particular, and the purchase-and-sale lays what the process of exit is going to be, what the involvement of the outgoing advisor is going to be, how many meetings there will be per year per client, how much work the outgoing advisor will be required to do, how involved they’ll be, who’ll make decisions regarding the clients’ investments.

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A GRACEFUL EXIT? There are three basic exit strategies for advisors looking to pull-down their shingle and retire:

“As the incoming guy, you really need to keep the outgoing guy in check, because as soon as the transaction goes through you’re the owner. They are not the owner anymore, their job is to assist with the transition and pass on the goodwill from his clients to you. Sometimes the outgoing advisor will have trouble abandoning the driver’s seat, so you really need to have a legal agreement so when the time comes if you need to you can put your foot down and say: ‘It’s great that you sold me your book, and we’ve got a great relationship, but we have to do things my way as per the agreement or things are not going to work.’”

A COMING BUYERS’ MARKET? Bailey has other deals in the works that could put him within his $250 million goal within a few years.

And he sees even more acquisitions in the future as some events may make it a buyers’ market.

For starters, the average age of advisors in Canada is around 58, according to Advocis, which means that the demographic clock is ticking for many advisors. The other big event is a significant regulatory change coming on July 15, 2016.

“We all know what’s happening that day. It’s a bill called 31-103 for the MFDA and for IRROC, and there is going to be full disclosure of fees to clients on that day,” says Bailey. “If you have a $500,000 client who you see once a year or talk to once on the phone, their statement is going to show in writing that the client paid you $5,000 that year for the one meeting or call. What that’s going to do for advisors who don’t disclose what they make, over the next three years, is that they will lose business hand over fist.

“Clients will say: ‘Wow, I don’t understand what you do for me for the money that I pay.’ When they see these large amounts of money on their statements, for guys like me who want to buy books it’s going to be like drinking water from a firehose.”

Bailey believes that this, along with demographics, will change the landscape into a buyers’ market.

“The prices are going to come down, it’s not going to be two times trailers it’s going to be one times trailers and we’re going to show we’re a different type of advisor,” he said. “I can’t wait for that to happen. If you ask nine out of 10 guys, they are just dreading it, but I can’t wait.”

And here’s his tip for senior advisors who haven’t started succession planning: Start.

1. Maximize your income: Hang onto your book indefinitely, until you, ahem, go.

Pros: - This strategy reduces expenses - Fits well with industry’s compensation structure.

Cons: - no safeguards against disability; catastrophic illness - you may pay more income tax than necessary 2. Monetize your business: This is the “sell and stay” or the “exit-entrance” strategy.

Pros: - Allows you to pay off personal debts, buy the perfect second home or build a personal investment portfolio.

- You get a higher price for your business because of reduced risk.

- Continue to work with preferred clients Cons: - You’re now the employee, not the boss - You may alienate second-tier clients forced to work with the junior 3. Mergers and acquisitions: This could net you the best return but takes five years Pros: - Time to prepare your clients and to slow down - Two $500,000 businesses combined are worth more than just $1 million Cons: - A longer timeline By succession expert and advisor Jerry Butler at Queenston Consulting

Peter Bailey Worldsource Financial Management Inc.

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FEATURE / TRANSITIONING TO FEES

Time for a

CHANGE

Advisors continue to fight it, but there’s a growing business case for transitioning to a fee-based practice, writes Marc Lamontagne, with Ottawa’s Ryan Lamontagne Inc. He explains how best to prep clients for the change

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Compared to most professionals, we have a fairly unique relationship with our clients based on advice and trust. And because of this trust, clients are prepared to pay for value.

We see the value of the services other professionals provide every day, and we have no problem paying their fees. Our cars gets fixed and our teeth get cleaned. So, be convinced that your clients will say “yes” to your transition to fees proposal because you do so much more than any other professional they deal with.

SO WHERE DO YOU START?

Face-to-face meetings work best. But if you start with your high-end clients, and are not as practiced as you should be, you may stumble just when you are jumping out of the gate. On the other hand, if you start with your low-end clients (the least likely to convert), you may end up discouraged and scrap the process.

So, start with your middle clients, or the low end of your target market, so it won’t be a tragedy if you mess up a bit. Talk to the clients that you are the most comfortable with and listen to their objections. Use your experience to build your confidence as you work your way up to your “A” clients.

Once you have worked your way to the top, then start working from the middle to the bottom. Because of your practice and confidence, many of your lowerend clients may convert just through your sheer enthusiasm with the new business model. Remember, you are converting clients, not a block of business.

Approach them one client at a time.

IT’S A TRANSITION, NOT A MIGRATION Believe it or not, many financial advisors have no

WHO’S MOST FOND OF FEES

4.28 4.15 4.01 3.91 3.88 3.52 3.3 3.25 3.18 3.08 3.04 3.01 2.92 2.62

Higher net worth Higher income Professional or Management Business owner/ self-employed Higher education Older Female Married Male Web savvy Single Retired Employed Younger

0

1

2

3

4

5

Advisors were asked to rate each client demographic out of total score of 5 for how likely they are to prefer fees over commissions.

(2010 Advisor Survey Report, Fee and Commission Models)

business plan when it comes to their practice. So the movement to fees tends to be more of a migration, a slow and steady adopting of fees over a long period without any fixed target or deadline. It may also involve testing different pricing methods and platforms until the ideal model is identified.

You begin by approaching the early adopters, delegators, and those clients with whom you have a

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ON AVERAGE, HOW MANY CLIENTS DID YOU TRANSITION ON A MONTHLY BASIS?

25%

33%

21%

4%

14%

Under 3

3 to 5

6 to 10

11 to 15

Over 15

good relationship. You introduce asset thresholds whereby new clients will be offered fee-based pricing, though still take on clients below the threshold on a commission basis.

By the time the fee-based business represents 40 per cent of an advisor’s total assets, the benefits of fee-based pricing begin to emerge and swiftly pull the advisor, rapidly accelerating the transition to a fee-based business. While it may take three years for advisors to transition even 40 per cent of their business to fee-based, it will then take them half that time t o r e a c h n e a r l y 1 0 0 p e r c e n t .

PRESENT THE BENEFITS

new services. You could reduce the meeting time by combining them with your regular annual financial reviews.

BE PREPARED FOR A TEMPORARY DECREASE IN INCOME It may happen, and the percentage drop and time period to recover will depend on the current structure of your business and the execution of your business plan. I’ve seen financial planners/advisors take from a few months to three years to convert to 100 per cent fees. Your goal is to be back to your starting income within a year and a half.

Explain what brought you to this new system. Perhaps it was the inherent conflict of interest in a commission model. Talk about the trends in the industry, how there is a shift toward fees. Talk about your business model and the cost and time associated with running your practice.

Emphasize that it is win-win because you will have fewer clients and can spend more time with each. Mention the structured process, your service standards and, perhaps, enhanced services. Your clients should see that they are getting more. Even if the new fee structure ends up costing the client more, you want the client to focus on the “fee for value.”

Don’t force the transition. If they don’t want to switch, then maybe they just need time to adjust to your new way of doing business. You can try again in six months.

Marc Lamontagne CFP, R.F.P., CIM is a fee-based financial planner with Ryan Lamontagne Inc. and the author of To Fee or Not to Fee II

BY WHAT PERCENTAGE DID YOUR INCOME DROP DURING THE TRANSITION?

Did not drop Negligible 10% to 20% 21% to 30% 31% to 40% 41% to 50% Over 50%

BE PREPARED FOR THE PAPERWORK There may be more work during the transition period: client meetings to explain the new concept and sign the letter of engagement; moving the assets to a fee-based account; perhaps introducing

0%

4

5%

10%

15%

20%

25%

30%

2010 Advisor Survey Report, Fee and Commission Models http://www.tofeeornottofee.com/survey.html

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FEATURE / TRANSITIONING TO FEES

Adapting to a

CHANGING WORLD

A

Canada’s CRM reforms are part of a global trend toward greater fee transparency, writes Jason McIntyre

Across the world, 2013 has been a watershed for reforms to reshape the financial advice industry.

In July, the latest stage of Canada’s Client Relationship Model (CRM) initiative took effect. According to the Canadian Securities Administrators (CSA), CRM is all about transparency and giving retail investors more information to help them make better choices.

Although the new regulations will require advisors to make some adjustments, Canada hasn’t yet taken the more drastic steps that other countries have.

“The reason is simple: Surveys show investors largely don’t know how they pay for financial advice and other services” The year began, for example, with the implementation of the Retail Distribution Review (RDR) regulations in the United Kingdom, which ban commissions. As of July 1, similar commission restrictions and fee transparency efforts became mandatory in Australia under its Future of Financial Advice (FOFA) reforms.

Years in the making, these changes gained momentum in the wake of the global financial crisis five

years ago as regulators sought ways to protect investors. But the requirements to provide more in-depth performance reporting and greater fee transparency can benefit advisors as well by motivating them to explain the value of the services they provide to clients.

In addition, making fees transparent to clients removes any perceived or real conflicts of interest in how advisors are compensated.

By encouraging the transition from a commission model to fee-based advising, these regulatory changes have the potential to enhance trust between advisors and clients. It’s a shift Vanguard has encouraged in all markets where we do business.

Over the next three years, advisors in Canada will need to provide greater disclosure of all charges that their clients pay, including trailer fees. Starting on July 15, 2014, financial advisors will have to disclose all transactional charges on a pre-trade basis and disclose their compensation from purchases and sales involving debt securities in trade confirmations.

The following year will bring quarterly enhanced client statements that must show the original cost and market value of investment positions. In 2016, advisors will be required to send clients annual reports on fees and other compensation received as well as an annual investment performance report.

That’s a lot of information coming clients’ way, and advisors will have to be ready not only to produce these reports, but also to help their clients understand them.

Canadian regulators could have more changes in the works. The CSA issued a discussion paper in December 2012 on investor protection and mutual fund fees. The paper addresses possible reforms, including defined services in lieu of trailing commissions; the unbundling of trailing commissions from management fees (and thus charged and disclosed as a separate fee); a cap on commissions; and additional standards and duties for advisors.

CANADA FOLLOWS A GLOBAL TREND It’s important to keep Canada’s reform in perspective—commission-based compensation hasn’t been banned as it has been in other parts of the world.

Still, it’s clear that the trend in public policy globally favours a fee-based model for providing financial advice, rather than commissions.

The reason is simple: Surveys show investors

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largely don’t know how they pay for financial advice and other services.

No one’s suggesting that the transition will be easy, and early anecdotal evidence from countries where reforms have gone into effect bear that out.

Some investors have complained about receiving a lower level of service from their advisors.

