There are many reasons that may cause a person to make a phone call or send an email to a different advisor at another firm to request a second opinion. Over the last couple of decades, we have noted the most common reasons that people seek a different perspective.
1. Discussion with friends
Most incoming calls for a second opinion have been the result of an individual, or couple, being referred to us by an existing client. The individual, or couple, would have been given our contact information (phone number, email address, or both) from another one of our clients. In some cases, the conversation was started as a result of one of the reasons listed below. It is not an easy decision to change the relationship with your advisor, often it is hearing what else is available from a trusted friend or family member is the extra nudge that is needed.
2. Advisor has changed firms
When an advisor makes the decision to leave their firm and work for a different financial institution, it provides you an opportunity for a new perspective. When an advisor changes firms, they may naturally reach out to you and hope that you also move your accounts to the new firm. For months your advisor will most likely be preoccupied with the completion of new account paperwork and trying to convince clients to relocate their assets with their new firm. My advice is to reflect fully on why the advisor has moved firms – is this move best for them, or for you?
When an advisor has informed the firm that they are leaving for another institution, the role of the branch manager is to have another advisor at the branch contact you. Our recommendation is to explore all of your options and choose what is best for you. The options may be to stay with the new advisor assigned, follow your old advisor to another firm, or do your own research to find the best advisor.
3. Proximity to an advisor
Vancouver Island is a fantastic place to retire. Many people have lived and worked their entire lives in different parts of ÎÚÑ»´«Ã½, or outside ÎÚÑ»´«Ã½, and choose to retire in beautiful British Columbia. Although it is not a necessity to have face-to-face meetings with your advisor for every meeting, it is nice to periodically get together, or at least know that you can if you want. In some cases, we have had new clients share their experience that they moved from another province (i.e. Alberta through to Newfoundland) and their current advisor is not registered in British Columbia. In other cases, the advisor may be registered in the province, but you just prefer to work with someone that is local.
4. Advisor has retired
When a financial advisor is planning to retire, they may introduce you to another individual that will be taking over their clients. At this point, I would step back and reflect on whether you want the new individual to be your advisor. Just because the retiring advisor has introduced you to a new person, does not mean you are obligated to stay with that individual.
Some advisors have large teams with staff that they have been training to one day be able to take over the client relationships. The longer the team member has been with the retiring wealth advisor, the better they understand the clients. Getting the mentorship, financial planning knowledge, and learning how to effectively manage money all take a significant amount of time. Knowing you as the client, and your associated investment objectives, risk tolerance, financial goals, etc. also is important.
5. Investment licensing is limited
The typical cycle of investors is to start saving money and depositing those funds into a savings account at the bank. Once the funds accumulate, the next step is usually putting these funds into investments, such as mutual funds which can be recommended by individuals at the bank. One of the reasons for this recommendation is that GICs and mutual funds are normally the only investment options available at the bank. The individuals that you would meet at the bank are licenced with the Mutual Fund Dealers Association (MFDA) to sell mutual funds, which are issued by prospectus.
Once net worth accumulates to $250,000, or higher, we have always encouraged individuals to consider all their available investment options, including holding companies directly in their portfolio. Advisors that work at the full-service investment side of the bank will have additional licencing to enable them to offer significantly more investment options, including those that trade on a stock exchange.
6. Performance
One of the reasons to consider a second opinion is if you feel that the performance of your investments is not satisfactory. A good starting point is to request a performance report for a one-year, three-year, and five-year period. We recommend breaking your asset mix down into three categories: cash, fixed income and equities. It is easy to get the benchmark returns for these three categories, for each of the above one-year, three-year, and five-year periods, and compare to the asset mix you have.
One of the items that ultimately impacts performance is the cost of investing. Management Expense Ratio (MER) in mutual funds reduces your net returns. For example, if you have mutual fund holdings you will have to review the specific holdings. If you have a significant component in cash and fixed income, either fixed income mutual funds or balanced mutual funds, then part of your benchmark should be compared to cash and fixed income. The component in equities should be compared to the equity benchmark. Of course, the MER will reduce your net returns as noted above.
7. Fee reduction and transparency
One item that may not be common knowledge to investors is that Portfolio Managers can customize their fees. We typically work with multiple members of the same family, and multiple generations. Even if members of the family live in different residences, for our purpose we consider the entire family as a whole a “household”. Here is a link for an article that we wrote about householding. The greater the assets for the household, the lower the overall fee percentage for the family.
