The culture of large asset gatherers (banks) is very different to small advisory firms. Often both will have some very good people working for them, but generally front line staff in the larger institutions won’t have any say over policy or procedure.
As a small business owner, my clients talk to the Managing Director every day. I have a vested interest in their success. There are no bonuses if sales take precedence over prudent advice, indeed there is a contingent liability if we’re not delivering the best solutions and you simply cannot leave a problem behind or pass it on to someone else. My business relies on good outcomes for our “client”. “Customers” won’t roll through the door every day indeed, we pick them as much as much as they pick us. It’s personal, the advice and the service.
Our business is successful because we tailor our approach to asset selection & portfolio management. We access many of the same tools and research channels as the bigger institutions. We attend the same conferences and lectures, but we can differentiate and capture diverse solutions from different suppliers. We can pick the "best in class", without compromise.
Recently I read a report from one of the big four banks, which conveyed data about their most popular investment fund. The managed fund in question has $561 million under management and there are 2,360 investors. The average balance: $240,000 (talk about “one size fits all”!).
Like an old Model T Ford, their investors can have any colour they like, as long as it’s black!
Staying with the car analogy, would you rather an Audi, BMW, Holden, Ford or Skoda? What’s the price/quality point? The price you pay for an Audi is likely a lot more than the Skoda. Is quality better in the Audi? Unlike motor cars, financial instruments/platforms largely cost the same to buy and run, so as investors, why would we limit ourselves to a Skoda, when for the same money, we could have the Audi? P.S. Skoda and Audi are made by the same company.
Most bank-managed investment funds will do no harm because fundamentally, they’ll be moderate. It’s less important to a bank to be first, than to be worse than the next bank. When customers leave the bank, they tend to take all their business so it’s “safer” to be “average”.
I work for clients. As the business owner, my skin is in their game. If we lose a client, I take it personally. To be fair, we don’t lose clients because we put them first. We’re small, boutique and intimate. It’s about personal relationships and working hard to always deliver the best option.
If a particular institution’s Managed Fund is judged to be the best in its class, then the independent financial advisor will have little hesitation investing in that same fund. If the advisor is tied to a particular brand, this may limit what they can do - which is not to say that tied financial advisors won’t do their best, but their options are limited. If as a profession we are committed to putting our client’s interests first, how is that best done if you can’t be independent?
Big institutions are a valuable part of the financial advisory world, but they are the Model T Ford. They are usually a cookie cutter and their solutions are entirely appropriate for a section of the community, especially those getting started. But, there comes time when we each want a better vehicle, where it can be purpose built and tailor-made to what we want and need.
Only good advice should be dispensed by a qualified and competent adviser in NZ, irrespective of where or for whom they work. Being independent means we try to meet our client’s needs from the available solutions… and in our experience, it just works better.
Tony Munro CFP AFA
The views and opinions expressed in this article are intended to be of a general nature and do not constitute personalised advice for an individual client.
A disclosure statement is available on request and free of charge.