In the United Kingdom, advisors have spent 2013 getting used to conducting business without commissions. Investment managers can no longer pay trailer fees to advisors for selling their products. RDR, which is administered by the Financial Conduct Authority (FCA), requires advisors to delineate their charges for services provided and charge clients separately for them.

U.K. regulators prepared for the implementation of RDR for years and tried to measure the market’s readiness for it along the way. For example, FCA indicated in August that 97 per cent of 32,690 retail investment advisors in the U.K. have gained the “appropriate level” of professional qualifications, compared with 2010, when fewer than half of advisors would have been considered qualified under today’s standards. (The remaining 3 per cent of advisors apparently entered the business recently and are still studying for exams.)

Still, with one of RDR’s major goals to increase investors’ understanding of their interactions with advisors, there have been some early communication breakdowns. For example, a survey conducted on behalf of FCA in May 2013 found that investors often perceived the disclosure documents they received from independent financial advisors to be “impenetrable.” Indeed, the overall understanding of the documents by many of the 78 survey participants was described as “surprisingly low.”

BROAD BANS DOWN UNDER In Australia, more than 28,000 representatives who provide personal financial product advice to retail clients are also operating under broad bans on commissions, volume-based payments and other so-called conflicted remuneration. The new rules require advisors to act in the best interests of clients.

The Australian government has said a key benefit of the reforms is that advisors’ interests will become better aligned with clients’ interests, which it anticipates will lead to more client-focused advice and greater advisor engagement with clients.

However, it’s clear that poor communication between advisor and client could lead to no engagement at all.

One FOFA change involves an “opt-in” provision under which retail clients would receive renewal notices every two years from advisors about the services provided. If a client fails to respond to such a notice after 30 days, then the arrangement would be terminated automatically after an additional 30-day grace period.

It’s hard to imagine such a scenario happening if advisors and their clients have had a frank discussion about the goals, risks, performance and, yes, compensation associated with their investment strategy.

MORE PUSHBACK IN EUROPE Germany, Sweden and the Netherlands are also considering rule changes to reduce the prevalence of commissions in favour of fee-based advice. Besides drafting its own new law, Germany has been working with other countries in the European Union to write rules that would require clients to pay for financial advice directly rather than on a commission basis.

As part of a year-long review of the financial advice sector, Sweden is examining the economic incentives used in fund distribution, including rebates, commissions and fees. The Netherlands has proposed a ban on commission payments as of January 2014.

PREPARING FOR CHANGE Advisors would do well to begin to plan for the day when Canadian regulators draw up their own restrictions on what traditionally has been a commission-driven model.

Quite simply, a fee-based practice model makes clear the value advisors provide to their clients.

Spreading the message about advisors’ value proposition — such as life coaching, financial planning and asset allocation recommendations — goes a long way toward building trust. Being able to assign a dollar amount to each of those services in the interest of transparency sends an important message too.

Whether it’s CRM, RDR or FOFA, the push by regulators to protect investors should increase product competition, investor choice and cost transparency. Commissions may not be going away anytime soon in Canada, but advisors should prepare themselves and their clients to make the transition to a fee-based model.

Jason Mcintyre Head of distribution at Vanguard Investments Canada Inc.

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FEATURE / TRANSITIONING TO FEES

Effectively transitioning to a

FEE-BASED BUSINESS Advisors who quickly transition to a fee-based business are realizing faster growth in revenue and are increasing the per-client value of their book This shouldn’t come as too much of a surprise, but we’re in the midst of a steady and deliberate shift to a fee-based model. While many investment firms have encouraged advisors to transition their accounts and households to a fee-based approach to pricing, financial advisors tend to lack guidance as to what the best approach is in making the transition, and what the financial impact might be.

By analyzing and researching our exclusive aggregated retail brokerage database of 40,000 advisor books of business, 7 million investors and over $3.5 trillion in investment assets, we have found that advisors who aggressively move a significant portion of their assets under management into fee-based accounts benefit from an increase in assets, a higher return on assets and ultimately greater revenues.

From 2009 to 2012, assets in fee and managed programs have risen from 21 per cent to 28 per cent,

DISTRIBUTION OF ADVISORS BY PERCENTAGE CHANGE IN FEE-BASED ASSET RATIO 2009-2012 35% 30%

33%

25% 20%

21%

15% 10%

15%

17%

10%

5% 0%

4% Decreased by more than 5%

Decreased by less than 5%

Increased by less than 5%

Increased by 5% to 10%

Increased by 10% to 25%

Increased by 25% or more

though not all advisors are making the transition, and those that are,range significantly in their pace of transition. Still, 70 per cent of advisors have increased their percentage of fee assets over this period, and 21 per cent have increased by at least 10 per cent.

Today, 91 per cent of advisors have at least one fee account in their book of business. Interestingly only 1 per cent of advisors have 90 per cent or more of their client assets solely in fee accounts. So-called hybrid households, in which a household has at least one fee-based account and one transactional account, are also growing quickly and are up 41 per cent since 2009.

Although advisors often think of themselves as either “fee-based” or “transactional,” the reality is that most advisors are a little of both. While the trend towards fee-based business is clear, as the market matures, both clients and wealth management firms are demanding that advisors offer a variety of products and services to satisfy a wide range of client needs.

Our analysis indicates that fee-based accounts are more attractive for advisors almost across the board.

The average fee-based account is 46 per cent larger than the average transactional account. It also generates more than three times the revenue, an average $2,900 per fee-based account compared to $870 for a transactional-based one. Households with at least one fee-based account generate a return on assets that is 40 to 70 basis points higher than households that are purely transactional.

Interestingly, both the age of the client and the advisor appear to play a role in the degree of interest in fee-based accounts. Clients between the ages of 40 and 64 have exhibited the greatest propensity to use fee-based accounts.

At the same time, however, less experienced

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PERCENTAGE OF HOUSEHOLDS, WITH $250,000 TO 500,000 IN ASSETS, WITH FEE-BASED ACCOUNTS BY HOUSEHOLD AGE (2012)

34%

41%

27%

CORE HOUSEHOLD RATIO 2009-2012 25% 20% 15% 10% 5% 0%

21% 12%

12% Group 1-25% + increase in Fee-Based Ratio 2009

19% 11%

Group 2-10-25% increase in Fee-Based Ratio

16%

Group 3-Less than 10% increase in Fee-Based Ratio

2012

65 and over

Under 39 40 to 64

advisors seem to be much more eager to embrace fee-based business than more senior advisors. The majority of advisors with less than ten years experience have at least 25 per cent of their assets in fee-based accounts, while two-thirds of advisors with more than 20 years of experience have less than 25 per cent of their assets on the fee side.

We also found much of the increase in fee-based assets has come from new accounts – 70 per cent of new fee accounts are from brand new client-advisor relationships, while the remaining one third of new fee-based accounts was opened with existing clients.

Our research clearly shows advisors who most aggressively moved more of their books into fee-based business outperformed their counterparts. Advisors who increased their fee-based ratio of business by at least 25 per cent over the last three years improved the quality of their household mix (the proportion of clients above a certain asset size), their return on assets, and transformed their revenue stream to be more than two thirds recurring. The average advisor in this group saw a 49 per cent increase in assets under management and a 41 per cent increase in recurring revenue. These advisors also almost doubled the percentage of households in their books generating $5,000 or more in annual revenue, while significantly reducing the number of households generating less than $500.

Our data has shown that an aggressive shift in an advisor’s business model is an excellent opportunity to assess their client base and align clients with the type of service model they intend to provide.

Advisors have a decision to make – they can “go with the flow” and see their book slowly evolve, relying on investors to demonstrate their interest in a fee-based model before adapting their offerings to serve their clientele; or they can be more aggressive in transitioning their book. Advisors who are more

STAGNANT HOUSEHOLD RATIO 2009-2012 60% 50% 40% 30% 20% 10% 0%

28% Group 1-25% + increase in Fee-Based Ratio 2009

57%

49%

45%

36%

Group 2-10-25% increase in Fee-Based Ratio

42%

Group 3-Less than 10% increase in Fee-Based Ratio

2012

aggressive and move a significant percentage of their assets into fee-based accounts benefit more quickly from higher RoA, revenue, and assets. They also use the opportunity to part ways with small households and reawaken dormant ones.

ADDRESS THE CHANGING CLIENT NEEDS • Learn to service both fee-based and transactional accounts. Be able to define the features and benefits of both and explain the differences in pricing models; • Many clients want to have both types of accounts.

Learn to spot and capitalize on those opportunities; • Find the right business mix for your book and plot your course as you transition your book from non-fee to fee; • An aggressive shift in business model is an excellent opportunity to prune your book of non-strategic clients. Review your client roster and determine which clients might be better suited for a different business model; • Understand the demographics of your book: young and very old investors may find less appeal in fee products.

And remember, results will be less dramatic and materialize more slowly for advisors who take a reactionary approach.

Patrick Kennedy VP Product and Client Services, PriceMetrix

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FEATURE / LIFE INSURANCE

LIFE, LIBERTY… AND LESS TAX

Many of Canada’s über-rich have used insurance to reduce the tax exposure on investment income. Chris Karram of Safebridge Financial Group, offers a way to sell other clients on that essential A very common discussion around a kitchen table is “I can’t believe how much tax the government took from my paycheque this month.” That’s because Canadians are used to paying upwards of 50 per cent of their annual income back to the government, which means less money in their own pockets.

What makes it worse is when one is able to build an asset base that starts to earn interest, dividend or capital gain income on the money they’ve invested.

Despite the fact that it feels good to know your portfolio is growing, it is easy to become disheartened when you realize that a good chunk of your profit is going to disappear forever.

The best known way to minimize the tax bill incurred on the growth of one’s portfolio is an RRSP. Just about every Canadian understands how their RRSP works, or at least the concept of how it works, but their tax planning seems to stop there.

A very common misconception is that an RRSP

Save $1,000 per month, in a 46.41% tax bracket

UNIVERSAL LIFE POLICY $1,068,282

RRSP $601.547

Those choosing a Universal Life Policy stand to put away over $1 million, compared to the traditional RRSP route of $601.547.

is the only option when it comes to saving towards one’s retirement in a tax-preferred way. Thankfully, Canadians have more then one tax-preferred vehicle available, but choosing the best financial product for your situation takes some planning since different types serve different functions.

One specific vehicle that has been around for many decades is a permanent life insurance policy such as whole life or universal life. These two forms of life insurance have been used by many Canadians to protect their families from an unexpected death, the same way other life insurance products do. But what can be amazing about these policies are the tax advantages that come with owning them. In fact, many of Canada’s wealthiest people have used these types of insurance policies to shelter their investment income from tax despite the fact that they already had enough life insurance.