Even if you are not able to household your account with other family members, it is always a useful exercise to look at the total cost of investing. When looking at the total cost of investing, you should look at both the costs that are transparent and the costs that are embedded. You may have received a report that has shown the fee that the advisor receives; however, often these numbers do not include other fees kept by the financial firm if they offer structured products (i.e. mutual funds). Often, one of the most shocking parts to a second opinion analysis is when we break down the total fees, and the potential savings they would receive by adopting a different option.
8. Service level
One of the marketing lines I have heard others say is, “fees are only an issue in the absence of value”. When I hear people say this, I always think, it is possible to have both lower fees and substantial value – you don’t have to make a choice. One thing for sure is that not all financial advisors provide the same level of service. The level of service may be related to knowledge, specifically the credentials and experience of the individual.
For others, service may be translated into someone answering the phone, returning phone calls in a timely manner, asking questions by email, ability to schedule a meeting, etc. If you do not feel that your advisor is making the time to answer your questions, or provide the service you expect, then other advisors certainly will make the time.
Many Portfolio Managers today have a large team of individuals to provide the most comprehensive service offering for their clients.
9. Financial planning goals
Getting a second opinion isn’t always about a lack of satisfaction from underlying investments. Some of the people that have reached out to us over the years shared a common concern about whether they were on track for their retirement goals. When people are unsure of things such as: will they have enough money in retirement? Are their accounts structured appropriately for estate planning? Or, is my advisor able to help me in these areas? They are missing the Total Wealth Planning component from their advisor.
Having honest and open communication with your advisor is important when talking about your financial and life goals. Having someone that you can confide in, ask questions, and feel confident that you will get the right answers is key. The advisor also has to have the qualifications and the experience in this area to help guide you and achieve your goals.
10. Experience
If you are dealing with someone that is relatively new in financial services, it can be more challenging for them to maintain the depth of knowledge to provide the best service. Even after 20 years in financial services I’m still learning tips that help our clients. When it comes to financial services, the more experience the better.
One common concern we hear, especially at the bank branch level, is that a client’s advisor keeps changing. The primary concern that I have with this is that often the new advisor does not have the same level of familiarity with the client and knowledge that the previous advisor would have had. Although it sounds like a nice idea to give a new advisor a chance – you may wish to ensure that your financial future is in the most experienced hands possible.
11. Transition from do-it-yourself
Sometimes the second opinions that we are asked to provide are from individuals and couples who have been managing their own investments on a self-directed bases. In many of these cases we see portfolios that are not structured correctly from a tax standpoint, have been taking excessive risk (i.e. concentration in one sector, overweight in certain companies), and have no Total Wealth Planning in place.
Another component is that it takes a significant amount of time to stay on top of the markets. All too often when money is self-managed, transactions are done by emotions and feelings, rather than sound foundational principals.
12. Influx of capital
Everyone gets busy with the day-to-day of life. Investments may not have been your top priority until a significant event occurs that results in a sizable amount to be invested. Selling real estate, receiving an inheritance, proceeds from selling a practice/business, etc. are examples when people will shift away from where they have currently had their money managed to a different option. In many cases, the funds to invest is their “nest egg” or “serious money” that must last a lifetime. Ensuring you are best positioned, with a trusted team, provides peace of mind.
13. Personality fit
While advisors and their clients do not need to be best friends, there should be a mutual respect between them. When I begin working with a new couple, one piece of feedback I often receive is how much they appreciate that I speak to both of them, and involve both spouses in our discussions. They also appreciate that we will assist their children or other family members. A common complaint that we hear about previous advisors is they would only talk to one person in the relationship and not involve or acknowledge the other spouse, or assist other family members. This can create a sense of distrust and is not conducive to achieving financial goals, especially if not everyone is involved in the decision-making.
14. Life event
Life events are often a period when people will take a step back and reflect on the relationships they currently have in place. When a spouse has passed away, the surviving spouse may want to explore different options. When couples separate, we will receive a call to provide some financial guidance, that is independent from a potentially biased pre-existing relationship. Meeting with an advisor that you can personally connect with, trust, and understands your investment objectives and risk tolerance is key.
All information that a Wealth Advisor or Portfolio Manager receives must be treated with the utmost confidence. Your existing advisor would not know that you are looking for different service offerings. The majority of Wealth Advisors and Portfolio Managers will arrange an initial complimentary discussion and prepare an analysis for a second opinion at no charge. If you are not completely satisfied with your current relationship then you have nothing to lose by exploring a different perspective, other than some of your time. You may even find out that you have lots to gain!
Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138, email [email protected] or visit greenardgroup.com/secondopinion.
