Last updated: November 20 2012

Distinguished Advisor Conference: Forces shaping the future

On the final day of the 2012 Distinguished Advisor Conference Nov. 14, speakers looked at the forces shaping the future of investors and advisors.

Michelle Connolly emphasized the importance of tax-efficient investing in a world of continuing low returns; a panel of Marcin Drozdz, Steve Froese and Josh Will examined the growing role of alternative investments in providing higher returns in investors’ portfolios; lawyer John Poyser looked at the role advisors could play in helping aging clients and their families prepare for death; and, finally, a panel of Evelyn Jacks, founder of the Distinguished Advisor Conference (DAC), portfolio manager Richard Croft and advisor Kevin Gebert looked at regulatory pressures advisors will face in pricing their services.

Certainly if there is one lesson that the 150-plus attendees learned at this year’s sold-out DAC, it is that the challenges of our post-crisis world require fresh thinking. By all expectations interest rates will stay low, probably into 2015; an aging population and retiring baby boomers will stress the social-care systems and advisors alike; and, increasing regulatory pressure will place new demands on advisors. Advisors will need new solutions.

Connolly, vice president of wealth planning at CI Investments in Toronto, painted a picture of the increasing complexities of advisors’ practices. “Today’s advisors have to deal with individuals, trusts and professional corporations, non-nuclear families and the impact of taxes,” she said. “They have to ask a lot more questions.”

“Tax leakage” concerns Connolly (Knowledge Bureau Report, Nov. 7).  The most tax-efficient investment is unearned capital gains, she said, and for that reason she recommends mutual fund corporations which allow unitholders to move between corporate classes of shares without generating taxable income, the way you would with mutual fund trusts.

“You can rebalance your portfolio without triggering taxable distributions,” Connolly said.

For Drozdz, chief strategist at Winnipeg-based Blueprint Global Partners, exempt markets provide an investment opportunity that is not co-related to the public markets, providing some stability for investors. “It allows everyday Canadians to invest in markets where the institutions have been playing.”

Drozdz pointed to the example of Michael Nobrega, the president and CEO of Ontario pension fund OMERS, which in 2004 began its shift toward private markets and away from public markets. In 2004, for example, OMERS’s investment mix was 82% public markets and 18% private investment holdings. Now its asset mix is 53% public and 47% private.

“The principal reason for this new strategy,” Drozdz explained, “was to reduce exposure to the volatility of the capital markets, especially public equity.”

Private investments can take the form of investments in real estate or infrastructure; they can be limited partnerships (Froese’s area of expertise) or mortgage syndications (as discussed by Will, senior vice president at Fortress Real Developments Inc. in Toronto). All of these alternative investments have been around for a long time; it is just that regulation of exempt market dealers have made the products more available to retail investors.

Poyser, a partner in the law firm Inkster, Christie, Hughes LLP, detailed the time-consuming work that is the role of the executor. The executor’s job — and the distribution of wealth to beneficiaries — is much easier if the relevant information is in what Poyser calls a “death binder” or “death drawer.” But it is still a one- to two-year process. Keeping beneficiaries at bay can be a daunting task.

That is where Poyser sees advisors adding value to their relationships with older and high net-worth clients. Advisors can facilitate family conferences and meetings between the client, his or her family and the executor, so that everyone knows what to expect. “Advisors taking time to prework estates are adding value to those families,” he said.  “It is also a natural bridge to the next generation.”

Jacks, the president of Knowledge Bureau, kicked off the discussion on pricing strategies by talking about the Canadian Securities Administrators’ new rules concerning disclosure of fees. Under the new regime, clients will need to understand how much they are paying and what they are paying for.

“Client must be able to answer two basic questions,” said Jacks. “How much am I paying for services? And how did my investments perform?”

Admittedly, advisors have not done a good job of explaining the fee structure to their clients. In fact, many clients who are buying mutual funds using a deferred sales charge model may think they are getting free advice. “Clients are not used to paying for financial advice,” added Jacks.

That will present challenges in the new regulatory regime. Gebert, an advisor with Greenrock Financial Group in Surrey, B.C., started out as a mutual fund salesperson collecting commissions. As his practice developed, in 2009, he began moving toward a fee based on a percentage of assets under management. That meant having the fee discussion with his clients. Today, he said, his practice is financial planning-based.

As a portfolio manager, Croft has always disclosed fees.

The revised business model, Jacks and the panel concluded, will require advisors to demonstrate the value in financial advice.

The 2013 DAC — the tenth — will be Ojai, California, Nov, 10-13.

The speakers’ presentations can be downloaded by clicking here.