HOW IT WORKS A permanent life insurance policy is generally made up of two components. The first is the obvious death benefit, which is the value that is paid out to the beneficiary upon the death of the life insured. The second component is the cash value, which is very similar to that of a traditional mutual fund.

The difference, however is that any money invested inside of a life insurance policy can allow the policyholder to accumulate cash values, within certain regulatory limits, without paying income tax on the growth. What’s more, the cash values inside of your policy can be accessed to supplement a retirement income through a policy loan, partial surrender or loan strategy that can actually create

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the equivalent of a tax-free income stream when needed. There are no age limits as to when or if you have to withdraw your cash value, and the “MTAR,” or “contribution limit,” is in no way connected to your income, but rather to your actual “cost of insurance.” If you want to invest more than the contribution limit allows, simply increase the size of your death benefit and away you go. However, it is important to note that straight cash withdrawals are subject to taxation based on the rates and rules in effect at the time you withdraw the funds.

WHO BENEFITS? Canadians who have maximized their RRSP contributions and are looking for an alternative method to save for their retirement are in a great position to take advantage of this tax-preferred life insurance vehicle. As well, those who are interested in protecting their assets from creditors or personal liability could very well be a great fit for a taxadvantaged life insurance policy.

HOW ABOUT AN EXAMPLE? There are different types of structures and products available within the permanent life insurance category. For the purpose of our example, we will

look at a non-smoking male, age 35, who is looking to a buy a $1-million universal life insurance policy, and we will assume an annual return of only 6 per cent (if the markets perform better than that, your cash values will be even higher).

Let’s assume this individual was in a position to save $1,000 per month in addition to his monthly or annual RRSP deposits. If he were in a 46.41 per cent tax bracket, he would be left with a total of $601,547 after taxes at the age of 65. In comparison, if he were to invest that same $1,000 per month into the above mentioned universal life insurance policy, he would end up with a whopping cash value of $1,068,282!

What’s more, if he wanted to prolong when he would start to withdraw his RRSP savings until the age of 69, he could draw an annual income of $85,808 from age 60 to 69. Let’s not forget that this is while time our “client” owned and continues to own a milliondollar life insurance policy.

As demonstrated, there are definitely many unique strategies available to Canadians when it comes to saving for their retirement, while minimizing their tax bill. The key to finding the right solution is to walk through the appropriate financial planning process to better define which product, or combination of products, is best suited for you.

Chris Karram (far right), partner Elisseos Iriotakis (centre) and Drew Donaldson advise some of Canada’s wealthiest individuals on tax savings.

About the writer: Karram is the founding principal and financial consultant with Safebridge Financial Group & Investment Planning Counsel.

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BUSINESS STRATEGY / REFERRALS

G N I D L I U B FERRALS

RYOEUR AFFORDABALTEEGY R T S G N I T E M A RK

Hanging up a shingle and waiting for clients to come to you may keep you afloat, but Rebecca Wilson argues that erecting a marketing campaign to boost referrals can take your business to the next level. And it doesn’t have to cost the earth We are taught early in our business degrees that we can build a business by being a technical expert, hanging a shingle and waiting for clients to walk through the door. Many professional service providers diligently fulfil their qualifications, maintain their professional development, and serve the customers who trip over their businesses. They do OK. But with well-targeted marketing, you can do better. You can, in fact, build your business around the market that you want to work for, and have them drive your customers to you by referral.

Good referral-based marketing will compel your ideal target audiences to voluntarily pursue your firm’s services. And, if done right, not only will you achieve a growth in revenue from your ideal types of clients but you will also drive them to refer your business to their friends, colleagues and community, creating a self-perpetuating buzz.

SELLING TRUST To grow an advisory business you have to consider the fact that your business is selling a tangible, yet human, service. You are selling trust. You can’t advertise trust on a billboard, or print it in a magazine. Trust has to be earned in order to grow your clients and expand your revenue.

Picture this. The phone rings on Thursday afternoon with an excited person wanting to meet with you. They have to get a new advisor as soon as possible. They got your name from their long-time friend Rob, who says you helped him sort out all his investment issues and find a great buy far more suited to his risk-tolerance.

I hope you have received a call or two like this in your career. The exciting part of a call like this is that it’s pretty easy to convert the sale. When someone passes on a referral, the prospect is often ready to

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HOW DO CLIENTS BUY PROFESSIONAL SERVICES? Acknowledge that they have a need or issue This is a client-centric part of the process over which you have little influence

buy immediately, with a much shorter time-to-sale than average.

The prospect has identified that they have a problem. They have then sought information from a range of potential service providers on the expertise they need. And now they have asked around to see if anyone they respect can refer someone.

UNDERSTANDING YOUR PRIORITY TARGETS Most small and mid-sized brokerages serve one or several easily identifiable local communities or even regional socio-economic categories.

Understanding who your top-priority target markets are is crucial to being able to target them specifically, and walk them through a structured and logical process that – if delivered with honesty, integrity and energy over its entire life cycle – will be sure to generate word-of-mouth referrals. And when you know who your ideal targets are, it’s easier for you to communicate to your existing satisfied clients who they should refer you to, making them your evangelists.

Screen potential suppliers based on qualifications and experience Buyers initally screen on technical expertise, experience and qualifications

Overlay with professional trust-based experiences The knowledge of the professional and their firm in action now comes into play

Select service provider The best sales technique for a service provider is great service delivery, as trust is best built through client interactions. Real people work on real issues and build real connections

CONSIDER HOW A CLIENT BUYS Awareness

Interest

Desire

Action

Satisfaction

A I D A S Source: Stretch Marketing

BUILDING EVANGELISTS There are five stages to building a customer: from no awareness to full-blown evangelist. Get it right and you’ll only have to go through the initial campaigns once or twice to build yourself a base of satisfied customers extolling your virtues by referral.

This process takes the client on a journey from their first point of contact with your business, inspiring them to reach out and refer your business time and time again.

1

Raising awareness

When you know exactly who you want to target as your primary clients, it’s easy to broadcast your message to them. You can get involved in industry associations or local community groups, do guest speaking, write articles, advertise, do good PR, attend tradeshows, or run an integrated campaign of activities.

But let’s face it, this step is a hard, often cold part of the sales process, so we only want to do it once or

twice. We eventually look to skip the awareness phase by using active referrers to bring ideal clients directly to us.

2

Courting interest

As an ideal target is developing their interest in your business, it is important to “court them” diligently to build their interest into hungry desire. Successful courting requires that you get to know your targets as human beings and be personal, engaging and interested in their success, building trust.

There are a whole host of clever ways to do this.

You could use content marketing, hold topical briefings and personal breakfasts, and write regular newsletters or even blogs. Or you could invite people to accompany you to events or fit in some good old personal interaction, remembering that people always buy professional services from people.

Rebecca Wilson is the founder of Stretch Marketing, a marketing and business development consultancy that specializes in supporting professional services businesses with logical, practical, rewarding marketing strategies and integrated marketing programs.

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BUSINESS STRATEGY / STRATEGY AND PLANNING

GAME

PLAN

Do you have a strategy for business growth? If not, you could be on a road to nowhere. Kevin Eddy reports

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Having a clear, well-articulated strategy for your business is widely acknowledged to be one of the most important things you can do in making sure your company is successful. It can be a tricky thing to get right, especially when a firm is in a relatively small state in a fast-moving industry. What timeframe should you be looking at? How do you set goals, and break them down into achievable targets? How do you stay on course – or adjust as necessary?

The first thing you need to do is make time to develop a strategy. The classic approach is to take a day or two out of the office with your business partners, key employees or outside parties such as business coaches or consultants. Others find that a couple of hours is sufficient, while some still use holidays and quiet periods in the market to do this.

1

KNOW YOUR VALUE PROPOSITION

You need to have a clear idea of what makes your business different – what your overall value proposition is. Antoine Hermens, head of the Management Discipline Group and executive MBA director of University of Technology, in Australia, says that too many small businesses don’t have a clear idea of what their offering is.

“The biggest challenge for small and medium-sized companies is really understanding what value you add to your customers,” says Hermens. “My research indicates that successful SMEs have really thought long and hard about their unique value proposition and the economic value they’re adding for their stakeholders: customers, employees and suppliers.”

Hermens highlights using the balanced scorecard approach as a good way of assessing value. This is also the point at which to look at elements like your market positioning, analyze your competitors and your customer base. A wide range of tools have been developed to assist with this.

He also recommends that you look at your business and ask what’s unique about it.

“If you stopped doing business tomorrow, would anyone really miss you?” he asks. “If the answer’s “no,” then you’ve really got to go back to square one. You can talk about vision, mission and objectives, but if you don’t know what kind of business you want to be, what your competitive advantage is, it’s meaningless.”

The general consensus is that value propositions are best kept short – distilling your core competitive advantages into a few lines or paragraphs.

WEALTHPROFESSIONAL.CA

STRATEGY: Q&A Jim Sharpe, Harvard Business School Jim Sharpe, Senior Lecturer at Harvard Business School’s Entrepreneurial Management Unit, is a successful entrepreneur in his own right. He shares his thoughts on strategy with Wealth Professional.

How does setting strategy for a smaller, entrepreneurial business differ from larger firms?

Large firms have a much longer time horizon and a global outlook.

Determining their funding needs, operational investments and resource allocation is supported by their strategic planning. Small- and medium-sized businesses are more operationally focused with less complex needs. Planning for growth with existing customers, developing product extensions, adding incremental capacity and finding more profitable opportunities keeps them busy.

In terms of timescales – how far ahead is reasonable?

How important is it to have an exit strategy in mind?

An entrepreneur should probably be thinking no more than three years out. Having a good idea of the plan for the upcoming year along with what might be needed the year after and some thought about the year after that. More importantly, managers need to be “stress testing” this relatively short-term outlook.

Will there be a recession? What if a major client goes out of business or a couple of key employees leave? Planning for an exit can start when the owner is emotionally ready to leave the business; it generally takes a few years, so well within the planning horizon.

How does a business go about starting this process? Are there any tools particularly useful in strategy setting?

Look first at the business model: customers served, delivering/making the product or service, getting and serving customers, and ensuring that the economics for future growth come first. Then an assessment of the changing environment within which the business works helps set the stage for a SWOT analysis. Doing this every couple of years is a good exercise.

How should you make sure you stay on track with a strategy – and when do you know when to change it?

Sooner rather than later; it is always easier to wait for a little more information or another attempt at “fixing.” Moving to change direction decisively, based on even limited information, is one of the characteristics that make entrepreneurs successful. Generally, when a significant event happens to the business or when some major external changes occur, are good times to reflect on “where we are headed.”

