Webinar Q & A: Making Advisors More Efficient

September 3, 2021

Webinar Q & A: How to Make Your Wealth Management Practice More Efficient

On Thursday, August 26 we took part in a webinar panel discussion hosted by Advisor’s Edge. Advisors who watched the webinar (and those who end up watching the replay) are eligible for continuing education credits through CE Corner. The discussion was extremely informative and engaging - so much so that we didn’t get much time to answer all the questions coming in from the audience. Since we couldn’t just leave everyone hanging, we’ve decided to share the answers here:
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How Will AI Impact the Financial Industry Globally?

Today, true artificial intelligence hasn’t made its way into mainstream technology, only forms of machine learning, and automation are widely available, including within the financial sector. The potential for these types of advancements is extremely vast, and any repeatable mechanism in a digital form can be replaced by an algorithm these days. This creates the potential for faster and often better processes within any industry. The caveat for financial services is that even repetitive processes require audited systems and controls since they’re dealing with sensitive financial data, regulators have to create a framework to allow for this type of technology to exist within financial services, and most importantly advisors and investors have to feel comfortable letting an algorithm give them advice about financial decisions. Despite these limitations, many wealth professionals are already leaning into technologies like robo-advisors and image recognition for digital photo ID verification, so we’re seeing the shift start to take hold.
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When it comes to technology in the cloud, how does it respect the privacy of users?

Data controls and privacy are a top concern for any cloud technology provider. These companies have to undergo extensive Systems and Organizational Control (SOC) audits that allow an independent auditor to certify that their technology is doing what it should in terms of data security and privacy. To get the full picture of cloud computing concerns in the financial sector and how cloud-tech companies manage these, please read our article in The Financial Brand.
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How does GIM get their clients, do they have reps?

Great question, but you’ll have to ask them directly! Reach out to the GIM team here: invest@gold-im.com
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Has technology helped clients get better performance than pre-technology?

Speaking of GIM… one of their portfolio managers who joined us for the discussion, Marisa Pazdar, was able to answer this question during the actual event. She says: Being able to offer some type of technology to your clients to add value to what your firm has to offer is key. If a client can go in and have a more dynamic view of what your firm is offering (a summary view of their information, real-time portfolio data, ways to pull their own statements or run reports) something like that is very powerful. We get very good client feedback when they’re comfortable with the technology we offer to them. Clients have a range of needs, and we already covered that, but having dynamic technology that can really offer what each client needs is important. And having a system that they can use over time (again nothing that is one use only) is quite key and offers a lot of value.

From Mako’s perspective, we see that when client interactions are automated it frees up a lot of time for the advisor. The direct result is that the advisor can spend more time on actual portfolio management, performance and client relationships.

Bfinance just released a study about wealth management and technology, and we encourage everyone to take a peek at their data here for additional insights on the subject.
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What about KYP?

KYP processes can be automated by using technology like Mako Fintech, just like any other part of onboarding that requires custom implementation to account for a firm’s unique processes.
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Would you want monthly client performance feedback?

If we understand this question correctly, yes both advisors and technology providers would want to understand client performance regularly. This type of performance monitoring is possible within systems like Mako that can give wealth managers an aggregated view of how many clients need to be onboarded, how long it took for them to complete the process, how many need a KYC refresh and so on. While Mako does provide data like the examples listed above, traditional portfolio management systems are more suited to ongoing portfolio performance reporting.
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Can you send me the replay for this by chance?

The replay of our webinar is available on the CE Corner website. Thanks for attending!
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Image Credits

