November 3, 2015 – Where are you on your Investment Advisor’s call list?

Zoning in on your Investment Advisor’s Call List?

Are you Zone 1 or Zone 5?

A Call List is your advisor’s clients sorted in order of priority of who they call when they need to make a change in investments.

Generally, like boarding an airplane, Investment Advisors call their top clients first (Zone 1) and then proceed through their list until their last client is reached (Zone 5). They have to call to explain the reason a change is needed in your investments, the benefits such a change will bring, disclose fees and charges to do so, and document your permission to make the change.

The average traditional Investment Advisor services 200 families. Mutual fund sales people and insurance advisors have even more families to reach.

So, your advisor has to contact each client, which in itself can be a daunting task.

Many clients are travelling, in meetings, or otherwise unavailable to reach in the short term. But imagine that in a perfect world the average advisor could reach all 200 families because these families are sitting by the phone waiting for the advisor to call. Assume the advisor speaks with each family for only 6 minutes each. It would still take 20 hours to reach all 200 families.

That is achievable but highly unlikely. More often than not the client is busy, voice mail is left, the client may not pick up the voice mail for hours or even days, and they call back and, with most firms, get voicemail at their advisor’s office. This “voice mail tag” continues until both are coincidentally available and a discussion ensues.

In the distant past, my clients would usually want to think about my recommendations for a while, consult their other advisors or friends or do research on their own, then return to voice mail tag until they got back to me. Remember, Investment Advisors advise but the ultimate decision on your investments is made by you. This causes stress on you, the client, and something more.

It causes missed opportunities and, in some instances, losses in your account.

But before getting into consequences, get some background from your own advisor first.

Ask these three questions:

  • How many clients do you have?
  • Where am I on the priority call list? Am I Zone 1 or in a later Zone
  • What criteria did you use to place me in priority on that list?

The answers to these three questions will tell you a lot about your relationship with your advisor.

First, most advisors do not know how many clients they have so don’t be surprised when they say “ I have about X number of clients”. Let me be clear: our business is highly regulated and we have to know details about each and every client to the point that we must attest to each client’s investment knowledge, risk tolerance and investment objectives. So “about X number” is not an intelligent answer.

However, be impressed if your advisor knows the actual number. That would indicate that your advisor is on top of their game, at least to some extent.

Second, if your advisor says “you are in the top 20” then rejoice because your advisor’s top 20 is the cream of the crop of their book. With all the constraints on their time, most investment advisors concentrate on their top 20 clients first and foremost.

Now comes the third question: “What criteria did you use to place me in priority on that list?”

Here is where the rubber hits the road. Here is where you can sort out really good sales people from true, disciplined advisors.

A salesperson will provide an answer that appeals to your heart. A true, disciplined advisor will provide an answer that appeals to your logical mind.

An example of a salesperson’s reply is “You have been a client for a long time and I count you as a friend so you are always one of the first I call.”

Think about that for a moment. We are in a business where many advisors establish their practice by calling up all their friends and all their relatives to open accounts. Advisors books are loaded with friends and relatives. I have literally lost out on obtaining a new client because a prospective client said to me “I love your approach and my current advisor is an idiot but he is my son’s best friend.”

So there are more than 20 friends and relatives in the average advisor’s client list and there is no way all these clients can be in the top 20 just because they are good friends.

The true answer is when your advisor says: “You are in my top 20 in terms of assets or revenue with me.” Think about it from the advisor’s point of view. There are only so many hours in the day, so many phone calls that can be made, and the month end is coming up and there is a mortgage payment to be made and a child who needs braces. How can you make the least number of phone calls and generate the most revenue?

They call their Zone 1 first – their top 20.

But what if you are authentically not in the top 20? What about the other 180 plus clients?

Well, they get a call after the top 20 do. If you are average for your advisor you are the 100th to be called. This is important because you have to ask did your investment get sold at the same price and new investment bought at the same price as the top 20 did? Or do you get the same prices as the 50th call that was made? And what about the 150th client? What prices did Zone 4 get? And by the time those in Zone 5 were called, did the change even make sense by that time?

The larger issue is whether this is the best way to treat everyone? Your account may not be as large or as important to your advisor as an account in the top 20 but it is vitally important to you. Is this a fair way to treat you?

Some investors have said “I am in a balanced fund so I do not have to worry.” Really? Did you see what happened to balanced funds in the 1998, 2000 to 2003 and the 2008 crash? They still fell a lot.

Others have said “I have given my advisor discretion to make changes to protect me if the market starts to fall.”

But there is a problem with this.

A full 96% of advisors in Canada cannot accept this instruction from you and, unfortunately, the only time you find out that this instruction cannot be carried out by your advisor is AFTER there is a big decline in your account.

See, only 4% (yes, that is four percent) of advisors in Canada are licensed to accept this instruction. Such advisors have the Portfolio Manager designation and this designation is incredibly hard to get. Further, you must sign an Investment Management Agreement to open this particular type of account. Part of this agreement is the flat fee schedule. This means that your Portfolio Manager cannot increase their fees by increasing trades in your account.

To be clear: Only Portfolio Managers can operate this type of account. This discretionary account allows them to buy and sell in your account at their discretion.

In addition to being very difficult accreditations to get, Portfolio Managers are more closely supervised.

The advantage to you is that there is no call list for Portfolio Managers. Because they are governed by the Fairness Rule, they have to treat all clients fairly. Every client is in Zone 1. Every client has to have their investments bought and sold at the exact same time and at the same price.

Zone 1 treatment also includes full disclosures of all fees, reporting requirements showing Personal Rate of Return to Inception and for the last twelve months, and imposition of the Fiduciary Duty.

I will write more on the Fiduciary Duty in a later article. Suffice it to say your lawyer, doctor and accountant have a fiduciary duty to act in your best interests and a Portfolio Manager is the only investment advisor in our industry having the same high standard.

But let’s not get too complicated here. For now ask your advisor about their Call List and what your number is.

Could make for an interesting conversation.

This article was prepared solely by Larry Short who is a registered representative of HollisWealth®, a division of Industrial Alliance Securities Inc. (iA Securities), a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC).The views and opinions, including any recommendations, expressed in this article are those of Larry Short alone and not those of HollisWealth®

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Larry Short

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Portfolio Manager, Executive Director, Private Client Group

HollisWealth, a division of Industrial Alliance Securities Inc.

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Hollis Insurance Inc.

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HollisWealth® is a division of Industrial Alliance Securities Inc. (iA Securities), a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC). iA Securities is a trade name and business name under which Industrial Alliance Securities Inc. operates. This information has been prepared by Larry Short, Portfolio Manager for HollisWealth®, a division of iA Securities, and does not necessarily reflect the opinion of iA Securities. The information contained in this document comes from sources we believe to be reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces where he is registered. For more information about HollisWealth®, please consult the official website at www.holliswealth.com . ShortFinancial is a personal trade name of Larry Short.

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