What’s your solid-gold business advice for an ambitious entrepreneur?

Pay attention to your client and make it easy to do business with you.

Charge enough for your product/service, then some – unprofitable businesses don’t survive.

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BUSINESS STRATEGY / STRATEGY AND PLANNING

TOOLS FOR THE JOB There are a staggering array of strategy models, frameworks, diagnostic tools and systems out there – several of which are too clever for their own good. Here’s Wealth Professional’s picks of the most useful.

external origins

internal origins

helpful

strengths

weaknesses

opportunities

threats

existing markets

existing products

new markets

harmful

new products

market penetration

product development

market development

diversification

SWOT DIAGRAM

A well-established system first developed in the 1960s and 1970s for assessing the market position of a business and/or project. It involves analysis of strengths, weaknesses, opportunities and threats using the grid framework on the left USEFUL FOR: Determining market position; identifying weaker areas to strengthen; identifying strong areas to exploit further; competitor analysis

ANSOFF PRODUCT/MARKET MATRIX

Another long-established tool, the Ansoff matrix is intended to help develop growth strategies by providing a framework for developing existing and new products and markets USEFUL FOR: Analyzing current market position; diversification strategies; identifying new markets; potential expansion opportunities

financial

BALANCED SCORECARD (BSC)

A tool developed in the 1990s by Robert Kaplan and David Norton, the Balanced Scorecard measures four key performance metrics – financial, customer, internal process and growth. As the name suggests, it’s intended to give a more balanced view of performance and strategy than pure financial metrics USEFUL FOR: Value proposition; strategy development and prioritization; ongoing monitoring

vision and strategy

customer

internal business processes

learning and growth

relative market share high low

company A

market growth rate

stars

question marks

cash cows

dogs

high

high quality

low

BCG MATRIX

Developed in the 1970s by Boston Consulting Group, the BCG Matrix classifies products (and services) into one of four categories based on combinations of market growth and market share USEFUL FOR: Assessing current product/service mix; identifying growth markets; cash flow assessment

company B company C low price

PERCEPTUAL MAPPING high price

company D company E company F

low quality

A tool that maps rival brands onto an x/y axis graph based on various attributes, usually based on customer research. Attributes are not typically seen as positive or negative, but instead reflect the needs of different market segments USEFUL FOR: Market positioning; competitor analysis; customer targeting; launching new services

VALUE PROPOSITION The unique factors that explain why a customer should use your service or product. This is best summarized in a short statement (or several short statements)

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2

SET YOUR OVERALL VISION

The next stage is to set your ultimate goal or vision for the business – where you want your business to be, and when.

What this means varies from person to person as does the timeframe in which you’re planning to achieve it. Some people operate on a calendar year basis; others work to five- or 10-year plans.

Fiona Mackenzie, head of Macquarie Practice Consulting, recommends a three-year horizon as a good compromise.

“We encourage our clients to step back and look at a three-year goal,” she says. “One year can be too ‘operational’: if you want to make any changes to the business it feels too tight. Five years, meanwhile, is a little far out for some people to feel that it’s practical.”

The overall goal or vision should be based on where your business is at present.

“We take a look at the business today. Key facts down on the table: key clients, revenues, profit, size and shape,” adds Mackenzie. “Then, we look at what you want it to look like in three years – once we know that, we can look at the ‘gap’ and what you need to do to achieve that.”

That overall goal shouldn’t just focus on business metrics; however, Mackenzie says you should also factor in your personal goals. While the overall vision should be relatively realistic, it can be somewhat aspirational, too – crunching it down to numbers and targets can come later. Whether you call this a vision, a big hairy audacious goal or a stretch target doesn’t matter – the key is to concentrate on where you want to be at the Fiona Mackenzie end of your timeframe.

Doug Mathlin, of consultancy Frontrunner Group, adds that it can be useful to think of this in terms of financial metrics.

“You need something you can focus on; for example, saying you want to write $100 million worth of business in a year.”

“It’s good to have quick wins especially for small businesses”

3

BREAKING IT DOWN

Once you’ve got your overall goal and your timeframe, you need to figure how to get there – and this is the nitty gritty of strategic planning.

You need to work backwards from your large, aspirational goal into measurable, timed targets, ideally monthly or even weekly. The tried-and-tested SMART rules for target-setting are invaluable here. Any targets you set should posess these attributes: specificity; measurability; attainability; relevance; and timeliness.

From these targets, you can track how you’re going and extrapolate to other aspects of strategy such as:

STRATEGIC CASE STUDY How are veteran firms setting concrete goals for the future? Player WLM provides chartered accounting, financial planning and wealth management services that cover the financial needs of most businesses or individuals.

WHAT ARE YOUR FIRM’S STRATEGIC GOALS? We have a simple approach to our business strategically: do a good job, charge a fair price, and clients will be happy and we will have a successful business. At WLM, we’ve built our business around our clients: putting their needs first and being independent and transparent in all that we do. We aim to do this in a professional, objective and personable manner. Success at our core has allowed us to build a good solid business able to withstand difficult times in the market. That is our primary goal.

From there we can get scale to develop further, thereby enhancing and broadening the service we provide clients to better meet their overall needs, developing a holistic approach and business model incorporating a number of different disciplines.

We use technology to communicate with our clients in a variety of ways and to be as efficient as possible.

HOW DOES YOUR BUSINESS MEASURE PROGRESS? Client satisfaction is a key focus, which we believe in turn leads to financial success. There are many other KPIs and yardsticks we regularly monitor to assess our strengths and weaknesses.

WHAT ARE YOUR TIPS FOR GROWING A BUSINESS IN THE FINANCIAL ADVICE SPACE? Keep it simple, be thorough, do a good job and communicate effectively with clients. Avoid grey areas, glittering products and don’t over promise. Just keep it real and focus on meeting the client’s needs as he or she perceives them.

HOW DOES YOUR BUSINESS KEEP UP WITH CHANGES TO LEGISLATION? We constantly undergo professional development through external courses, attending industry events, internal training, staff discussions and presentations, reading, email and hard work.

DO YOU USE ANY EXTERNAL PARTIES TO HELP WITH YOUR BUSINESS STRATEGIES? We talk to many people in the course of our business lives and are always picking up threads and ideas wherever we go. We then develop those in-house to meet our own business and personal objectives. From time to time, we bring in external consultants to help us focus on specific issues, develop ideas and help us put them in place. This allows us to gain objectivity and most of all, the time to get things done.

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BUSINESS STRATEGY / STRATEGY AND PLANNING

STRATEGY: Q&A Building on an inherited book Daniel Boce, financial planner and accredited mortgage consultant, inherited his advice business from his father.

Lifestyle Solutions’ core business is to provide financial advice to small businesses and families covering issues and solutions for insurance, debt and investment.

Overall strategic goals

Boce’s father originally set up shop because he could see his community growing into a mature market for financial advice 10 or 20 years into the future and that’s exactly what it has done.

“My overall goal is to be the first place local families and small business owners go to for financial advice,” says Boce.

finds return business results.

That is his second measure of progress. He regularly assesses how well his business is attracting new core clients who have ongoing advice needs.

Tips for growing a business in the financial advice space Boce sets high standards in terms of ongoing professional development, particularly in relation to strategies, products and legislation. “I also ensure any fee I charge is backed up by the actual effort or work I do for the client,” he says.

Keeping up with changes to legislation Boce relies on information from his licensee, attending workshops and seminars and reading industry publications.

Measuring progress?

Boce uses several measures to assess progress. The first is ongoing improvement, year-on-year in revenue per client.

Sometimes the client relationship starts with specific limited advice on an issue such as a Centrelink matter or on super.

Instead of charging for a full, comprehensive statement of advice (SoA), Boce charges a smaller fee for limited advice.

He then follows up a few months later to ensure the limited advice recommendations have been implemented and often

Do you use any external parties to help with your business strategies?

“No. With the size of the licensee fee charged I should utilize licensee services. But business strategies provided by a licensee who is a product manufacturer can lean too much towards writing product,” says Boce.

STRATEGIC PLANNING You need to ask yourself: • What do we do?

• For whom do we do it?

• How do we excel?

CASE STUDY: HEWISON PRIVATE WEALTH Hewison Private Wealth is an independent wealth management firm providing tailored financial strategy and investment advice. The firm specializes in recommending and managing Individually Managed Accounts (IMA) for self-managed superannuation funds (SMSFs), individuals, trusts and corporate clients. Advice is holistic, including all aspects of life stages and estate planning. The firm is owned by its senior advisors and managers.

Hewison has developed its own highly sophisticated IT systems that enable efficiency and cost-effective provision of IMA services. It is a “high touch” business providing clients with pro-active management of all aspects of their financial affairs.

Hewison mainly recommends direct investments in Australian listed shares, direct money market securities and direct or syndicated real estate. Some wholesale managed funds and exchange traded funds are utilized for international market exposure.

Being completely fee-for-service based, Hewison has no vested interest whatsoever in any investment or external organization other than its clients.

The firm’s overall strategic goals are to develop long-term relationships with clients

and their families in a family office environment. A high emphasis is placed on multi-generational wealth transfer in a planning sense where appropriate. It firmly believes in uncompromised independence and sharing the ownership with those working in the business. All advisors are university educated and salary-based employees as well as being shareholders and directors. The firm’s advisors are all CFP members of the FPA, and all are accredited by SPAA as SMSF sz pecialist advisors.

Hewison bases its measure of progress on many levels: new client appointments; client retention; client satisfaction – as gauged from personal interaction and an annual survey; performance measurement against individual client objectives and industry benchmarks; innovation compared to industry trends; staff retention, performance, commitment; company performance against financial budgets and profit targets.

Hewison’s tips for growing a business in financial advice are: have an unconflicted commitment to client advice, service and outcomes; promise a lot and deliver more – client service is the only priority; surround yourself with well qualified, dedicated people;

adopt and “live” the highest level of professional standards, ethics and integrity; invest in your people and nurture their growth; invest in the most sophisticated systems available. IT commerce capabilities deliver enhanced service and cost efficiencies.

Keeping up with changes in legislation, regulation and technical issues are a constant process. Hewison subscribes to a number of information sources and technical education sources and attend a number of conferences and seminars to remain updated. These are all time-consuming and expensive, but nevertheless essential to ensuring that clients receive the appropriate advice.