Feature Image: Unsplash/Simon Abrams

Technology and Efficiency in Wealth Management

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So in my view an appropriately diversified portfolio should have enough exposure to different asset classes, that its able to withstand a wide range of market disruptions. Usually, it’s some kind of negative or positive event… they’ll affect different asset classes differently. So by having your eggs in different baskets you’ll be well insulated from major risk. For example, there’s some kind of change in the housing market… both by having some exposure to it, you won’t miss out on the opportunity to make money. But if it’s something negative, you’re also not going to lose all your money if all of it were in the housing market for example. So at a high level, a properly diversified portfolio should grow in a growing market and yet not be at risk of major losses in a declining market.
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You asked also about an efficiently diversified portfolio, and I would say that that’s a portfolio that achieves those goals with a minimum of different positions. There’s a lot of good reasons to have fewer positions in your portfolio. Being less complex means a portfolio is easier to rebalance and administer. Every time part of your portfolio goes up or down, you're going to need to rebalance it a little to make sure that it stays with the right allocations and the fewer positions you have, the easier it is to do that..the less trading fees you incur doing that.
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There is a tradeoff between being completely diversified and being efficiently diversified. If you were completely diversified then you’d have a proportional segment of absolutely everything you could invest in under the sun, like shares of palm oil futures or something like that. I don’t think everyone should have palm oil futures in their portfolio but I’m not a wealth manager. I think it comes down to your portfolio and how large it is (probably the Canada Pension Plan has a proportion of palm oil futures in it). You’re going to have to talk to your advisor and choose a degree of complexity that’s right for your portfolio.
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CN: Let’s just take a step back - what does a typical portfolio look like and has that changed over time?
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RB: Yeah, so I'm not entirely sure what a typical portfolio looks like these days because it's actually changed quite a lot over time. I think common wisdom used to be that the classic balanced portfolio was 60% public stocks and 40% bonds. These days that's ancient history. Most would say that the bond allocation should be a lot lower these days in this age of unprecedented low-interest rates. These days it’s the stock portfolio that’s been driving a lot of the growth. I think a well-diversified portfolio in the modern era should absolutely include exposure to all kinds of alternative assets (that aren't even really that alternative but still kind of fall out of that traditional bucket). So you know I mentioned real estate, private companies, maybe for example commodities or other types of investments. So I think that there are a lot of things that you can invest in and your advisor can guide you on what’s appropriate for you.
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CN: Yeah that makes a lot of sense. Talking about alternative investments, we’ve heard a lot this year about ESGs, impact investing, alternative investments… do you think there’s more of an appetite today for these types of investments than in the last ten years?
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RB: Yeah that’s a topic that’s close to my heart having previously started an impact investment company. It’s definitely been a gigantic increase in interest. I think when I started my previous company we were speaking to large wealth managers and having them say “we’re barely getting a grip on early ideas.” Like not including gun manufacturers or tobacco companies, and now these same companies are launching impact portfolios and marketing this aggressively. So there’s definitely been a seat change, it’s a real industry, and there’s a lot of studies out there and data showing that ESG or impact investing can equal or outperform non-impact investments. So I think it’s a huge part of the market these days. That said, one of the things that’s driving it is people’s interest in it. I think that one of the stories of the investment industry has been the personalization of it. People’s portfolios are being tailored to their own needs and circumstances. Impact investing is definitely a piece of that. People are environmentalists, but an institution is not an environmentalist. It doesn’t live and breathe the impact on the environment the way an individual does. The person who is active in the David Suzuki Foundation for example is going to be active as an impact investor and it’s appropriate for them to be.

In Pursuit of Efficiency:

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That’s a great question. I think there's a lot of advantages and you gain a lot with an automated platform. For me, it's a lot easier to manage. I have some of my money in one of these platforms and I barely think about it. It's being rebalanced all the time. The costs are much lower in terms of expense ratio for the same kind of rebalancing. Again you're missing a lot with that, but on just the mechanical portfolio rebalancing you're getting a great deal there. I would say that two other advantages are up-to-the-minute reporting, so you always have that login where you can see your position, see how your portfolio is doing historically. And finally, this is an advantage for me and anyone who doesn't love doing taxes, but typically they’ll take care of your tax forms for you, and end up with much simpler tax forms, so it kind of works out what your cost basis was and how much you have to report.
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CN: So let's talk about the other side of the coin then...what are the risks of not having a seasoned professional managing your money?
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RB: I wouldn’t exactly phrase the question that way. You know it's more what’s the benefits of having a real wealth manager? Some of the clients of robo advisory firms may not even be aware that they're missing out. A wealth manager isn't just balancing your stocks and bonds, that's kind of the very lowest mechanical level of what you get out of the wealth manager. Really they're your advisor on your life. Intimately intertwined with you because you're thinking about retirement planning, on planning for college for your kids, when is the right time to buy a house, and when should you get life insurance, for example. An advisor can help you with all of those decisions and they can connect you with service providers like a mortgage broker when you may be in need of one. So I think that you get a lot of value out of having one of these advisers, particularly when you get to a stage in life when these kinds of services are more about the long-term and your life circumstances are far more critical.
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CN: There are clearly pros and cons and two sides of the story depending on who you're asking. Like you said, what stage of their life they’re in ...but do you think the platforms that we’re seeing emerging like to Qtrade, Wealthsimple, and all the rest will ever become status quo?
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RB: Yeah, I do actually. I think that similarly to how you know we’re using online platforms to automate everything for us (I can’t think of the last time I used to travel for example), everything you’re going to be trying to do with your money is going to be automated, and it’s going to be appropriate to be handled by one of these one of these platforms. In particular, for most people at an early stage in their lives that have few assets to manage, not a lot of complexity, not a very extended personal family circumstance, it’s gonna make a lot of sense to have a low fee robo worry about it. But at some point their life circumstances are going to get more complex and you’re gonna get married, or maybe you’re not, or you may have other objectives that you may want some advice on and at that point it may make sense to either supplement the robo advisory portion of your portfolio, or graduate to a more holistic wealth management view.
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CN: Thank you so much Raph, these answers were great. It’s always insightful chatting with you so thanks for sharing those answers with us today.
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RB: It’s my pleasure.

Author: Chandal Nolasco da Silva

Chandal is Mako's VP of Marketing & Communications. She is a dedicated leader who has spent a decade creating recognized B2B SaaS content marketing and SEO campaigns.

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