Last week’s advisor spotlight with Darryl Brown showed us how the wealth management industry is slowly opening the door to professionals outside the traditional CFP designation. For this week’s sixth feature, we return back to the roots of the industry and focus on a "plan-first" advisor. Our very first edition showcased another plan-first advisor, however this week we take it one step further and visit an advisor who belongs to a firm with 17,000 members nationally; Edward Jones.
Colton Hope, CIM, is based out of the Greater Vancouver area with Edward Jones. Colton has a large number of clients who are business owners and as a result, he is well aware of the irregular cash flows they usually experience. Colton has a strong focus on creating a comprehensive financial plan and feels like the rest of the value he brings to the stable stems from his plan; rather than the other way around which we all too often see in wealth management. I spoke with Colton about the value of a risk assessment tool to both planning driven, as well as performance-focused, advisors. Similar to what we saw in my recent discussion with Evan Turner, Colton and I also had the opportunity to discuss some of the latest wealthtech advancements.
There is a visible divide in wealth management between plan-first and performance-driven advisors. The way that each of these advisors chooses to structure their fees and interacts with clients ends up being quite different. However, these differences also carry over into their software decisions and the value that they are looking to get out of new products they bring on board. For all types of advisors, meeting the requirements of compliance and gaining a better understanding of your client’s risk tolerance should be front of mind. Regardless of your firm philosophy, the prospect of retaining an additional $9000 in net fees and reducing your client turnover by using a product such as RiskMetrics should be impossible to pass on.
For the planning focused advisors, Colton was very quick to point out that the main value for them from a risk assessment tool is that it is able to augment the conversation an advisor has with their client. By having a client complete the risk assessment, it already begins the education process with them. No longer will the burden rest solely on the advisor to introduce financial concepts to them, or to have the client start thinking about their own finances in a goal-oriented way. When a prospective client completes a risk assessment such as the one provided by RiskMetrics, the product is able to deliver not just education to the client, but also a detailed report for the client about their own risk profile. Clients are then able to take this information into a conversation with their advisor and feel confident when having that conversation. At the same time, by using a risk assessment tool such as RiskMetrics the advisor is able to obtain some information on the client which can supplement his or her interview process with them and then can be referred back to as they build a personalized financial plan.
Now the value of a risk assessment tool to planning based advisors does not only apply to their prospective clients. Advisors know that clients go through many different life events and changes through their relationship together, these material changes can slowly shape and change the risk profile of individuals. It seems like an easy decision to have your clients complete a 15-minute assessment once per month in order to always know that your financial plan for them aligns with their goals and that you don’t need to make any changes for their portfolio allocation.
In a similar way, Colton highlighted that for many of his clients who have one all-encompassing risk profile, they also have varying levels of risk tolerance when it comes to different individual goals. Whether a client is focused on saving for retirement, or their family education fund, it will change the level of risk they are comfortable taking on. The client’s capacity for risk may not change, but their risk perception, preference, and tolerance may all change which will ultimately affect the decisions that should be made with that goal in mind.
While Colton primarily focuses on a holistic planning approach, he described how he quickly sees several applications for a risk assessment product for performance-driven advisors. The first and most obvious reason is that performance-driven advisors have the same legal obligation to ensure that the portfolio they choose for their clients matches their risk tolerance. At the same time, performance-driven advisors generate their fees from the size of their AUM. If an advisor loses clients because they are unhappy with the service or returns they are receiving, which is most often due to an inaccurate client assessment, then it is an easy decision for them to adopt a risk assessment tool. At the very least, the tool can help stop them from losing several clients each year. The small monthly cost of around $100 seems very small compared to the net fees they are losing from losing a five million dollar client.
Lastly, performance-driven advisors may not be making this conscious decision when purchasing risk assessment software, but by doing so will further improve the service they are able to provide for their clients. For many, the thought of a comprehensive financial plan or going through the arduous task of interviewing clients many times over may be too time-consuming for portfolio managers and investment advisors. Yet, while some clients may only want investment services and a good return, the large majority of clients will want to see that their advisor or investment manager has some understanding of their individual needs. Colton pointed out how using a risk assessment tool can be a painless way for the investment manager to gain a better understanding of their client in less time and how the client can be a bit more confident in the service provided to them.
To wrap up my conversation with Colton, I decide to continue with my interview theme and ask him where he thought the wealth management industry could use some disruption. It quickly became clear that we shared a mutual agreement that Canada’s wealth management industry seems to be far behind the tech adoption seen in the United States. Colton explained how wealthtech is such a great opportunity for new businesses because the value of a client is very high for financial advisors. As a result, many wealth management firms and advisors are willing to pay large sums for effective software.
As far as areas for improvement, Colton described how he would like to see some improvements made in forecasting tools and more “streamlined” planning software. For forecasting tools, it would be very helpful to have features that can help perform scenario analyses on portfolios and financial plans based on different risk tolerances or market events. Additionally, many of the planning tools out there will simply spit out a large pdf report outlining what sort of plan the client needs. At the end of the day, the client and advisor really only care about two things; how the client is doing and what are some things which they need to change.
It was great speaking with Colton and I know he is always keen to talk. Whether you are interested in Colton’s services as a top up and coming financial advisor, or you would just like to pick his brains about some fintech-related news, then feel free to reach out to him using the contact button below.Contact Colton
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