Hewison’s directors belong to external business discussion groups and the firm has an external chairman and mentor. A strategic planning meeting is held once or twice a year with an external facilitator to develop the firm’s strategic plan for one, five and 10 years. The firm holds a team retreat once a year where all employees head off to an external venue for two days to workshop the business. The firm commits to implementing all decisions taken at the retreat within 90 days. The end result is that everyone has a say and has ownership of the outcomes.

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EXECUTIVE SUMMARY

 Understand your value proposition, and be able to express it in a short statement

 Carry out analysis of your market position,

competitors and areas of potential growth

 Have a vision in mind of what you want to achieve – and a timeframe

 Break down the vision into goals and targets;

these should be SMART (Specific, Measurable, Attainable, Relevant, Timely)

 Divide your strategy up into operational areas,

with goals for each. Make sure these tie back to your core strategy

 Plot in some “quick wins” to get cash coming in  Know your financials inside outside – forecast on both conservative and positive sides. Carry out cash flow projections, too

 Look at your business process – can you streamline it at all?

 Outsourcing can be a cost-effective solution and/or give you access to specialists

• Marketing: how many campaigns do you need to mount to fulfil your targets?

• Product/service offerings: should you diversify?

• Operational issues, such as staffing: do you need administrators, more loan writers, or more offices?

• Process: can you put in place better systems to improve efficiency and therefore write more business for the same resource requirements?

4

FINANCIALS

Understanding the financial implications of your strategy is a fundamental part of success.

Budgeting should be based on realistic sales estimates; you should also take into account every cost. It is useful to break down costs into discrete areas, such as people, supplies, facilities, equipment, marketing and others.

While these numbers don’t need to be accurate, they should be a realistic estimate.

You should work several scenarios, if at all possible, with conservative and optimistic income figures so that your strategy is stress-tested. It may also be worth plotting a cash flow projection showing the timing of payments and expenditure, too.

Plotting in some high-paying (or money-saving) quick wins is also important, especially if you’re looking at investing in the business for the long term. “It’s good

to have quick wins, especially for small businesses that need to get benefits back quickly,” says Mackenzie.

“Revenue is key and if they’re going to be spending time investing in the business in some way for longer-term goals – which can drain resources – you have to look at activities that are going to give them benefit in terms of cash to help invest.”

5

MONITOR, REVIEW AND ADAPT

It’s important to keep monitoring your progress on a regular basis.

“Set a recurring appointment with yourself called ‘Business Review’ that runs 12 times a year,” says Mathlin. “Review exactly the results achieved and adjust the plan for the next 30 days as necessary.”

You shouldn’t be hobbled by your strategy either.

“The vision should be where you want to get to: the route you get there might change. Some things you implement will not work; some will work better than you expect. There are some things you haven’t thought about that you will be able to do.” WP

IST

carrying it out

T O-D O L

 Make time to plan your strategy and commit to

office ut of the o y a d a k  Boo on strategy! n? to work propositio e lu a v y at’s m  Wh to this ASAP n o t etitor e G ing/comp n io it s o p alysis rket  Ma sis: do a SWOT an -year analy r goal (fivaerket share? a e y e e r a th increase m ust think  Set M at is it? To ? goal?) Wh e? Sell up ther offic o n a n e p To o about this o to get

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ting, lop marke

this to desvtreategy, targets for  Use on, IT organizati s e employe

s hly review t n o m t e  S rogress rp to monito

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BUSINESS STRATEGY / LEADERSHIP AND MANAGEMENT

WHAT MAKES US

TICK? Understanding yourself and your employees better can take your team to the next level.

Jill Fraser reports

A

“A good leader possesses two key attributes, the ability to set direction and the skill to drive people towards that direction, motivate and align them and ensure that the direction appeals to their hearts as well as their heads.”

Their hearts?

Twenty years ago, an article on leadership would have reflected the domination of boardrooms by alpha males who believed that emotions and feelings in an office environment were about as relevant as children’s storybooks and as welcome as T-shirts, and probably kicked off with something like: “A good leader recognizes that business strategy is a highly rational process of eliminating variables and maximizing opportunities.”

Leadership in 2012 is a much more holistic concept. Leadership training institutions, such as Deloitte’s Leadership Academy use the analogy of children’s stories to encourage business leaders to tap into their own stories in to become more open, honest, transparent and real.

Today, as expressed in the opening quote by

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TECHNOLOGY: PROS AND CONS Deloitte’s Leadership Academy chief and founder, Tom Richardson, good leadership engages the heart as well as the intellect, and encompasses a number of key qualities.

Richardson established the academy to expand the capabilities of leaders after recognizing that people, not PowerPoint drove organizational performance. He has years of experience in the leadership stratosphere – working intimately with 15,000 top business leaders – and so is uniquely placed to explain why leadership is a people game.

“The characteristics and capabilities of good leadership are universal across almost all industries,” he says. “But it’s become more and more important in the finance industry because of the pressure around bonuses and remuneration.

“People will only stay in an organization if they feel connected and engaged. They’re not being paid to stay there with bonuses anymore. The need for leaders in the financial services industry to build up their people skills has become increasingly important.”

Halfway round the world from Canada, Andrew Henderson, CEO of Leadership Management Australasia, has introduced the term “leadership charisma.”

“It’s to do with connection – a connection that makes me feel that my leader is charismatic and the only way that connection will be established is if

my leader has the emotional intelligence to understand me – what motivates me, why I’m here, how I react.

“Unless leaders understand and invest in their people, they will not be able to influence them because when they want to rally their team to do something, the reaction will be ‘you only want us to do this because of what you will gain,’ ” he adds.

“But, if each individual knows from experience that their boss is invested in them, listens to them (consultative leadership) and honestly cares about them, they will trust the leader’s decision on behalf of the team. That’s leadership charisma,” Henderson maintains.

NEUROSCIENCE IN ACTION A high-trust factor is paramount in the leader/employee equation in the finance industry, says Professor John Toohey from the Business Psychology Discipline, Graduate School of Business and Law RMIT University, because of the nature of the business and the fact that a culture initiated and practised at the top is mirrored down the line and will eventually shape customer relations.

Toohey familiarizes his graduate MBA students with neuroscience to add weight and credibility to the argument that the most effective, charismatic leaders function from their emotions.

“Through neuroscience, we have come to realize

LEADERSHIP: KEY QUALITIES

Leading in the future One challenge leaders have to adapt to is technology. Tom Richardson, managing partner, Deloitte Leadership Academy, says there are benefits and challenges.

“How do leaders engage with their people when they’re scattered around the world?

Technology!” he says.

“Technology is a powerful vehicle to carry messages and establish connection – intranet, email, videos, TV channels, webinars, live feeds. The trap is a leader not understanding the purpose of each technology medium.”

Benefits ✔ Technology is powerful for listening and asking questions.

Technology can prioritize.

It also enables communication between people to build up a sense of community in an environment where geography and sheer volume prevent you from meeting. ✔ More and more leaders’ messages are delivered via video or voicemail – you can hold emotion in voicemail.

Email is not so engaging.

Challenges ✘ The many options

EMPATHY COMMUNICATION PROCESS & TACTICAL ORIENTATIONS LOGIC

EYE FOR DETAIL

INSPIRATION

EMOTIONAL INTELLIGENCE & SELF-AWARENESS

create complexity.

Whenever you have a message it’s essential to balance technology with the personal touch. ✘ Don’t rely on technology too much.

Physical face time is often key to effective communication.

Source: Deloitte Leadership Academy

BIG PICTURE VISION AUTHENTICITY

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EXECUTIVE SUMMARY  Leadership isn’t just about marshalling the intellectual resources of your workforce: it’s about engaging their emotions too

 Qualities of good leaders include empathy, logic, ability to inspire,

authenticity, an eye for detail and a “big picture” vision, process and tactical orientations and emotional intelligence

 Making a connection with your employees and stakeholders and understanding them is key to being able to rally a team

 Neuroscience shows that harnessing emotions can be much stronger than the rational side of the brain, as this kicks in earlier and creates stronger neural pathways

 Knowing yourself is key to being able to motivate others – and emotional intelligence is key to self-awareness

that decision making is primarily emotion-based,” explains Toohey.

“The emotional parts of our brain kick in long before the rational parts. The rational parts follow and try to make sense and contextualize.”

“A lot of men in business are afraid of that component, and don’t want to know about it. The executive education I’ve done in this area is fascinating: people have quite bemused smiles when I first tell them this but as they dig into it and I show them the research, they begin to look more bewildered than amused.”

Toohey contends that an area of critical importance in business education is the nature of beliefs and biases. He teaches that the brain is highly elastic/durable. Beliefs belong to the irrational/ emotional world, and a strongly-held belief can change the neural pathways of the brain (thus the elasticity).

“Leaders usually don’t understand this and therefore don’t get the impact,” he says.

The significance of all this, he says, is to highlight the relevance of self-awareness (what we believe, why and how we behave, and why) in what he refers to as “the psychology of strategy” for leaders to “inspire people to act in predictable ways.”

“I challenge managers and executive MBA students because usually they are very good at identifying biases in others, and very poor at identifying that thinking in themselves,” adds Toohey. “I tell them, ‘if you don’t understand yourself go and grow cabbages or do some other solo job.’

“Don’t pretend that you can go into a business and take a leadership role because you’ll only make

a mess of it. If you don’t understand yourself you’re never going to understand others, you’re never going to be able to motivate them.”

LEADER, KNOW THYSELF Jason White and Juliet Bourke, human capital partners at Deloitte, agree that self-awareness is a crucial element of leadership training.

Post-GFC, due to external market forces and related circumstances that prompted change, leaders with higher ‘emotional intelligence’ (self-awareness being a critical component of emotional intelligence) have emerged at the forefront, reveal White and Bourke.

Successful leaders during the GFC ensured that communication with staff was increased 10-fold, often spending at least 30 per cent of their time with their teams, says White.

“Whenever we experience a crisis, it’s an opportunity to reflect and minimize certain notes and amplify others, one of which has been becoming more inclusive,” adds Bourke.

COMMUNICATION Lee Iacocca, former CEO of Chrysler Corporation, once said, “You can have brilliant ideas, but if you can’t get them across, your ideas won’t get you anywhere.” Nido Qubein – businessman, motivational speaker, president of High Point University in North Carolina since 2005 and master of communication skills – says that the most common mistake made by leaders is “confusing the art of communication with the science of connecting.”

“Effective communication is not merely the transference of knowledge, data or information.

The heart and soul of effective communication relates to the ability to build a bridge of understanding. That means to connect with them,” he says.

“Something amazing happens when someone believes that the person communicating with them knows his or her fears, goals, aspirations and needs.”

Qubein adds that when leaders really connect, they use language that their people relate to, speak from their perspective and address issues they find important. The moment they do that the value of what they’re saying is heard in a modality in which people can relate and recognize the benefit to them.

