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Rob Grein knows firsthand how difficult it can be to put a specific number on the value of financial advice.
As president of PMG Intelligence in Waterloo, Ont., he and his team have spent years developing and refining a model for advisors to give clients an exact measure of the worth of their work.
Mr. Grein spoke with Globe Advisor about the challenges involved in creating PMG’s value of advice and predictive analytics model and how his firm’s data have shown COVID-19 is creating more opportunities for the financial services industry.
What challenges did you face when you were building this model?
The first roadblock that we ran into around 2014-15 was how to define financial success.
There was a feeling within the industry that financial success should mean assets – how much wealth someone has should be a definition of financial success.
When we tested the model against financial success being defined exclusively as the level of wealth, the number of statistically valid or significant relationships that were drawn was minimal, so we had to go back to the drawing board.
How did you end up defining financial success?
What we learned was it was not just assets. There’s also the rate of savings, the incidence of using an advisor, and the receptivity toward receiving advice.
When we combined those four elements together to form an index and then compare that against our big dataset, it was like watching a Christmas tree light up for the first time. We found relationships everywhere.
How did the pandemic change your analysis?
COVID-19 actually changed our world dramatically. Before the pandemic, we didn’t see a lot of change over time.
It was like watching a big cruise ship sail through the ocean, but then COVID-19 hit, and that cruise ship turned into a jet ski. Before, so many decisions were made on autopilot. Those 30,000 or so decisions that we make every day, we don’t even think about them, we don’t even blink, we just act.
Pre-COVID-19, if we could do one thing to help a consumer that would contribute to their financial success and health – helping them understand expense management – was the number one factor. That made sense.
What was really interesting about this model was in late 2021, deep into the pandemic, the whole thing changed. It marked this fundamental change in consumers wanting to understand how these things [financial/retirement planning] work. Consumers today get a little bit further into the weeds.
How can advisors find value from the change in clients?
Before COVID-19, if you were to ask an under 35-year-old, do you have a retirement plan? Usually, the response would be, “Yes, I have an [registered retirement savings plan],” even though that is not really a [retirement] plan.
Whereas today, those under 35 actually want to understand when they save this money, how do I get it back out? The engagement turned upside down.
The level of engagement that we see now as a result of the pandemic is going to affect financial service attrition rates.
The increased and growing relevance of the financial advisor and the role of advice is opening up some wonderful opportunities for financial institutions.
This interview has been edited and condensed.
– Jameson Berkow, Globe Advisor reporter
Must-reads from Globe Advisor this week
Is it time to hold cash in portfolios – or put it to work?
With stock and bond markets undergoing a correction and falling into bear market territory, many advisors and investors are turning to cash in their portfolios. A defensive positioning may also hold some appeal as the risk of economic recession grows. But is holding cash actually a good idea? And if so, what are some strategies for using it effectively? Terry Cain speaks to portfolio managers and strategists who are divided on when to redeploy cash back into the markets as timing the “bottom” remains a risk.
How to invest in commodities, miners key to the energy transition
Miners are moving quickly to ramp up supplies of critical elements needed for the low-carbon energy transition. That means opportunities for investors to benefit from that rapid shift are also rising fast. But right now, there are few critical minerals funds that exist. Experts say more are on the way for those looking for ways to capture the booming demand for commodities seen as crucial to the development of clean technologies. Jameson Berkow reports on the challenges facing the sector and investors.
The important financial steps to take after a spouse dies
Death, while inevitable, is not often predictable, and this can leave many people financially unprepared if their spouse suddenly dies – especially if the deceased was the one who took care of the household balance sheet. Advisors can help prepare clients with the actions they need to make before and after the death of a partner. Daina Lawrence looks at how to financially plan for this life event so that clients are not left in the lurch.
Why direct indexing hasn’t taken off in Canada
Direct indexing is growing in the United States, driven by a demand for customized, tax-efficient portfolios and the rise in fractional shares and zero-commission trading. But advisors in Canada aren’t likely to have any meaningful participation in the method for years to come. Even with the upside of environmental, social and governance stock picking, the cost of the practice plays a big factor in why more advisors haven’t adapted it. Brenda Bouw looks at the pros and cons of direct indexing and why some advisors say exchange-traded funds deliver more value.
How social media is amplifying the market downturn like never before
What to know before agreeing to be an executor of a will
Bonds regain some sparkle after grim reset
Wealth management booms as the rich get richer but markets get choppy
What you and your clients need to know
Why bear markets are gifts for smart investors
Every correction, crash and bear market in stocks is a gift in disguise. Give in to the panic by hitting the sell button and clients can manifest ruinous losses. But treat it as an opportunity and they can set up years’ worth of returns. So, has the current market sell-off gone so far as to become one of those generational opportunities? Tim Shufelt reports on current market conditions and speaks to experts about what lies ahead.
Five ways to calm your mind as interest rates soar
The economy is this year’s edge-of-your-seat summer blockbuster. Threats to our way of life? Rising interest rates play that role, with extra suspense generated by rising concern about a recession. The next six to 12 months will tell the story on how well we maintain our financial equilibrium after the highs and lows of the pandemic. Rob Carrick gives five rules to help guide clients through worries about debt, inflation, housing and more.
How to spend your money in retirement confidently
Many retirees struggle to spend the funds they so carefully put away for retirement, especially after decades of being frugal. Managing in this so-called decumulation stage – especially amid rising inflation and a possible recession on the horizon – requires the same careful planning clients used to create their nest egg. Mary Gooderham looks at strategies from advisors on how to figure out what clients are comfortable spending.
– Globe Advisor Staff