My last post summarized some of our notes from the recent S&P DJI ETF Masterclass conference in Toronto, on the topic “ETFs as a Catalyst for Canadian Advisory Growth”. We discussed some disruptive innovations that are changing the fabric of wealth management, and how some of Canada’s leading wealth management thought leaders propose to address them. This post will continue on the same theme, with a discussion of two more disruptive challenges on the horizon.
1. Relatively new robo-advisor and hybrid robo-human platforms are rapidly gaining traction in the U.S., and several smart Canadian offerings are popping up north of the border. The disciplined, diversified investment portfolios offered by these platforms, which automatically rebalance and alter portfolio composition in response to clients’ life phases, are already causing some clients to question the role of their traditional advisor. Someone mentioned the existence of ETFs that provide exposure to a globally diversified portfolio with zero management fee. At the same time, it was widely recognized by panelists and thoughtful advisors in the audience that robo-solutions lack some important ‘soft’ qualities, which represent substantial benefits to clients. Of course, advisors can help clients develop comprehensive estate and financial plans, and perhaps better address client objectives that do not map directly to the ‘mean-variance plane’. In addition, advisors can help keep clients focused on the long-term during periods when clients are tempted to leap to a ‘faster horse’ during bull markets, or abandon their plan altogether at the depths of bear markets. Mark Yamada, President and Chief Executive Officer of PUR Investing, felt strongly that advisors must adapt to survive. In particular, advisors should think hard about their value proposition in an environment where clients are reluctant to pay fees for strategic asset allocation, manager selection, or rebalancing. He suggested advisors must decide whether they can add value with more dynamic asset allocation approaches, or else differentiate with highly personalized financial and estate planning services.
2. Michael Jones, Chief Investment Officer for RiverFront Investment Group in Richmond Virginia, closed the event with a compelling presentation about the growing importance of external ETF solutions for advisors who want to adapt to a rapidly changing wealth management landscape. The Registered Investment Advisor community in the U.S., analogous to Canadian independent Portfolio Managers, have embraced ETF mandates with a voracious appetite over the past five years. This segment has been one of the fastest growing channels in asset management, and several managed ETF mandates boast AUM in the tens of billions. As investors wake up to an increasingly complex, global risk environment with few easy solutions, we don’t expect this trend to reverse any time soon.
At root, the S&P DJI event offered advisors a clear mandate: success in the future must be founded on a model that puts clients first and adds services. Advisors who can learn to use all the new tools at their disposal to offer differentiated value have the opportunity to take a much larger share of the pie.