“When this happens both the art and the science have been employed and communication has, as we say, clicked.”

“We all know the ability to drive performance, be financially astute and commercial and deal with op-

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erating issues,” says Richardson. “Possessing the emotional intellect to understand where your workforce’s mindset is at, what’s driving their motivation and be a real person with them and build engagement has been proven to be crucial in retaining top talent.”

Bourke says that it’s about understanding individuals, as opposed to seeing them through your own lens.

“The ASX’s focus on diversity skills is causing leaders to sit back and question whether they are actually seeing the person in front of them, or simply making assumptions based on stereotypes,” she says.

“Seeing the person accurately is about seeing their strengths, how they sit with other team members, their career orientation, and creating an environment in which you can pull together the best of everyone in order to create a high-performing group in which everyone can excel.” WP

IN THEORY: EMOTIONAL INTELLIGENCE The rules of the heart The concept of emotional intelligence (EI) this way: • the ability to perceive emotions in yourself and others • the ability to use this information in decision-making • understanding of emotions and their consequences • the ability to manage emotions in yourself and in others.

According to research conducted

by EI expert Daniel Goleman, another of the world’s leading proponents of emotional intelligence, “the higher up the organization you go, the more important emotional intelligence becomes.”

Goleman’s research suggests that EI is twice as important as IQ and technical skills. He classifies EI as a framework of five elements: • HIGH SELF-AWARENESS – They understand their emotions, and because of this, they don’t let their feelings rule them. They’re also willing to take an honest look at themselves.

• SELF-REGULATION – The ability to control one’s emotions and impulses. People who self-regulate typically don’t allow themselves to become too angry or jealous, and they don’t make impulsive, careless decisions.

• MOTIVATION – They’re willing to defer immediate results for long-term success.

• EMPATHY – Goleman says perhaps the second-most important element of EI is the ability to identify with and understand the wants, needs, and viewpoints of those around you.

• SOCIAL SKILLS – It’s usually easy to talk to and like people who have good social skills.

Those with strong social skills are typically team players.

CAN YOU IMPROVE YOUR EMOTIONAL INTELLIGENCE? Researchers disagree over whether you can build your innate level of EI. However, it’s generally

acknowledged that you can train to be better at EI. Corporate psychology firm Mindtools suggests carrying out the following exercises: • OBSERVE HOW YOU REACT TO PEOPLE - Do you rush to judgment before you know all of the facts?

Do you stereotype? Look honestly at how you think and interact with other people.

• LOOK AT YOUR WORK ENVIRONMENT - Do you seek attention for your accomplishments? Humility can be a wonderful quality, and it doesn’t mean that you’re shy or lack self-confidence. When you practise humility, you say that you know what you did, and you can be quietly confident about it. Give others a chance to shine.

• DO A SELF-EVALUATION - What are your weaknesses? Are you willing to accept that you’re not perfect and that you could work on some areas to make yourself a better person?

become upset every time there is a delay or something doesn’t happen the way you want? Do you blame others or become angry at them, even when it’s not their fault? Stay calm and in control in difficult situations.

• TAKE RESPONSIBILITY FOR YOUR ACTIONS - If you hurt someone’s feelings, apologize directly – don’t ignore what you did or avoid the person. People are usually more willing to forgive and forget if you make an honest attempt to make things right.

• EXAMINE HOW YOUR ACTIONS WILL AFFECT OTHERS – BEFORE YOU TAKE THOSE ACTIONS If your decision will impact others, put yourself in their place. How will they feel if you do this? Would you want that experience to happen to you? If you must take the action, how can you help others deal with the effects?

Professor Neal Ashkanasy from the University of Queensland, is an expert on emotional Intelligence (EI)

• EXAMINE HOW YOU REACT TO STRESSFUL SITUATIONS - Do you

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BUSINESS STRATEGY / SALES AND MARKETING

MARKETING

FORCES

Marketing your business effectively is probably the second-most important strategic activity you can undertake after planning your overall strategy. Charles Beelaerts breaks down the challenges

M

Marketing financial advice is not as straightforward as marketing many physical products. A number of extra hurdles must be crossed before a purchase is made.

These can be boiled down to two key issues. First, financial and investment decisions entail a uniquely large commitment on the part of consumers compared with anything else they will buy, and the commitment is based on the trust they have in their advisor. The experience of Don O’Sullivan, an associate professor of marketing, is that the sheer size of the purchase slows down the consumption process compared with smaller transactions.

Secondly, there can be difficulties demonstrating that you are unique in the market – whether that’s in comparison with other advisors or direct investment opportunities. O’Sullivan adds that when marketing and selling financial advice, “you need to be more believable than the competition – and competition may default to price.”

The first issue – the perceived risk of the purchase – can be dealt with in a number of ways, not least through the reassurance of a strong brand, communicating in the right way at various points in the decision-making cycle and peer recommendation.

Differentiation to other service providers, meanwhile, can be carried out through a clear marketing strategy. How can you put one in place?

CUSTOMER EXPERIENCE Customer experience is the sum of all experiences – good and bad – a customer has with a supplier of goods or services, over the duration of their relationship with that supplier. It is viewed by a number of experts as the single-most important aspect in business success.

KEY MARKETING ISSUES INTANGIBILITY: Services are intangible. You don’t have a physical product to sell and you don’t sell from inventory. If a physical product is defective, you can take it back and get a replacement. You can’t always do that with a service.

VARIABILITY: You can’t standardize the service offering. Each client will have unique goals and needs requiring unique solutions INSEPARABILITY: It is difficult when marketing a service, such as financial advice, to separate the consumer and the producer PROCESS: The whole service experience with financial advice impacts on the consumer in a way it doesn’t with a physical product RESEARCH: Services are more difficult for consumers to research than a physical product.

Word of mouth is more important in this case COMPLEXITY: This is related to intangibility – quite often, a service such as financial advice is complex and is generally not an easy thing for people to understand

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YOUR MARKETING STRATEGY STEP BY STEP

1

IDENTIFY YOUR TARGET CUSTOMER GROUPS/MARKET SEGMENTS

2

IDENTIFY YOUR VALUE PROPOSITION(S)

3

TAILOR YOUR CUSTOMER EXPERIENCE

4 5

TAILOR YOUR COMMUNICATION CHANNELS AND MIX TO MARKET SEGMENTS MONITOR, REVIEW AND UPDATE REGULARLY

STEP ONE: SELECTING MARKETS The first step in developing a marketing strategy is to identify the consumer group to whom you are making a unique offer – usually as part of your overall strategy setting.

The initial task is to evaluate the needs and characteristics of consumers and divide the market up into segments according to such things as geography, income, risk and so on. These segments should be evaluated in terms of profit and growth potential.

You may choose to focus on one segment, or service several. O’Sullivan points out that all financial planners have a choice of market and positioning and this should be an integral part of their strategy.

STEP TWO: KNOW YOUR STRENGTHS Once you know the type of customer you are targeting, you can start to shape your market positioning and communications. However, you also need to know what you’re highlighting as your key messages to various market segments.

There are a range of marketing tools available to do this, with the long-established “Seven Ps” of services marketing (see box right) commonly used to analyze your marketing strategy.

Another, simpler but arguably just as effective tool that’s become popular in recent years is the

THE SEVEN P’S OF MARKETING The seven Ps of marketing is a well-established formula used to evaluate both your business strategy and marketing mix by analyzing seven key customer touch points.

Financial planning is a unique business area, so even general business theory needs to be tailored to specific needs. How do the Seven Ps apply to financial advice?

1

PRODUCT Financial advice will be different every time it is received.

The service and the add-ons one gets can be different for otherwise identical products and the information a consumer gets is greatly influenced by the way in which a financial planner deals with a customer.

What you need to ask: What are the key differences in the services offered by different advisors? How do these relate to the target market?

2

PRICE There are many, often similar, offerings and competition can default to price where an advisor cannot differentiate themselves on other bases. Free or cheap advice is available from a growing number of sources so it is best to focus on non-price differences.

What you need to ask: What other services do I offer other than price? Eg, specialized knowledge, innovation or high-touch service.

3

PHYSICAL DISTRIBUTION Communicating the service is critical and you need to ensure that the distribution of information, including physical contact, is in line with consumer needs.

What you need to ask: How can I ensure my communications are consistent and hit the right touch points at all stages of communicating with the client?

4

PROMOTION AND ADVERTISING Online marketing has reduced the pressure on advertising. Getting messages out has become more straightforward. The importance of social media has increased enormously.

What you need to ask: What channels are most appropriate for my target customer groups? How should these be used most effectively?

5

PEOPLE As consumers can obtain similar deals from many different advisors, every touch point becomes important with a service that is intangible.

What you need to ask: Are my people upholding the values we are portraying to the market?

6

PROCESS Marketers need to be aware of every process step a consumer goes through and how to deal with it – right from when a consumer starts looking for advice until they execute your recommendations and seek reviews.

What you need to ask: What steps are consumers taking on their journey with me? How can I ensure the process is optimized for them and espouses our value proposition?

7

PHYSICAL EVIDENCE Financial services are intangible, but it is essential that you examine whether there is a consistency of look and feel of documentation, particularly of your own brand, at all stages of the process.

What you need to ask: Are all my public-facing touch points – documentation, websites, office branding, uniforms, etc – consistent and in line with our value proposition? Do I have a strong brand?

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WHO WANTS A PUMCIN? My eldest son started school this year. Little did I know he wasn’t the only one being thrust into a whole new world. My husband and I found ourselves thrust into the world of school parents.

The demographer Bernard Salt would describe these parents as PUMCINS (Professional Urban Middle Class In Nice Suburbs). They are social creatures and congregate over pinot noir and goat’s cheese. I have noticed at these congregations they like to brag about “their guy”; the guy that sold their house, the guy that built their deck, the guy that delivered their baby.

But I am yet to hear someone brag about their financial planner. I have asked myself, do they have an advisor? Are they too embarrassed to discuss it? Is financial advice talk a faux pas in polite conversation?

Common sense tells me that they probably don’t have an advisor.

Why are we not attracting these PUMCINS in droves?

They can afford to pay fees. An advisor can add value to their financial life. They are pleasant to deal with. They are the ideal client. There is clearly a marketing disconnect though because PUMCINS aren’t bashing down the doors of any advice firms I know.

Attracting PUMCINs is simple. They are networkers.

They network with friends from work, from their

concept of the “value proposition”: in effect, this is a short statement espousing the unique factors that explain why a customer should use your service or product. Again, these may differ for market segments, but tend to be similar.

