DIY investors were mixed on the value of working with advisors, according to a study released earlier this month.Daniel Balakov/iStockPhoto / Getty Images
As the Canadian Investment Regulatory Organization (CIRO) considers allowing order-execution-only (OEO) dealers to provide non-tailored advice to do-it-yourself (DIY) investors, some experts see the initiative as an opportunity to democratize advice to Canadians whose portfolios may not meet the threshold for full-service advice.
CIRO pointed out in its consultation paper that its initiative, which would allow OEO dealers to provide services beyond investing-related education, “aims to ensure that such advice does not diminish the value of established, robust advisory channels, thereby preventing any potential confusion between the two.”
Examples of non-tailored advice contemplated in the consultation included tools such as investor risk profile assessments, model portfolios, risk warnings for more complex assets or those experiencing volatility, targeted alerts, and general educational content.
Kendra Thompson, founder and principal of Epok Advice, a consulting firm focused on the future of advice, points out that CIRO’s consultation is taking place amid a broader modernization of the financial services sector. But she says that evolution has been tied too heavily to product and channel, which has “proven to be limiting.”
“The needs of one channel are now pushing out and creating a grey zone with another,” she says, adding that one channel shouldn’t be held back in service of another.
Ken Kivenko, president and chief executive officer of Kenmar Associates, an investor advocacy group, says he hopes to see CIRO allow OEO dealers to provide non-tailored advice on a broader range of topics than just investing.
“You can’t leave advice to transactions. You’re going to have to include financial planning, risk analysis, some estate planning – simple things such as, ‘You can have joint accounts,’ or ‘You should make sure your [beneficiary] form is in place for your tax-free savings account,’” he says.
Increasingly, Ms. Thompson says, the “sweet spot” for advisors is to be able to provide full-service advice profitably to high-net-worth clients with $1-million of invested assets.
But there’s a huge swath of Canadians who want advice and information that’s “one level above financial services 101, financial education or financial wellness training, but well below the current threshold for personalized, tailored advice,” she says.
That includes getting a clearer understanding of how their spending affects their ability to invest and how their workplace retirement savings plan fits into their overall financial picture. She says OEO dealers could leverage the data they have to fill in those gaps.
“I don’t think anyone is expecting [the OEO] channel to say, ‘This is specifically what your family needs at this time,’” she says. “But thinking about it as, ‘We have a lot of customers similar to you … and here are some of the things they’re doing that you’re not.’”
DIY investors were mixed on the value of working with advisors, according to a study by CIRO’s office of the investor released earlier this month, based on in-depth interviews with 40 DIY investors.
Those who invested through a DIY platform and worked with an advisor tended to value their advisor’s expertise and knowledge. Investors who had no advisor were more likely to be critical of them, particularly the cost. Some, however, said they hoped to transfer their assets to an advisor once they had more funds, but felt the cost was too high relative to the value of their portfolio.
“What the DIY research found was that investors are not purists about either DIY or advised,” said Alexandra Williams, CIRO’s senior vice-president of strategy, innovation and stakeholder protection, in an e-mail to Globe Advisor.
Investors with both DIY and advised accounts said they value the mix “because the advised portion is perceived to provide greater safety and reliable growth for their investments,” she said.
CIRO is in the “final stages of developing a guidance notice for DIY firms that will allow them greater flexibility in the tools they provide to customers,” Ms. Williams added.
Pathway to advice?
While many DIY investors don’t have a financial advisor, dealer firms say they don’t view the OEO channel as a client’s first step toward a full-service advice relationship.
“We have some clients who manage all their investments, and some clients who have an advisor for all of their investments,” says Claude-Frédéric Robert, president of National Bank Direct Brokerage. “A lot of our clients have both.”
Blair Wiley, chief legal officer at Wealthsimple Inc., says the company sees its OEO offering as separate from its managed investing platform, on which some clients can have a dedicated financial planner or check in with one on occasion, depending on the amount of assets they have with Wealthsimple. He notes that the firm wants to meet the investing approaches and needs of all its clients.
But he says the company has heard from some OEO channel clients that they see the DIY platform as the place to learn the basics of investing before they “graduate” to setting up managed investment portfolios.
During the GameStop Corp. short squeeze in early 2021, when Wealthsimple saw an influx of clients open accounts on its self-directed platform, the firm set specific volatility criteria and added warnings to the landing pages for various stocks that had experienced significant swings in the previous 30 days.
Mr. Wiley says he thinks the experience was a “trust-builder” with clients, and many who signed up initially to buy shares of the meme stock stuck around and built diversified portfolios with Wealthsimple.
Aravind Sithamparapillai, financial planner at Ironwood Wealth Management Group in Fonthill, Ont., says he believes a contingent of DIY investors will still seek out advisors for advice on their broader financial picture even if they choose to maintain control of most or all of their investments.
He says he believes advisors will need to distinguish themselves with the broader financial, tax and estate planning they can provide.
“There are other financial planning components that come with investment advice, that are sometimes linked right in or not,” he says. “For example, the amount of risk you take in your portfolio or what your expected return is guides how much you need to save, which also guides your tax position.”
Mr. Sithamparapillai says his clients work with him because they want the benefit of his financial, tax and estate planning advice, and share his philosophy of keeping their investments simple and low-cost through asset allocation funds.
“I don’t have as many clients who are determined to keep some small amount off-book,” he says.