Q&A with Jordy Chilcott,
President & CEO, Dynamic Funds
IT’S OFTEN STATED THAT GETTING FINANCIAL ADVICE PAYS. DO YOU AGREE?
It’s often stated that getting financial advice pays. Do you agree?
Yes. Getting professional advice makes a big difference, especially in times when markets are volatile. Advisers help their clients to define – and stay with – long-term goals, rather than making short-sighted decisions based on emotional reactions. The fundamental philosophy of our business is reflected in our tagline, “Invest with advice,” because we believe that for protecting and building wealth, clients are better off on any reasonable measure when working with an adviser.
What is the evidence for the value of advice?
There is a lot of research that corroborates that people are better off with advice. A study by the Center for Interuniversity Research and Analysis on Organizations (CIRANO), for example, found that advised households save at double the rates of non-advised households, at 8.6 per cent compared to 4.3 per cent. That’s a substantial difference. The same study shows that a household that has worked with a financial adviser for 15 or more years has 2.73 times more assets compared to those without financial advice.
What about the argument that households that engage advisers may have been better off to start with?
That’s a question we wanted to explore, so through the Investment Funds Institute of Canada’s 2015 annual investor survey conducted by Pollara, we asked investors at what point they first started seeking advice. Thirty-nine per cent of survey respondents said they had less than $10,000 when they first started using an adviser.
So you recommend getting advice early on?
I believe that people should seek advice that is appropriate for their age and financial circumstances, which may initially be very simple. As their assets grow, they will move up on the advice continuum. But at every level, consumers should make sure they are getting the appropriate value rather than buying into the “cheaper is better” argument. They should focus on the outcome.
Robo-advice – where does it fit on the investment continuum?
If we believe in advice, we have to acknowledge Robo-advice as a form of it. It fits somewhere on the continuum between doing it yourself – which I don’t recommend – and full-service advice. As an online service that provides automated, algorithm-based portfolio management advice, Robo-advice can be a valuable first step. It’s relatively small today. While I believe Robo-advice will grow and evolve, I don’t think it will replace interactions with human advisers for more complicated needs.
What is your view on active management versus passive strategy?
It doesn’t have to be one or the other – a client can have both actively managed investments and passive investments in their portfolio. The conversation with a financial adviser about what kind of return is envisioned and what the client’s risk tolerance is will determine what strategies are right for their unique needs.
What should consumers know about active management?
Real active management outperforms most of the time, but most does not mean all. The real question advisers can help to answer for consumers is whether managers are actually active rather than what the industry calls “closet indexers.” Closet indexers charge an active fee, but their portfolios are very similar to the benchmark portfolio. There is a measure that a number of firms use – called Active Share – that evaluates the percentage of stock holdings in a manager’s portfolio that differ from the benchmark index. In Canada, if more than 60 per cent of your return is made up of individual securities that aren’t represented in the benchmark, you’d start to get in the range of what would qualify as legitimately active management.
Can you give an example of how companies are working to deliver value to customers?
As a manufacturer, Dynamic Funds has invested in implementing fixed administration fees across our lineup, a model that provides the end consumer with some cost certainty. By focusing our efforts on growing our fee-based series over recent years, we are recognized as a leader in product pricing. And when it comes to supporting the advice channel, we have an award-winning “Snapshots” program that offers tools for the myriad of life events clients may go through such as marriage, birth of a child, children’s education, divorce and death of a spouse. We support advisers with their client interactions as they experience these real life events.
What can you say about the investment funds industry in Canada?
From what I have observed in the 30 years I’ve been in the business, the standards for advisers in Canada have improved – and will continue to improve – as a result of regulatory changes. Due to stringent requirements, we not only have access to high-quality advice – we also have a well-regulated industry both on the manufacturing and the distribution end of the business. That’s something Canadians can be proud of.