Marketers argue that this value proposition is something that businesses should pay extra attention to; Kirrily Dear, founder of marketing and management consultancy, Eyes Wide Open, sees financial advice businesses struggling most with the area of value proposition.

STEP THREE: KNOW THE CUSTOMER’S JOURNEY Anouche Newman, associate lecturer in marketing at the University of Technology, agrees that customer experience is crucial – and you need to be on top of it from the word go.

The customer experience takes place “from the moment that they meet a planner through to experiencing the service and actually consuming the service itself.

“That should all be taken into account from a

children’s schools and from their old schools. They are also a little pretentious and would prefer to brag about their private banker or private client advisor than their financial planner. They expect their doctor, accountant or real estate agent to have a personal brand that mirrors theirs.

As a profession, we haven’t succeeded in promoting the value of our advice in quantitative terms. Advisors have said to me time and again that “my clients are with me because I help them sleep well at night.” Quite frankly in a FoFA environment, that will no longer cut it. PUMCINS will only pay a fee for advice if they can see they are going to be better off financially because of it.

My advice to advisors out there who are committed to building a professional and profitable advice firm and will need PUMCINS to pay their fees: • Integrate yourself into their world. Understand what motivates them and tell anecdotes about how you help people like them every day.

• Use their language.

• Make the experience authentic. Their brand must be everywhere: your web presence, your office fit-out, your client communications and interactions. They need to feel 100 per cent comfortable.

• Most importantly: show them and show them often how they are better off financially because of you.

strategic perspective.”

Newman suggests that a worthwhile exercise when planning your marketing strategy is to ask exactly what the customer experiences from start to finish and then determine how you, as a marketer, can communicate your value proposition at all stages of the process.

O’Sullivan adds that you should also demonstrate that you are unique in the market: that comes back to researching the market and having the right elements like promises of delivery – in effect, being able to get the customer the financial outcome they need and want.

STEP FOUR: COMMUNICATE YOUR MESSAGE Once you know: a) your value proposition; b) your target consumer group(s); and c) the customer journey, you can then work out the best ways to communicate with them at each stage.

The integration of communications into the advice marketing mix has taken on new dimensions with the ever-increasing number of ways you can contact consumers.

Ann Fuchs Director, Pinnacle Practice

BRAND ADVOCATE A brand advocate is a person who talks favourably about a brand, product or service and passes on positive word-ofmouth messages about the brand to other people.

Advocates can be other businesses you have referral relationships with, public figures and/or satisfied customers.

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COMMUNICATING YOUR MESSAGE

SOCIAL VALIDATION Social validation is the act of checking decisions by consulting those around us, whether face-to-face or online. It’s seen as a powerful marketing tool.

DIRECT MAIL

SOCIAL NETWORKING

TELEPHONE MARKETING

BUILDING REFERRAL RELATIONSHIPS

ADVERTISING – PRINT AND ONLINE

SPONSORSHIP

EMAIL NEWSLETTERS

PUBLIC RELATIONS

Matt Mitchener, marketing manager at Vow Financial, recommends three key methods of client contact.

“First, simple eDMs (electronic direct mail) to your database – no matter who they are. It is important to get your name, brand and contact details in the inbox of your database at pertinent times during the year,” he says.

“Second, text messaging, for quick, cheap and easy communication en masse to your current clients. Why not send out a personalized SMS for a birthday?

“Finally, telephone – finding a reason to talk to a client or prospect is easy. All you have to do from there is keep the contact regular so that you remain top of mind.”

Make sure you can monitor which methods are most effective – whether that’s putting a special offer code on a print advertisement, using analytics software or a simple where-did-you-hear-about-us question put into your initial client interview – because being able to assess which methods of communication are most effective is essential in refining future communications.

Dear warns that you can face an uphill struggle in a world that’s increasingly bombarded with marketing and media messages.

“There is an absolutely huge amount of market cynicism to overcome,” she says. “Physical evidence, case studies and results, and all the measurable aspects of what you do are critical in overcoming that.”

Providing something that’s more than just a sales pitch can make the difference between gaining a client or being instantly dismissed.

“The days of formalized communications; ie, putting on a persona have gone by the wayside,” says Dear.

“Buyers are looking for a very authentic voice within the marketplace so they feel like they are connecting and understanding the real person behind the service.

“That again helps with the feeling that they’re buying a known product.”

On a practical level, it is important to make sure that communication is consistent across every single interaction that a consumer might have with your firm, either online or face to face.

“For example, you might have a wonderful website with lots of information and a beautiful design,” says Newman.

“However, it sends the wrong message if the office is really shabby and the colours and branding that were used on the website are nowhere to be seen.” WP NOVEMBER 2013 | 55

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EXECUTIVE SUMMARY  Divide and segment the market by customer

WORD-OF-MOUTH POWER

T O-D O L

IST

type and need Probably the most important marketing channel for financial planners doesn’t  Position yourself by offering a unique service involve formal communication at all: it’s all about referrals. The power of word of mouth, referrals and testimonials is something that many planners have  Know your value proposition cottoned on to. The reason for this comes back to the ‘perceived risk’ issue  Have the courage to set yourself apart from about buying services, and particularly financial services. As the service can’t the competition be evaluated before purchase – as, say, a television can be – buyers have to look for other methods to reassure themselves that they are making the right  Never over-promise choice. A strong brand is a key way of doing this: ‘social validation’, seeking the  Research your competitors and your views of trusted others, is another. Research also bears this out: according to a consumers McKinsey Quarterly report, word of mouth is the primary factor for between 20% and 50% of all purchasing decisions.  Emphasise quality of service One way of doing this is by building relationships with other professionals  Be consistent with your communications – brokers, accountants, solicitors and so on – who will refer business, usually for a small fee.  Develop a knowledge and awareness of social The second, more prized referral method is recommendations from media previous customers, who effectively act as ‘advocates’ for a business in a social  Don’t sell to consumers, help them to buy situation.

However, the best way to recruit a ‘brand advocate’ is to simply provide a  Be adaptive to the rapidly changing superlative customer experience: if you do that, they’ll want to tell their friends environment about you.  Look beyond the ‘Seven Ps’ of marketing to While face-to-face recommendations are still the most common form of customer experience, and focus on giving referrals – the classic ‘chat over the barbecue’ – social media is also opening consumers the this up to a much wider audience. Think consumers using customer reviews best outcome (eg, on Amazon or iTunes) prior to purchase, or by asking for peer views via social networks.  Build trust in your dealings: reputation is a key Admittedly, managing the new world of two-way online conversation can be element a bugbear to many marketers previously used to ‘one-way’ communication.

Don O’Sullivan, an associate professor of marketing at Melbourne Business School, says that there is a degree of maturity coming into this aspect of marketing communications: it is increasingly being looked at as a cost of doing business.

It’s a growing channel, too. According to Kirrily Dear, founder of marketing and management consultancy, Eyes Wide Open, the market do some – t s li r amount of social validation being carried out online is significant. tome ers? rough custion. Who are my custom h “Selling any type of service online, and financial advice in t o G

 ONE segmenta particular, isn’t necessarily happening on the corporate website ion? WRITE analysis/ it s o p o r p anymore,” she argues. “It’s happening within social networks. Any alue at is my v firm serious about their marketing needs to work that out.”  Wh alysis All this online and offline social validation adds up to one thing: en Ps’ an v e ‘S a s o  D your reputation is crucial. er proces m o t s u c k at How do you manage that reputation? Know your value istency  Loo etc for cons , k r o proposition; know your target market; ensure your marketing w r e ck pap messages and brand are targeted and consistent; and recruit ‘brand age  Che ok, Twitter p o b e c advocates’ through providing value and, above all, superlative a F up s  Set rs/web ad customer service. newslette e e t a mers Financial advice is also all about trust – a client who is helped by Investig ting custockets, etc is  x e h it their adviser in their time of need is likely to tell several others about a ti in touch w r – cinem how they were there for them.  Get ustomer referral offe Set up c

Word of mouth is the primary factor for between 20% and 50% of all purchasing decisions

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Best In

SH W

M Maxwell Tailwagger was inches away from receiving an award for being one of this year’s Best Financial Advisors for Doctors. A distinction any industry player would covet. And while he lobbied for the distinction, he’s no glory hound, rather he’s a Daschund.

It was the owner of the five-year-old weiner dog who filled out the actual entry form, but only after receiving an e-mail invitation from Advanstar Medical Communications Group soliciting interest in a top advisors feature for Medical Economics Magazine.

Allan Roth, founder of financial planning and investment advisory firm Wealth Logic, bit at the offer and sent in Maxwell’s name. The dog met all the qualifications: A candidate would need to pay $750 and be free of any complaint lodged against them with the Financial Industry Regulatory Authority (FINRA).

Roth responded by gushing about his dog’s exemplary track record.

“He is very ethical and, as long as there is no FINRA complaint against him (and I’m sure there aren’t), can I buy a listing for him?” he wrote to the vetting committee.

Here’s a cautionary tail(?) for advisors of all shapes and sizes

Don’t laugh.

Roth warns that “prestigious awards” are for sale in many different vocations, and the financial advisory business is no exception. While he didn’t buy the award this time, he did previously get Tailwagger another honor in 2009 when he was named one of America’s Top Financial Planners by the Consumers’ Research Council of America (CRCA).

After he publicized that he bought an award for his dog, the CRCA threatened Roth with a lawsuit and attempted to have him punished by the state regulator.

“Through (a letter to) Forbes they threatened to sue me and turn me into the regulator,” he says. “The commissioner of the Colorado division of securities was informed that I was going through this process of applying for my dog, but nothing ever happened.

Strangely enough, I’m still listed on their website as one of America’s top financial planners.”

As well as being an advisor and columnist, Roth teaches investments and behavioral finance at the University of Denver. It’s a more rigorous subject matter than Maxwell can handle – notwithstanding his past top-dog honours.

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FEATURE / HOME COUNTRY BIAS

O,CANADA! OVERCOMING CLIENT COUNTRY BIAS

Spiriting clients across investment borders requires stealth, but a reasoned argument may be the best way to ditch home-country bias Canadian advisors and investors have sharply different views on the investment value of homecountry securities. That means advisors have their work cut out for them in coaking clients outside this country’s investment borders.

“If the masses think it’s good to invest in Canada while most (experts) expect it to get worse globally, to me that would suggest it is probably a good time to invest elsewhere,” says Ed Rempel, financial

planner with Toronto’s Ed Rempel & Associates.

“Negative sentiment implies lower current values, which often leads to higher future returns.”

In a TD investor sentiment survey, the majority of investors polled expect the Canadian economy to improve or at least stay the same over the next 12 months, 26 per cent and 55 per cent respectively.

About 41 per cent expect a great or fair bit of improvement for their own investments in the

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“If the masses think it’s good to invest in Canada — while most expect it to get worse globally — to me that would suggest it is probably a good time to invest elsewhere” Ed Rempel

coming year, while 51 per cent thought their investments would stay about the same.

“Canadian investors have a positive view of current market conditions both domestically and across North America,” says Bob Gorman, chief portfolio strategist for TD Wealth.

However, Gorman notes that the bank’s own view on Canada is more reserved. “While we anticipate moderate growth within the Canadian economy despite little change in key Canadian commodity prices, recent U.S. stock market performance is likely a factor in shaping that positive view.”

A separate survey reveals the large gap between what Canadian investors believe are good investments and what advisors think, with the former being bulls on Canada and the latter being bears.

The Summer 2013 Sun Life Advisor Sentiment Index suggests that Canadian industry professionals were bullish on the global market, with bulls outnumbering the bears by more than two to one.

More specifically, 54 per cent of respondents are feeling optimistic about market performance, generally, and about U.S. equities, in particular.

When it comes to Canada, advisors were bearish on the country’s second-half 2013 prospects, with 44 per cent expecting zero growth and almost 10 per cent expecting an outright contraction.

“The U.S. equities market has seen record highs in the first half of 2013,” says Sadiq S. Adatia, chief investment officer of Sun Life Global Investments.

“This market has consistently performed well and this trend is predicted to continue.”

HOME COUNTRY BIAS It’s debatable whether the results of the investorsentiment survey provide much indication about the direction of the North American and global economies. But the results likely do demonstrate that Canadians, like investors elsewhere, have a tendency to exhibit home-country bias, myopically assuming one’s own country will outperform others, as well as representativeness bias, assuming future performance will mirror past performance.

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FEATURE / HOME COUNTRY BIAS

TD’s survey showed that Canadian investors are most confident in the North American market, with 26 per cent expecting to see improvement in the Canadian economy and 27 per cent expecting to see improvement in the U.S. The mood is not bullish, however, and most (55 per cent) expect the Canadian economy to be static and 41 per cent feel the same toward the U.S. Canadians do have a negative view for the global market, with only 10 per cent of Canadian investors expecting improvement for the world economy.

About 42 per cent expect it to worsen and 43 per cent expect it to stay about the same.

The home-country bias is evident in all economies, although it is sentiment driven and in downturns or crises can reverse (as it did dramatically in Cyprus). People assume the unknown carries more risk than the known. They may be more aware of bad news from abroad, such as riots in Turkey, than they are of good news such as an economic resurgence in the Philippines.

“In Canada there is a home-country bias, but here I would suggest that the issue is more about sentiment. You have to realize that one of the most reliable rules about investing is the famous quote from Ayn Rand: ‘The masses are always wrong,’” says Rempel.

Rob McMullan, an investment advisor at CIBC Wood Gundy in Toronto agrees. “Many Canadians’ investment portfolios are over-weighted in their own country, which, as a mature market, is slow to grow.”

McMullan, who lived in Asia for many years and focused on the region and its economy at Harvard, says that such Canadians can often benefit by overcoming the home-country bias that they, or their advisors, may have. “They complain about their low returns,” he says, “yet so many continue to largely ignore fast growing markets like those in Asia, which hold many opportunities for investors, particularly over the medium to long term.”

65% of respondents are expecting rising values for Canadian equities

“Many Canadians’ investment portfolios are over-weighted in their own country, which, as a mature market, is slow to grow” Rob McMullan EXPECTATIONS BASED ON PERFORMANCE Another finding of interest to advisors, is that investors’ expectations of future performance were strongly coloured by recent past experience. This is a textbook error in financial education and behavioural finance. And it’s a common enough error that funds are required to carry the caveat: “past performance may not be repeated.”

Among Canadian investors who had seen improved portfolio performance in the past 12 months, 65 per cent were expecting continued gains.

Among those who had experienced losses, only 24 per cent were expecting gains in the coming year.

Similarly, among investors who had experienced gains in the past year, only 3 per cent were expecting losses in the coming 12 months.

“Investor surveys are generally backward looking.

Canada had a good run from 2002-2010, but over the past couple of years Canada has lagged the global market. Oil and gold aren’t likely to have the same strength that they did,” says Rempel. “I would think better value and better growth can be found outside the country.”

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FEATURE / HOME COUNTRY BIAS SOLUTION

INVESTING IN THE U.S.?

CONSIDER CANADIAN ETFs

To help clients overcome home-country bias, it can be beneficial to have investment options that suit their needs and risk profile.

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Canadian investors are looking to the U.S. for portfolio diversification. The U.S. continues to show improving economic fundamentals, and a diversified recovery, which is gradually reducing the need for American monetary policy stimulus. Since the Canadian market is heavily exposed to commodity prices that are dependent on lagging global growth, most investment professionals look to U.S. markets to continue to outperform and to be a key contributor to portfolio growth.

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Over the past 10 years, this approach was beneficial as there was no impact from the decline in the U.S. dollar relative to the Canadian dollar. However, after the strong appreciation of the Canadian dollar in recent years, many professional investors now believe that the Canadian dollar will most likely decline in value. Given this assumption, they have been looking to remove this “hedge” in order to also participate in the appreciation of the U.S. dollar.

CURRENCY CONVERSION COSTS: Often overlooked is the cost of converting to U.S. dollars when investing in the U.S. and then the cost to convert back. Canadian ETF managers now offer a solution that is exposed to both the U.S. market and the U.S. dollar, but is denominated in Canadian dollars. These ETFs provide Canadian dollar investors exposure to the U.S. market and U.S. dollar without the conversion cost. For U.S.

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dollar investors, it is also possible to avoid conversion costs by purchasing a “.U” series of an ETF, as they are denominated in U.S. dollars.

ESTATE TAXES Investing in the U.S. requires an understanding of the application of foreign taxes on a Canadian’s investment. High-net-worth investors that use direct investing by purchasing securities or ETFs on U.S. exchanges may be subject to U.S. estate taxes, and should consider a Canadian solution.

Generally, when U.S. securities are held directly in a mutual fund trust domiciled in Canada, they are not subject to U.S. estate taxes.

Simply put, investing in the U.S. offers very attractive opportunities for Canadian investors, and holding a Canadian ETF can make a difference.

Investors can now look to Canadian ETF providers to offer choices in not only the type of U.S. asset exposure, but also for various currency solutions including hedged, unhedged and U.S.dollar-denominated options.

This communication is intended for informational purposes only and is not, and should not be construed as, investment and/or tax advice to any individual. Particular investments and/or trading strategies should be evaluated relative to each individual’s circumstances. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. *BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from Bank of Montreal. Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the prospectus before investing.

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LIFESTYLE / DAY IN THE LIFE

Day in the life of...

Kelly Willis, VP, Marketing and Client Relationships for Newport Private Wealth in Toronto 5:50 a.m. My alarm goes off, and I’m on my feet getting dressed for the gym. I’m not really a morning person but over time I’ve learned it’s the only way I can be assured of fitting exercise into my day. It occurs to me it’s early when Jazz FM’s radio morning show still hasn’t started. I’ll check emails before I leave the house.

8:30 a.m. Team meeting. We have such a great team here at Newport and our weekly Thursday morning meetings are always a wonderful exchange of ideas.

Today we talked about prescribed rate loans for high-net-worth individuals and I updated the group on our upcoming client event – part of our scheduled plan for a minimum of 18 “client touches” per year.

9:30 a.m. Corporate marketing. I have a dual role in that I am responsible for both corporate marketing and client development. This morning I am working on the development of creative for our marketing strategy for dentists and reworking the draft of a new whitepaper. I do a lot of writing and enjoy turning technical concepts into ideas people can relate to. I always write with someone specific in mind and that helps me focus on my audience.

12:00 noon Before I head to lunch I’ll check my Twitter feed to see what’s trending. Social media, and Twitter in particular, has allowed me to connect with interesting centres of influence in my field — from authors to media to other professionals. It’s great for sharing knowledge and provides a constant source of new information that’s of interest to me. I think it’s a real opportunity for financial professionals to be part of the conversations that are important to their clients. Even if, at first, you just listen in.

12:30 p.m. Lunch today at Patria. Our King West neighbourhood is such a vibrant area with so many wonderful restaurants there’s no shortage of options.

I’m meeting an accountant to catch up on our mutual

business. Aside: I always make room for Patria’s molten chocolate dessert in a pool of extra virgin olive oil and sea salt, and my guest agrees it is otherworldly!

2:00 p.m. Wealth management team briefing I meet with two of my wealth management colleagues to brief them on the needs of a prospective client: a widow who has included us in her search for a new financial advisor (a common occurrence as 70 per cent of widows are said to change advisors within the first year). My role on the team is to be the client’s financial trail guide Kelly Willis – drawing on my experience as both a widow and a certified money coach to provide the “soft skills” that are needed after loss. My colleagues bring technical expertise in financial planning and investment management that will help her to feel more comfortable and confident about her financial picture.

2:30 p.m. I catch up on emails and then starting work on a financial workshop I am giving at Widows’ Wellness Day later this month. It’s a full-day forum I’ve organized to help widowed spouses find new direction.

5:00 p.m. I’ll review my calendar and organize myself for tomorrow before heading home to grab a quick dinner, and do a few errands on my way to a meeting of a women’s group I belong to.

10:30 p.m. I’ve recently discovered House of Cards on Netflix so for the next hour or so I will battle the conflicting calls of sleep versus the political maneuverings of Washington, D.C. Fortunately, tomorrow my computer will remember where I left off better than I will.

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888-293-6728 vanguardcanada.ca/etfs Commissions, management fees and expenses all may be associated with the Vanguard ETFs™. Investment objectives, risks, fees, expenses, and other important information are contained in the prospectus; read it before investing. Copies of the prospectus are available at www.vanguardcanada. ca. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. The Vanguard ETFs are managed by Vanguard Investments Canada Inc. “FTSE®” is a trademark of London Stock Exchange Group companies and is used by FTSE under licence. These trademarks have been licenced for use by Vanguard. None of the Vanguard ETFs are sponsored, endorsed, sold or promoted by any of the aforementioned trademark owners and the related index providers and their respective affiliates or their third party licensors and these entities bear no liability and make no claim, prediction, representation, warranty or condition regarding the advisability of buying, selling or holding units in the Vanguard ETFs. Vanguard ETFs are available through financial institutions, please contact your financial advisor or financial institution for more information. © 2013 Vanguard Investments Canada Inc. All rights reserved.

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